Sr.

No Name of Student Roll Marks

No.

1. Vijay shinde 29

2. Brijet Almeida 01

3. Darshan Asgaonkar 02

4. Archana Lingade 15

5. Aruna Sudapalli 32
 DECLARAION

I hereby declare that this work entitled “Growth and

development in insurance market” is our work carried out

under the guidance of my faculty guide Mr. Keith lewis and

my company guide Mr. Jignesh Madhavani. This report

neither full nor in past has ever been submitted for award

of any other degree of either this University or any other

University.

INTRODUCTION

Insurance = Collective bearing of Risk

 Insurance is nothing but a system of spreading the risk of one onto the
shoulders of many. While it becomes somewhat impossible for a man to bear
by himself 100% loss to his own property or interest arising out of an
unforeseen contingency, insurance is a method or process which distributes
the burden of the loss on a number of persons within the group formed for this
particular purpose.

Basic Human trait is to be averse to the idea of risk taking. Insurance,

whether life or non-life, provides people with a reasonable degree of security
and assurance that they will be protected in the event of a calamity or failure of
any sort.

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.

Insurance Indemnifies Assets & Income.

Every Asset has a value and generates Income to its Owner. There is a
normally expected Life-time for the Asset during which time it is expected to
perform. If the Asset gets lost earlier, being destroyed or made Non-functional
through an Accident or other unfortunate event the Owner is Prejudiced.
Insurance helps to reduce CONSEQUENCES of such Adverse Circumstances
which are called Risks

Insurance is the science of spreading of the risk.

It is the system of spreading the losses of an Individual over a group of
Individuals

Insurance is a Method of sharing of financial losses

of a few from a common fund formed out of Contribution of the many
who are equally exposed to the same loss
What is uncertainty for an Individual becomes a certainty for a Group. This is
the basis of All Insurance Operations. Thus insurance convert uncertainties to
certainty

DEFINITIONS

The definition of insurance can be made from two points:

Functional definition.
Contractual definition.
Functional definition

Insurance is a co-operative device to spread the loss caused by a particular

risk over a number of persons who are exposed to it and who agree to insure
themselves against the risk.

General Definition
Insurance has been defined to be that in which a sum of money as a premium
is paid in consideration of the insurer’s incurring the risk of paying a large sum
upon a given contingency.
In the words of John Magee, “Insurance is a plan by themselves
which large number of people associate and transfer to the shoulders of all,
risks that attach to individuals.”

Fundamental Definition
In the words of D.S. Hansell, “Insurance 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.”

HISTORY OF INSURANCE
Worldwide History
To talk about the insurance companies, insurance in modern form had
occurred after the Great Fire in London in 1666 which destroyed myriad
houses. Nicholas Barbon, following the disaster, had established England's
first fire insurance company (The Fire Office) in1680. In the United States, the
first insurance company which provided fire insurance was formed in South
Carolina; in 1732.The practice of perpetual insurance against fire was
popularized by Benjamin Franklin. In 1752, he founded the Philadelphia
Contribution ship for the Insurance of Houses. In India, the Oriental Life
Insurance Company was started in 1818 by Europeans, much before
independence. The first indigenous insurance company in India was started in
the year 1870 in the form of Bombay Mutual Life Assurance Society.

Babylonia
The roots of insurance might be traced to Babylonia, where traders were
encouraged to assume the risks of the caravan trade through loans that were
repaid (with interest) only after the goods had arrived safely—a practice
resembling bottomry and given legal force in the Code of Hammurabi (c.2100
B.C.). The Phoenicians and the Greeks applied a similar system to their
seaborne commerce. The Romans used burial clubs as a form of life insurance,
providing funeral expenses for members and later payments to the survivors.

Europe
With the growth of towns and trade in Europe, the medieval guilds
undertook to protect their members from loss by fire and shipwreck, to ransom
them from captivity by pirates, and to provide decent burial and support in
sickness and poverty

London
In London, Lloyd's Coffee House (1688) was a place where merchants,
ship-owners, and underwriters met to transact business. By the end of the
18th cent. Lloyd's had progressed into one of the first modern insurance
companies. In 1693 the astronomer Edmond Halley constructed the first
mortality table, based on the statistical laws of mortality and compound
interest. The table, corrected (1756) by Joseph Dodson, made it possible to
scale the premium rate to age; previously the rate had been the same for all
ages.

New York City

The New York fire of 1835 called attention to the need for adequate
reserves to meet unexpectedly large losses; Massachusetts was the first state to
require companies by law (1837) to maintain such reserves. The great Chicago
fire (1871) emphasized the costly nature of fires in structurally dense modern
cities. Reinsurance, whereby losses are distributed among many companies,
was devised to meet such situations and is now common in other lines of
insurance. The Workmen's Compensation Act of 1897 in Britain required
employers to insure their employees against industrial accidents. Public
liability insurance, fostered by legislation, made its appearance in the 1880s; it
attained major importance with the advent of the automobile
In recent years insurance premiums (particularly for liability policies) have
increased rapidly, leaving unprecedented numbers of Americans uninsured.
Many blame the insurance conglomerates, contending that U.S. citizens are
paying for bad risks made by the companies. Insurance companies place the
burden of guilt on law firms and their clients, who they say have brought
unreasonably large civil suits to court, a

trend that has become so common in the United States that legislation has
been proposed to limit lawsuit awards. Catastrophic earthquakes, hurricanes,
and wildfires in late 1980s and the 90s have also strained many insurance
company's reserves.

Insurance Indian history

The history of life insurance in India dates back to 1818 when it was
conceived as a means to provide for English Widows. Interestingly in those
days a higher premium was charged for Indian lives than the non-Indian lives
as Indian lives were considered more riskier for coverage.
The Bombay Mutual Life Insurance Society started its business in 1870. It was
the first company to charge same premium for both Indian and non-Indian
lives. The Oriental Assurance Company was established in 1880. The General
insurance business in India, on the other hand, can trace its roots to the Triton
(Tital) Insurance Company Limited, the first general insurance company
established in the year 1850 in Calcutta by the British. Till the end of
nineteenth century insurance business was almost entirely in the hands of
overseas companies.
Insurance regulation formally began in India with the passing of the Life
Insurance Companies Act of 1912 and the provident fund Act of 1912. Several
frauds during 20's and 30's sullied insurance business in India. By 1938 there
were 176 insurance companies. The first comprehensive legislation was
introduced with the Insurance Act of 1938 that provided strict State Control
over insurance business. The insurance business grew at a faster pace after
independence. Indian companies strengthened their hold on this business but
despite the growth that was witnessed, insurance remained an urban
phenomenon.
The Government of India in 1956, brought together over 240 private life
insurers and provident societies under one nationalized monopoly corporation
and Life Insurance Corporation (LIC) was born. Nationalization was justified on
the grounds that it would create much needed funds for rapid industrialization.
This was in conformity with the Government's chosen path of State lead
planning and development.
The (non-life) insurance business continued to thrive with the private sector till
1972. Their operations were restricted to organized trade and industry in large
cities. The general insurance industry was nationalized in 1972. With this,
nearly 107 insurers were amalgamated and grouped into four companies-
National Insurance Company, New India Assurance Company, Oriental
Insurance Company and United India Insurance Company. These were
subsidiaries of the General Insurance Company (GIC).
The general insurance business was nationalized after the promulgation of
General Insurance Business (Nationalizations) Act, 1972. The post-
nationalization general insurance business was undertaken by the General
Insurance Corporation of India (GIC) and its 4 subsidiaries:
Oriental Insurance Company Limited;
New India Assurance Company Limited;
National Insurance Company Limited; and
United India Insurance Company Limited.

Some of the important milestones in the life insurance

business in India are:

1850: Non life insurance debuts with triton insurance company.

1870 :Bombay mutual life assurance society is the first Indian owned life
insurer

1912:The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.

1928 :The Indian Insurance Companies Act enacted to enable the government
to collect statistical information about both life and non-life insurance
businesses.

1938: Earlier legislation consolidated and amended to by the Insurance

Act with the objective of protecting the interests of the insuring public.

1956:245 Indian and foreign insurers and provident societies taken over by the
central government and nationalized. LIC formed by an Act of Parliament, viz.
LIC Act, 1956, with a capital contribution of Rs. 5 Crore from the Government
of India.

The General insurance business in India, on the other hand, can trace
its roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general

insurance business in India are:
1907 The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance of India.
1957 General Insurance Council, a wing of the Insurance Association of
India, frames a code of conduct for ensuring fair conduct and sound business
practices.
1968 The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.
1972 The General Insurance Business (Nationalization) Act, 1972
nationalized the general insurance business in India with effect from 1st
January 1973. 107 insurers amalgamated and grouped into four companies’
viz. the National Insurance Company Ltd., the New India Assurance Company
Ltd., the Oriental Insurance Company Ltd. and the United India Insurance
Company Ltd. GIC incorporated as a company.

Malhotra Committee

In 1993, Malhotra Committee- headed by former Finance Secretary and

RBI Governor R.N. Malhotra- was formed to evaluate the Indian insurance
industry and recommend its future direction. The Malhotra committee was set
up with the objective of complementing the reforms initiated in the financial
sector. The reforms were aimed at creating a more efficient and competitive
financial system suitable for the requirements of the economy keeping in mind
the structural changes currently underway and recognizing that insurance is
an important part of the overall financial
System where it was necessary to address the need for similar reforms. In
1994, the committee submitted the report and some of the key
recommendations included:

i) Structure
Government should take over the holdings of GIC and its subsidiaries so
that these subsidiaries can act as independent corporations. All the insurance
companies should be given greater freedom to operate.

ii) Competition
Private Companies with a minimum paid up capital of Rs.1bn should be
allowed to enter the sector. No Company should deal in both Life and General
Insurance through a single entity. Foreign companies may be allowed to enter
the industry in collaboration with the domestic companies.
Postal Life Insurance should be allowed to operate in the rural market. Only
one State Level Life Insurance Company should be allowed to operate in each
state.

iii) Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should
be set up. Controller of Insurance- a part of the Finance Ministry- should be
made independent

iv) Investments
Mandatory Investments of LIC Life Fund in government securities to be
reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than
5% in any company (there current holdings to be brought down to this level
over a period of time)

v) Customer Service
LIC should pay interest on delays in payments beyond 30 days. Insurance
companies must be encouraged to set up unit linked pension plans.
Computerization of operations and updating of technology to be carried out in
the insurance industry
The committee emphasized that in order to improve the customer
services and increase the coverage of insurance policies, industry should be
opened up to competition. But at the same time, the committee felt the need to
exercise caution as any failure on the part of new players could ruin the public
confidence in the industry.

The committee felt the need to provide greater autonomy to insurance

companies in order to improve their performance and enable them to act as
independent companies with economic motives. For this purpose, it had
proposed setting up an independent regulatory body- The Insurance Regulatory
and Development Authority.

Reforms in the Insurance sector were initiated with the passage of the
IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as
a statutory body in April 2000 has fastidiously stuck to its schedule of framing
regulations and registering the private sector insurance companies. Since being
set up as an independent statutory body the IRDA has put in a framework of
globally compatible regulations. The other decision taken simultaneously to
provide the supporting systems to the insurance sector and in particular the
life insurance companies was the launch of the IRDA online service for issue
and renewal of licenses to agents. The approval of institutions for imparting
training to agents has also ensured that the insurance companies would have a
trained workforce of insurance agents in place to sell their products.

Insurance Market Present

 The insurance sector was opened up for private participation four years
ago. For years now, the private players are active in the liberalized
environment. The insurance market have witnessed dynamic changes which
includes presence of a fairly large number of insurers both life and non-life
segment. Most of the private insurance companies have formed joint venture
partnering well recognized foreign players across the globe.

PURPOSE OF INSURANCE

Insurance spreads the economic burden of losses by using funds

contributed by members of the group to pay for them. Thus, it is a loss
spreading device.

The fundamental purpose of insurance however is neither the spreading

nor the prevention of losses. Rather, it is reduction of the uncertainty which is
caused by awareness of the possibility of loss.

An insurance scheme provides certainty for the individual members of

the group by averaging loss costs. The contribution made by the individual to
the group is assumed, on the basis of predictions, to be his share of losses
suffered by the group.

In exchange for this contribution, he is assured that the group will

assume any losses that involve him. He transfers his risk to the group and
averages his loss costs, thus substituting certainty for uncertainty. He pays a
certain premium instead of facing the uncertainty of the possibility of large
loss.

FUNCTION OF INSURANCE

The functions of Insurance can be bifurcated into three parts:

1. Primary Functions
2. Secondary Functions
3. Other Functions

The primary functions of insurance include the following:

Provide Protection
 The primary function of insurance is to provide protection against future
risk, accidents and uncertainty. Insurance cannot check the happening of the
risk, but can certainly provide for the losses of risk.

Collective bearing of risk

Insurance is a mean by which few losses are shared among larger
number of people. All the insured contribute the premiums towards a fund and
out of which the persons Exposed to a particular risk is paid.

Assessment of risk
Insurance determines the probable volume of risk by evaluating various
factors that give rise to risk. Risk is the basis for determining the premium rate
also. .

Provide Certainty
Insurance is a device, which helps to change from uncertainty to
certainty. Insurance is device whereby the uncertain risks may be made more
certain.

Research and publicity

Insurers also spend money in research and publicity in creating risk
consciousness amongst which has a far reaching effect on reduction in
national waste.The secondary functions of insurance include the following:

Prevention of Losses
Prevention of losses causes lesser payment to the assured by the insurer
and this will encourage for more savings by way of premium. Reduced rate of
premiums stimulate for more business and better protection to the insured.

Small capital to cover larger risks

Insurance relieves the businessmen from security investments, by paying
small amount of premium against larger risks and uncertainty.

Contributes towards the development of larger industries

Insurance provides development opportunity to those larger industries
having more risks in their setting up. Even the financial institutions may be
prepared to give credit to sick industrial units which have insured their assets
including plant and machinery.

If improves efficiency
The insurance eliminates worries and miseries of loans at death and
destruction of property. The carefree person an devote his body and soul
together for better achievement. It improves not only his efficiency, but the
efficiencies of the masses are also advanced.
It helps economic progress
The insurance by protecting the society from huge losses of damage,
destruction and death, provides an initiative to work hard for the betterment of
the masses. The next factor of economic progress. The capital is also
immensely provided by the masses. The property, the valuable assets, the man,
the machine and the society cannot lose much at the disaster.

The other functions of insurance include the following:

Means of savings and investment

Insurance serves as savings and investment, insurance is a compulsory
way of savings and it restricts the unnecessary expenses by the insured's For
the purpose of availing income-tax exemptions also, people invest in insurance.

Source of earning foreign exchange

Insurance is an international business. The country can earn foreign
exchange by way of issue of marine insurance policies and various other ways.

Risk Free trade

Insurance promotes exports insurance, which makes the foreign trade
risk free with the help of different types of policies under marine insurance
cover.

NATURE OF INSURANCE

Sharing of risk
Insurance is a device to share the financial losses which might be fall on
an individual or his family on the happening of specified event. The event may
be death, incase of life insurance, marine perils, marine insurance, fire in fire
insurance and other certain events in general insurance.

Co-operative Device
The most important feature of every insurance plan is the co-operation of
large number of persons who, agree to share the financial loss arising due to a
particular risk which is insured. All co-operative devices, there is no
compulsion here on anybody to purchase the insurance policy.

Value of risk
 The risk is evaluated before inuring to charge the amount of share of an
insured, here is called, consideration or premium. If there is expectation of
more loss, higher premium may be charged. So, the probability of loss is
calculated at the time of insurance.

Payment at Contingency
The payment is made at a certain contingency insured. If the contingency
occurs, payment is made. Since the life insurance is a contract of certainty,
because the contingency, the death or the expiry of term, will certainly occur,
the payment is certain.

Amount of payment
The amount of payment depends upon the value of loss occurred due to
the particular insured risk provided insurance is there up to that amount. In
case of life insurance, the insurer promises to pay a fixed sum on the
happening of an even. (Either death or the expiry of the term).

Large number of insured persons

The co-operation of a small number of persons may also be insurance
but in that case, the cost of insurance to each number may be higher. In case
of large number of persons opposite condition is applicable.

Insurance is not gambling

The insurance is just opposite of gambling. In gambling by bidding the
persons exposes himself to risk of losing ,in the insurance the insured is
always opposed to risk and will suffer loss if he is not insured.

Insurance is not charity

Charity is given without consideration but security and safety provided
by insurance is not possible without consideration or premium. It provides
security and safety to an individual and to the society although it is a kind of
business because inconsideration of premium it guarantees the payment of
loss.
 PRINCIPLE OF INSURANCE
Principles of Co-operation.

Insurance is co-operative device. If one person is providing for his own

losses, it cannot be strictly insurance because in insurance, the loss is shared
by a group of persons who are willing to co-operate. It is the duty and
responsibility of the insurer to obtain adequate funds from the members of the
society to pay them at the happening of the insured risk. Thus, the shares of
loss took the form of premium. Today, all the insured

give a premium to join the scheme of insurance. Thus, the insured are co-
operating to share the loss of an individual be payment of a premium in
advance.

Principles of Probability

The loss in the shape of premium can be distributed only on the basis of
theory of probability. The chances of loss are estimated in advance to affix the
amount of premium. Since the degree of loss depends upon various factors, the
affecting factors are analyzed before determining the amount of loss. With the
help of this principle, the uncertainty of loss is converted into certainty. The
insurer will have not to suffer loss as well have to gain windfall. Therefore, the
insurer has to charge only so much of amount which is adequate to meet the
loss. The probability tells what the chances of loss are and what will be the
amount of losses.

The insurance, on the basis of past experience, present conditions and future
prospects, fixes the amount of premium. Without premium, no-operation is
possible and the premium can not be calculated without the help of theory of
probability, and consequently no insurance is possible. So, these two principles
are the two main legs of insurance.

FORMATION OF INSURANCE REGULATION AND DEVELOPMENT

AUTHORITY ACT

The Insurance Act, 1938 had provided for setting up of the Controller of
Insurance to act as a strong and powerful supervisory and regulatory authority
for insurance. Post nationalization, the role of Controller of Insurance
diminished considerably in significance since the Government owned the
insurance companies. But the scenario changed with the private and foreign
companies foraying in to the insurance sector. This necessitated the need for a
strong, independent and autonomous Insurance Regulatory Authority was felt.
As the enacting of legislation would have taken time, the then Government
constituted through a Government resolution an Interim Insurance Regulatory
Authority pending the enactment of a comprehensive legislation.
The Insurance Regulatory and Development Authority Act, 1999 is an act to
provide for the establishment of an Authority to protect the interests of holders
of insurance policies, to regulate, promote and ensure orderly growth of the
insurance industry and for matters connected therewith or incidental thereto
and further to amend the Insurance Act, 1938, the Life Insurance Corporation
Act, 1956 and the General insurance Business (Nationalization) Act, 1972 to
end the monopoly of the Life Insurance Corporation of India (for life insurance
business) and General Insurance Corporation and its subsidiaries (for general
insurance business).

The act extends to the whole of India and will come into force on such
date as the Central Government may, by notification in the Official Gazette
specify. Different dates may be appointed for different provisions of this Act.
The Act has defined certain terms; some of the most important ones are as
follows appointed day means the date on which the Authority is established
under the act. Authority means the established under this Act.
Interim Insurance Regulatory Authority means the Insurance Regulatory
Authority set up by the Central Government through Resolution No. 17(2)/ 94-
lns-V dated the 23rd January, 1996. Words and expressions used and not
defined in this Act but defined in the Insurance Act, 1938 or the Life Insurance
Corporation Act, 1956 or the General Insurance Business (Nationalization) Act,
1972 shall have the meanings respectively assigned to them in those Acts. A
new definition of "Indian Insurance Company" has been inserted. "Indian
insurance company" means any insurer being a company
which is formed and registered under the Companies Act, 1956
(b) in which the aggregate holdings of equity shares by a foreign company,
either by itself or through its subsidiary companies or its nominees, do not
exceed twenty-six per cent. Paid up capital in such Indian insurance
company (c) whose sole purpose is to carry on life insurance business, general
insurance business or re-insurance business.

Capital requirement and foreign participation.

Minimum capital requirement for direct life and Non-life Insurance

company is INR1000 million and that for reinsurance company is INR2000
million. A maximum 26% foreign equity stake is allowed in direct insurance
and reinsurance companies. In the 2004-05 budget, the Government proposed
for increasing the foreign equity stake to 49%, this is yet to be effected. There
are currently fourteen non-life insurance companies, out of which two are
specialized Insurance companies viz. Agricultural Insurance Co, who handles
Crop Insurance business and Export Credit Guarantee Corporation which only
transacts export Credit Insurance. There are a total of 13 life insurance
companies operating in India, of which one is a Public Sector Undertaking and
the balance 12 are Private Sector Enterprises.

Fifth largest number of life insurance policies in force in the world,

Insurance happens to be a mega opportunity in India. It’s a business growing
at the rate of 15-20 per cent annually and presently is of the order of Rs 450
billion. Together with banking services, it adds about 7 per cent to the
country’s GDP. Gross premium collection is nearly 2 per cent of GDP and
funds available with LIC for investments are 8 per cent of GDP.
Yet, nearly 80 per cent of Indian population is without life insurance cover
while health insurance and non-life insurance continues to be below
international standards. And this part of the population is also subject to weak
social security and pension systems with hardly any old age income security.
This itself is an indicator that growth potential for the insurance sector is
immense.
A well-developed and evolved insurance sector is needed for
economic development as it provides long term funds for infrastructure
development and at the same time strengthens the risk taking ability. It is
estimated that over the next ten years India would require investments of the
order of one trillion US dollar. The Insurance sector, to some extent, can enable
investments in infrastructure development to sustain economic growth of the
country.
Insurance is a federal subject in India. There are two legislations that
govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. The
insurance sector in India has come a full circle from being an open competitive
market to nationalisation and back to a liberalised market again. Tracing the
developments in the Indian insurance sector reveals the 360 degree turn
witnessed over a period of almost two centuries.

Insurance Sector Reforms

In 1993, Malhotra Committee- headed by former Finance Secretary and

RBI Governor R.N. Malhotra- was formed to evaluate the Indian insurance
industry and recommend its future direction.The Malhotra committee was set
up with the objective of complementing the reforms initiated in the financial
sector. The reforms were aimed at creating a more efficient and competitive
financial system suitable for the requirements of the economy keeping in mind
the structural changes currently underway and recognising that insurance is
an important part of the overall financial system where it was necessary to
address the need for similar reforms. In 1994, the committee submitted the
report and some of the key recommendations included:
i) Structure Government stake in the insurance Companies to be brought
down to 50%. Government should take over the holdings of GIC and its
subsidiaries so that these subsidiaries can act as independent corporations. All
the insurance companies should be given greater freedom to operate.

ii) Competition Private Companies with a minimum paid up capital of

Rs.1bn should be allowed to enter the sector. No Company should deal in both
Life and General Insurance through a single entity. Foreign companies may be
allowed to enter the industry in collaboration with the domestic companies.
Postal Life Insurance should be allowed to operate in the rural market. Only
one State Level Life Insurance Company should be allowed to operate in each
state.

iii) Regulatory Body The Insurance Act should be changed. An Insurance

Regulatory body should be set up. Controller of Insurance- a part of the
Finance Ministry- should be made independent

iv) Investments Mandatory Investments of LIC Life Fund in government

securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to
hold more than 5% in any company (there current holdings to be brought down
to this level over a period of time)

v) Customer Service LIC should pay interest on delays in payments beyond

30 days. Insurance companies must be encouraged to set up unit linked
pension plans. Computerisation of operations and updating of technology to be
carried out in the insurance industry.

The committee emphasised that in order to improve the customer

services and increase the coverage of insurance policies, industry should be
opened up to competition. But at the same time, the committee felt the need to
exercise caution as any failure on the part of new players could ruin the public
confidence in the industry. Hence, it was decided to allow competition in a
limited way by stipulating the minimum capital requirement of Rs.100 crores.

The committee felt the need to provide greater autonomy to insurance

companies in order to improve their performance and enable them to act as
independent companies with economic motives. For this purpose, it had
proposed setting up an independent regulatory body- The Insurance Regulatory
and Development Authority.
Reforms in the Insurance sector were initiated with the passage of the IRDA
Bill in Parliament in December 1999. The IRDA since its incorporation as a
statutory body in April 2000 has fastidiously stuck to its schedule of framing
regulations and registering the private sector insurance companies. Since being
set up as an independent statutory body the IRDA has put in a framework of
globally compatible regulations.
RESENT SCENARIO:

The Government of India liberalised the insurance sector in March 2000

with the passage of the Insurance Regulatory and Development Authority
(IRDA) Bill, lifting all entry restrictions for private players and allowing foreign
players to enter the market with some limits on direct foreign ownership.
Under the current guidelines, there is a 26 percent equity cap for foreign
partners in an insurance company. There is a proposal to increase this limit to
49 percent.

The opening up of the sector is likely to lead to greater spread and

deepening of insurance in India and this may also include restructuring and
revitalizing of the public sector companies. In the private sector 12 life
insurance and 8 general insurance companies have been registered. A host of
private Insurance companies operating in both life and non-life segments have
started selling their insurance policies since 2001.

Non-Life Insurance Market

In December 2000, the GIC subsidiaries were restructured as

independent insurance companies. At the same time, GIC was converted into a
national re-insurer. In July 2002, Parliamant passed a bill, delinking the four
subsidiaries from GIC.
Presently there are 12 general insurance companies with 4 public sector
companies and 8 private insurers. Although the public sector companies still
dominate the general insurance business, the private players are slowly gaining
a foothold. According to estimates, private insurance companies have a 10
percent share of the market, up from 4 percent in 2001. In the first half of
2002, the private companies booked premiums worth Rs 6.34 billion. Most of
the new entrants reported losses in the first year of their operation in 2001.
With a large capital outlay and long gestation periods, infrastructure projects
are fraught with a multitude of risks throughout the development, construction
and operation stages. These include risks associated with project
implementaion, including geological risks, maintenance, commercial and
political risks. Without covering these risks the financial institutions are not
willing to commit funds to the sector, especially because the financing of most
private projects is on a limited or non- recourse basis.

Insurance companies not only provide risk cover to infrastructure

projects, they also contribute long-term funds. In fact, insurance companies
are an ideal source of long term debt and equity for infrastructure projects.
With long term liability, they get a good asset- liability match by investing their
funds in such projects. IRDA regulations require insurance companies to invest
not less than 15 percent of their funds in infrastructure and social sectors.
International Insurance companies also invest their funds in such projects.
Insurance costs constitute roughly around 1.2- 2 percent of the total project
costs. Under the existing norms, insurance premium payments are treated as
part of the fixed costs. Consequently they are treated as pass-through costs for
tariff calculations.

Premium rates of most general insurance policies come under the

purview of the government appointed Tariff Advisory Commitee. For Projects
costing up to Rs 1 Billion, the Tariff Advisory Committee sets the premium
rates, for Projects between Rs 1 billion and Rs 15 billion, the rates are set in
keeping with the committee's guidelines; and projects above Rs 15 billion are
subjected to re-insurance pricing. It is the last segment that has a number of
additional products and competitive pricing.
Insurance, like project finance, is extended by a consortium. Normally one
insurer takes the lead, shouldering about 40-50 per cent of the risk and
receiving a proportionate percentage of the premium. The other companies
share the remaining risk and premium. The policies are renewed usually on an
annual basis through the invitation of bids.
Of late, with IPP projects fizzling out, the insurance companies are turning
once again to old hands such as NTPC, NHPC and BSES for business.

Re-insurance business:
Insurance companies retain only a part of the risk (less than 10 per cent)
assumed by them, which can be safely borne from their own funds. The
balance risk is re-insured with other insurers. In effect, therefore, re-insurance
is insurer's insurance. It forms the backbone of the insurance business. It
helps to provide a better spread of risk in the international market, allows
primary insurers to accept risks beyond their capacity, settle accumulated
losses arising from catastrophic events and still maintain their financial
stability.
While GIC's subsidiaries look after general insurance, GIC itself has been the
major reinsurer. Currently, all insurance companies have to give 20 per cent of
their reinsurance business to GIC. The aim is to ensure that GIC's role as the
national reinsurer remains unhindered. However, GIC reinsures the amount
further with international companies such as Swissre (Switzerland), Munichre
(Germany), and Royale (UK). Reinsurance premiums have seen an exorbitant
increase in recent years, following the rise in threat perceptions globally.
 Life Insurance Market:

The Life Insurance market in India is an underdeveloped market that

was only tapped by the state owned LIC till the entry of private insurers. The
penetration of life insurance products was 19 percent of the total 400 million of
the insurable population. The state owned LIC sold insurance as a tax
instrument, not as a product giving protection. Most customers were under-
insured with no flexibility or transparency in the products. With the entry of
the private insurers the rules of the game have changed.

The 12 private insurers in the life insurance market have already

grabbed nearly 9 percent of the market in terms of premium income. The new
business premiums of the 12 private players has tripled to Rs 1000 crore in
2002- 03 over last year. Meanwhile, state owned LIC's new premium business
has fallen.

Innovative products, smart marketing and aggressive distribution. That's the

triple whammy combination that has enabled fledgling private insurance
companies to sign up Indian customers faster than anyone ever expected.
Indians, who have always seen life insurance as a tax saving device, are now
suddenly turning to the private sector and snapping up the new innovative
products on offer.

The growing popularity of the private insurers shows in other ways. They
are coining money in new niches that they have introduced. The state owned
companies still dominate segments like endowments and money back policies.
But in the annuity or pension products business, the private insurers have
already wrested over 33 percent of the market. And in the popular unit-linked
insurance schemes they have a virtual monopoly, with over 90 percent of the
customers.

The private insurers also seem to be scoring big in other ways- they are
persuading people to take out bigger policies. For instance, the average size of
a life insurance policy before privatisation was around Rs 50,000. That has
risen to about Rs 80,000. But the private insurers are ahead in this game and
the average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh- way
bigger than the industry average.

Buoyed by their quicker than expected success, nearly all private insurers are
fast- forwarding the second phase of their expansion plans. No doubt the
aggressive stance of private insurers is already paying rich dividends. But a
rejuvenated LIC is also trying to fight back to woo new customers.
The Insurance Act, 1938

The Insurance Act, 1938 was the first legislation governing all forms of
insurance to provide strict state control over insurance business. You can
download the act by clicking here

Life Insurance Corporation Act, 1956

Even though the first legislation was enacted in 1938, it was only in 19
January 1956, that life insurance in India was completely nationalized,
through a Government ordinance; the Life Insurance Corporation Act, 1956
effective from 1.9.1956 was enacted in the same year to, inter-alias, form LIFE
INSURANCE CORPORATION after nationalization of the 245 companies into
one entity. There were 245 insurance companies of both Indian and foreign
origin in 1956. Nationalization was accomplished by the govt. acquisition of the
management of the companies. The Life Insurance Corporation of India was
created on 1st September, 1956, as a result and has grown to be the largest
insurance company in India as of 2006.
General Insurance Business (Nationalization) Act, 1972:

The General Insurance Business (Nationalization) Act, 1972 was enacted

to nationalize the 100 odd general insurance companies and subsequently
merging them into four companies. All the companies were amalgamated into
National Insurance, New India Assurance, Oriental Insurance, United India
Insurance which were headquartered in each of the four metropolitan cities.

Insurance Regulatory and Development Authority (IRDA) Act, 1999

Till 1999, there were not any private insurance companies in Indian
insurance sector. The Govt. of India then introduced the Insurance Regulatory
and Development Authority Act in 1999, thereby de-regulating the insurance
sector and allowing private companies into the insurance. Further, foreign
investment was also allowed and capped at 26% holding in the Indian
insurance companies. In recent years many private players entered in the
Insurance sector of India. Companies with equal strength competing in the
Indian insurance market. Currently, in India only 2 million people (0.2 % of
total population of 1 billion), are covered under Mediclaim, whereas in
developed nations like USA about 75 % of the total population are covered
under some insurance scheme. With more and more private players in the
sector this scenario may change at a rapid pace.
 Advertising In insurance sector

It is a paid form of non-personal communication. It is used to create

awareness and transmit information in order to gain a response from the target
market. Forms of advertising are as follows:

o News Papers and Magazines:

LIC give ads in the news papers and magazines round the year to continue
its brand image and also when new products are introduced. Normally its
ads are published in Times of India.

o Electronic media:
Insurance companies also advertise its services in the Electronic media like:

 Internet (Websites):
Companies like LIC (www.licindia.com), ICICI (www.iciciprudential.com)
all have websites from which people can get the information about their
products, prices, various schemes, and lots of other information. People
can also purchase the product through this website.

 Television:
Companies like LIC, Met Life India, advertise on television to make
people aware of their products and services.

 Radio:
ICICI Prudential advertises on 92.5 red Fm.

o Hoardings:
LIC put its hoardings where there is a mass flow of people, especially
outside the railway station or at the backside of the bus.

When Met Life was introduced it has put his hoardings on the side of the
train, to target huge number of people.

o Brochures:
Companies provide brochures to the customers so that they can have a look
on various schemes and their prices.

Eg: LIC have brochures of various schemes that are available different
languages i.e. Hindi, Marathi, English, and other regional languages. They
provide the brochure of the scheme the customer has chosen, in the
language which they understand. Brochure will provide the customer the
 information like features of the scheme, amount of premium to be paid,
rebates (if any), etc.

• Public relations:
Public relations are helpful for the companies to build their brand image, to
maintain good relationship with customers, to make the people aware of its
recent happenings, etc. Mediums of Public relations are:

o Press releases:
This helps the company to convey its message to its customers and other
people.

o Seminars:
These are held to provide information about the new product launched,
position of the company in the market, etc.

• Sales Promotion:

o Gifts:
LIC provides diaries, pens, booklets, etc to its customers.

o Sponsoring Events:
Eg: Max New York Life Insurance Company has sponsored the recent India-
Zimbabwe-New Zealand tri series.

• Personal selling:

o Agents:
It is the most widely used method of promotion by all insurance companies.
They recruit, train and motivate the insurance agents to convince the
customers to buy insurance policies of that particular company. The agent
also collects the monthly premium and settles the claims of the customers.

o Role and selection of agents in LIC:

LIC policies are sold and not purchased and this selling is done by agents.
Agents constitute around more than 75% of the LIC sales, so agents are
very important for LIC. LIC selects the agents on the following basis:
 Minimum education upto HSC.
 Has to undergo 100hrs training.
 Pass the test with more than 50%, conducted immediately after
training.
  Then he gets the license for 3 yrs. After 3 yrs he has to renew the
license.
 He has to sell 12 policies or policies worth minimum 1lac in 1 yr.
 He receives commission per policy; normally it ranges upto 15%-25%
of the premium paid.

o Staff:
Staff should be adequately trained so that they help in increase in sales.

• Word of Mouth:

Word of Mouth promotion plays the role of hidden sales force. The word of
mouth promotion is normally carried out by customers, agents and
employees. It can be positive or negative depending upon the service or
experience they receive.

o Customers:
It is important for the organization to provide customers with quality service
so that he is satisfied and spread the good word of mouth. On the contrary
if the customer is not satisfied with the service or experience he spreads bad
word of mouth.

Eg: LIC settles the claims of the customers within 1-2 days, which is fastest
in the world and thereby providing them with quality service so that
customers is satisfied and spread good word of mouth. It also maintains
good relationship with their customers.

o Agents:
LIC maintains good relationship with their agents. If they complete certain
target assigned to them LIC gives them extra % on premium. Thereby
keeping them happy so that they spread good word of mouth to their clients.
 PEST Analysis of Insurance Market

There are several forces at work in every sector and every industry of an
economy. The dynamic nature of every industry keeps the pulses of the
companies operating in each sector racing. PEST refers to all political,
economic, social and technological factors affecting insurance industry.
Following are the different factors affecting the insurance sector:

Political:

• Malhotra Committee:
Till the year 1993, the insurance sector accounted to just 2% of the GDP
whereas the world average was 8%. To improve the penetration of insurance as
a percentage of GDP, the government set up a committee called as the
Malhotra Committee in 1993. In 1993, Malhotra Committee headed by former
Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate
the Indian insurance industry and recommend its future direction. The
Malhotra committee was set up with the objective of complementing the
reforms initiated in the financial sector. The reforms were aimed at “creating a
more efficient and competitive financial system suitable for the requirements of
the economy keeping in mind the structural changes currently underway and
recognizing that insurance is an important part of the overall financial system
where it was necessary to address the need for similar reform.” In 1994, the
committee submitted the report and some of the key recommendations
included:

o Private Companies with a minimum paid up capital of Rs.1bn should be

allowed to enter the industry
o Foreign companies may be allowed to enter the industry in collaboration
with the domestic companies
o Only one State Level Life Insurance Company should be allowed to
operate in each state

The committee emphasized that in order to improve the customer services and
increase the coverage of the insurance industry should be opened up to
competition. But at the same time, the committee felt the need to exercise
caution as any failure on the part of new players could ruin the public
confidence in the industry.

Hence, it was decided to allow competition in a limited way by stipulating the

minimum capital requirement of Rs.100 crores. The committee felt the need to
provide greater autonomy to insurance companies in order to improve their
performance and enable them to act as independent companies with economic
motives. For this purpose, it had proposed setting up an independent
regulatory body.

• The Insurance Regulatory and Development Authority (IRDA):

Reforms in the Insurance sector were initiated with the passage of the IRDA
Bill in Parliament in December 1999. The IRDA since its incorporation as a
statutory body in April 2000 has fastidiously stuck to its schedule of framing
regulations and registering the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems to

the insurance sector and in particular the life insurance companies was the
launch of the IRDA’s online service for issue and renewal of licenses to agents.

The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance
agents in place to sell their products, which are expected to be introduced by
early next year.

The IRDA since its incorporation as a statutory body has been framing
regulations and registering the private sector insurance companies. IRDA being
an independent statutory body has put a framework of globally compatible
regulations.

• Privatization of Insurance sector:

The introduction of private players in the industry has added to the colours in
the dull industry. The initiatives taken by the private players are very
competitive and have given immense competition to the on time monopoly of
the market LIC. Since the advent of the private players in the market the
industry has seen new and innovative steps taken by the players in this sector.
The new players have improved the service quality of the insurance. As a result
LIC down the years have seen the declining phase in its career. The market
share was distributed among the private players. Though LIC still holds the
80% of the insurance sector but the upcoming natures of these private players
are enough to give more competition to LIC in the near future.

• FDI in insurance sector:

Then, the issue came of amount of FDI to be allowed by a foreign player in the
insurance sector. The government had allowed the private players to have
foreign equity up to just 26 %. Efforts are going on to raise this to 49 %. After
the opening up of the sector, a total of 18 private sector companies have
entered the life insurance business and all of them have entered with a foreign
partner.
Economical:

• Indian economy – growth projections:

By 2025 the Indian economy is projected to be about 60 per cent the size of the
US economy. The transformation into a tri-polar economy will be complete by
2035, with the Indian economy only a little smaller than the US economy but
larger than that of Western Europe. By 2035, India is likely to be a larger
growth driver than the six largest countries in the EU, though its impact will be
a little over half that of the US.

India, which is now the fourth largest economy in terms of purchasing power
parity, will overtake Japan and become third major economic power within 10
years.

All these facts or forecasts only drive at one point. India is booming as a
market. The global insurance industry has a big eye on India owing to its big
opportunity. India is the next big thing in the global insurance industry. Many
new insurance companies are planning to enter Indian markets. South African
major Sanlam recently announced a tie up with Chennai based Shriram Group
for life insurance business. French multinational Axa, which has been studying
the Indian market for long, is expected to finalize its plan this year. Dutch
insurer Aegon, on its second visit to the country after a gap of four years, is
scouting for a partner and has set up an office. Korean giant Samsung, the
newest kid on the block, also has set up a representative office.

• Growing premiums:
Growing premiums are obviously attracting the new players. During the
financial 2004 05 alone, the life insurance premium grew by 35% to over US $
13.5 billion in 2004-05. According to Mumbai based research agency Crystalise
Research, over the next five years, Crystalise believes this figure to zoom past
the US $ 33.5 billion mark.

The numbers at the industry level perhaps tell only one part of the story. The
entry of private insurers in India has changed the way in which life insurance
business has been done in India. Premiums of each of the dozen private
players has gone up significantly within two years of operations, and the
incumbent, LIC is being forced to pull up its socks.

SBI Life Insurance reported a rise of 166% in its premium income to US $ 138
million for the financial year 2004-05, compared with US $ 53 million it
collected in 2003-04. HDFC Standard Life’s premium incomes went up from US
$ 67 million to US $ 113 million for fiscal 2004-05. In terms of first year
premium revenue, the biggest gainer has been Bajaj Allianz, with a growth of
446.9%. The increasing premium rates are a reason why multinational
insurers are flocking to India.

• Per capita GDP:

According to a study by Swiss Re, a leading global reinsurance company, once
per capita GDP touches $10,000, life insurance premium collection takes off.
India’s per capita GDP is hovering around $ 3000 but is expected to go up
steeply given the economic growth projections. Also, India, despite being the
second largest in terms of population and insured lives, posts a very low figure
in terms of the country’s share of life insurance premium in the world’s total
life premium collection – about 0.8%. This shows that the insurance sector
provides ample untapped market for insurers.

• Bancassurance:
Bancassurance - selling life insurance through bank branches - has also
driven life insurance business over the two years. Here’s why. First, banks’
deposits as a percentage of total financial assets of the household sector have
gone down from about 46% in 1980 to about 30% now. This means that banks
have to seek other avenues, beyond just interest income, to remain profitable.
Banks have found that selling life insurance policies is a great way to make
profits.

LIC distributes over US $ 1.6 billion as commission to its sales force every year.
Even if banks succeed in capturing 10% of this amount, they would have
revenue opportunities in the range of US $ 162 million, not a small sum for
many banks. Result: As many as 32 banks have tied up with LIC to sell its life
covers to their customers.

LIC may have begun firming up its relations with banks, but by way of bank
assurance, it has collected only around US $ 335 million, which is less than
1% of what the corporation collected by way of first premium income last fiscal
year. In contrast, private players have excelled in bankassurance. SBI Life,
which has vaulted to the second position among private players, owes as much
as 67% of its premium income to bankassurance. SBI Life has tied up its
promoter and India’s largest commercial bank, State Bank of India, which has
more than 10,000 branches spread across the country, for selling its policies.
Account holders with the bank are offered life covers for as little as Re 1 per
month. For most of the private insurance firms, bankassurance has
contributed to about 50% of premium income.
• Tax benefits:
Payment of insurance premium had also been included in the service tax net in
the 2004 budget. Although 2004 seemed to be a dampener for individuals
insured, the Budget 2005 was a delight.

Section 88 benefits have been scrapped. This means that tax rebate under
Section 88 will not be applicable to an individual anymore. It has now been
replaced by Section 80C. Under Section 80C, one can now invest a sum of up
to Rs 100,000 in investment avenues like NSC, PPF, infrastructure bonds
and/or life insurance and the same will be deducted from an individual’s
taxable income.

This is a welcome move. For one, there was a limit of Rs 70,000 on life
insurance premium to avail of Section 88 benefits. This ceiling has now been
raised to Rs 100,000. An individual can now allocate an enhanced amount to
insure himself adequately and still get a tax benefit. He can also manage his
portfolio better without having to worry about tax benefits. For example, he can
increase his insurance coverage by buying a term plan (pure risk cover plan)
and allocate a sizable amount from his portfolio towards retirement planning.

The changes in this year’s budget have also come as a welcome move for
individuals whose annual earnings exceed Rs 500,000. Until now, these
individuals did not benefit from the tax-saving on account of paying a life
insurance premium. But this year’s budget has removed this anomaly and they
too can now look at life insurance up to a ceiling of Rs 100,000 premium to
avail of tax benefit.
Social:

• Life expectancy & Mortality rate:

The life expectancy is defined as the number of years for which a new born
baby will live in the prevailing mortality condition ns of that particular year.

The mortality or crude death rate refers to the number deaths per thousand
people.

Both these factors are very important as they are used to derive the premium of
a particular policy. All the insurance companies follow a set standard table
referring to which they decide upon the premium rates. This is generally
prescribed by the government. Following is the life expectancy and death rate
in India:

• Demographics:
One of the major influences on the premiums or prices charged by insurance
companies is on the basis of the demographics. Premium rates largely depend
on the age, sex of the individual insured. All the insurance policies have a
different rate of premiums to be paid. This is mainly due to the difference in the
risk involved of different individuals insured.
• Gender discrimination:
Gender based discrimination is rampant in any industry. In the insurance
industry the companies have different premium rates for men and women. This
cannot be actually called as gender discrimination. As is said earlier the
premium depends on the life expectancy in the particular country. More often
than not the life expectancy is different for men and women. Usually the
women are expected to live more than the men and the difference is 5 years
and greater. Hence, what the insurers argue is that the women are a relative
less risk than the men and hence the premium charged is more for women.
Insurers are providing cover against risk In order to provide them with cover
against potential liabilities (that they can pay claims or the right level of
benefits), pricing would have to be biased towards the most secure -and often
least favorable- variant. This is to allow insurers to fulfill all their
commitments. "Gender-neutral" insurance in the true meaning of the word is
impossible in voluntary insurance products.

• Religion – Islam:
In its modern form, insurance was introduced in Muslim countries when many
of them were occupied by Western powers, or when they came under Western
influence. In some cases, its introduction was delayed in a country until its
international business flourished. Like everything that came with a “colonial”
or Western colour, insurance was first viewed by Muslim scholars with grave
suspicion. A verdict of disapproval was common to most things thought to be
introduced by non-Muslims.

Muslim scholars are divided on the subject of the permissibility of life

insurance. Some consider it forbidden on the assumption that it involves a
kind of gambling and it goes against the principle of taqdir in Islam. Most of
the insurance organizations today are involved in riba and other islamically
prohibited transactions. It is for this reason important that Muslims should
have their own insurance companies based on Islamic economic principles.
Insurance can be re-organized under Islamic principles so that it is free from
all prohibited practices.

After Islamic banking, it’s the turn of Islamic insurance. Even as the Reserve
Bank of India is exploring Islamic banking opportunities for Indian banks, the
Life Insurance Corporation of India has set the ball rolling on takaful (Islamic
insurance).

LIC’s new international joint venture company - Indo-Saudi Insurance

Company — will be the first to introduce takaful. This Arabic word means
‘guaranteeing each other’ or joint guarantee. The entire pricing will be different
as the benefits differ from conventional insurance policies. Its actuarial team
has started working on the pricing mechanism and senior officials have been
sent to Saudi Arabia to look into the product, he added.

Takaful can be described as cooperative insurance where policyholders

contribute a certain amount of money to a common pool. Each member pays
his subscription (premium) to help those that need assistance.

• Insurance offered by NGO’s/ community based health insurance:

Community-based schemes are typically targeted at poorer populations living
in communities, in which they are involved in defining contribution level and
collecting mechanisms, defining the content of the benefit package, and / or
allocating the schemes, financial resources. Such schemes are generally run by
trust hospitals or nongovernmental organizations (NGOs). The benefits offered
are mainly in terms of preventive care, though ambulatory and in-patient care
is also covered. Such schemes tend to be financed through patient collection,
government grants and donations.

With these community based insurers mainly in the rural areas, the rural
people have good faith on them. This is one of the main reasons why the rural
areas remain untapped by most of the insurance companies. The rural
population associate themselves well with these community based insurers
which makes life difficult for the big companies waiting to enter the rural areas.

• Improving standard of living:

If, by 2030 AD 50% Indian population reaches the level of middle class, Indian
market for Insurance Sector will reach the level of 600 million from
conservatively estimated present level of 100 million. Even at the present level
of 100 million, Indian market is big enough by global standards for vigorous
development as the premium density is only 0.6% as compared to 3 to 5% for
developed markets. Prospects for conventional insurance development in
Indian market in 21st Century are bright provided its transformation takes
place in the right form and right type of strategy is developed to transform
hidden potential into business.

• Consumer attitude and preferences:

Insurance was always viewed by people as a safety net. Indians specially are
very emotional as far as family members, security, social status and other such
issues are concerned. The insurance industry is primarily based on the fact
that people live their family their belongings and hence want them to be with
them forever. This is the basic attitude of people towards insurance. The
Indians, hence, are more vulnerable and tend to pay more attention towards
the insurance advertisements and insurance products.

• Other factors:
There are many other social factors that affect the insurance industry. The
consumer’s mindset is such that insurance is viewed as a liability. This
happens because, the policyholders have to pay regular premiums in the policy
and as long as they live there is no benefit. Thus, this is a classic irony of
insurance. One has to die to avail of the benefits. This brings about a negative
picture of insurance as a product.
Technological:

• Computerization:
Initially, in the late 1950’s the insurance companies used Unit Record
Machines (Electro Magnetic Machines) to process data punched into cards.
Computers were introduces in the mid 1960’s and by the 1980’s the Unit
Phased Machines were phased out and the entire process was computerized.
This brought about greater efficiency and quick service delivery.

• Internet:
Internet usage has drastically improved in the last decade. There was a
tremendous increase in the use of technology by LIC during the late 1990’s.
The company launched its website www.licindia.com in the mid 1990’s to offer
basic services such as modifying policies (change of address, change of
nominee, etc) and querying the status of the policy.

But today, the internet has completely changed the service delivery process.
Internet is today used to even sell insurance policies. Internet is, in fact,
proving to be one of the widely used distribution networks for selling insurance
policies. Also internet is used for sending premium notices to policy holders
through e-mails.

Also LIC has a special feature on its website. It has a premium calculator
which accurately displays the amount of premium month wise and the
remaining balance. One just has to enter the age, name of the insurance policy,
the sum assured and whether there is an accident cover or not. By keying in
this information, the entire premium amounts are shown within no time. This
has helped the customer in a way so that he/she doesn’t have to travel all the
way to the branch to ascertain the amount of premium to be paid.

• Metropolitan Area Network (MAN) and Wide Area Network (WAN):

LIC has commissioned a MAN connecting more than 75 branches in Mumbai.
This enabled the policy holders to pay their premiums and get their status
report, surrender value quotations and loan quotation, from any branch in the
city. Following the MAN in Mumbai, seven MAN centers (Chennai, Bangalore,
Delhi, Calcutta, Pune, Hyderabad, and Ahmedabad) became operational.

These MAN centers were connected to each other by a WAN network. This WAN
was designed for distributed processing without a central database – each
division maintained a database of the policyholders. The central office in
Mumbai maintained an index of policy numbers and the corresponding IP
addresses of the servers where the details of the policy were maintained.
• Electronic Clearance Service (ECS):
Almost all the big organizations today provide the ECS facility to its customers.
A policy holder having an account in any bank which is a member of the local
clearing house can opt for ECS debit to pay premiums. The advantage here is
that once the option is exercised, the policy holder need not visit a branch for
paying the premium or collecting the receipts. On the day indicated by the
policy holder, the premium amount will be directly debited to the bank account
of the policyholder and the receipt will be issued by the designated branch
office.

• Bank ATM’s:
Many insurance companies have a tie-up with commercial banks so as to
enable policyholders to use the facility of paying premiums through the bank
ATM’s. ICICI Prudential has a tie up with ICICI bank; LIC has a tie-up with
Corporation bank and UTI Bank.

• Call Centres and SMS services:

Almost all the insurance companies have their own call centres which cater to
the phone based queries of the policyholders. This service is 24x7 and they
have the Interactive Voice Response (IVR) systems at all the branches.

Also, LIC and other companies now provide SMS services going with the new
trends like SMS banking in the banking sector.
CONCLUSION

Competition will surely cause the market to grow beyond current rates,

create a bigger "pie," and offer additional consumer choices through the

introduction of new products, services, and price options. Yet, at the same

time, public and private sector companies will be working together to ensure

healthy growth and development of the sector. Challenges such as

developing a common industry code of conduct, contributing to a common

catastrophe reserve fund, and chalking out agreements between insurers to

settle claims to the benefit of the consumer will require concerted effort from

both sectors.

The market is now in an evolving phase where one can expect a lot of actions in

coming days. The current impediments for foreign participation – like 26%

equity cap on foreign partner, ill defined regulatory role of IRDA (Insurance

Regulatory development Authority- the watchdog of the industry) in pension

business etc.—are expected to be removed in near future. The early-adopters

will then have a clear advantage compared to laggards in gaining the market

share and market leadership. The will need to make sure right now that all

their infrastructure is in place so that they can reap the benefit of an

"unlimited potential."