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A well development and evolved insurance sector is needed for economic
development as it is provides long term funds for infrastructure development and
the same time strengthen the risk taking ability.Life insurance is also now being
regarded as a versatile financial planning tool in India. India being a country
having a huge population of around one billion people with only 33.2% of the
insurance population in India possessing life insurance. The country has a vast
potential that has been left untapped till now.

Therefore, what this has led to is the flooding of life insurance market with a
number of private players which in collaboration with recognized foreign
companys promises to deliver the best of services at the least price. All these
companies are trying to grasp the maximum of market share in life insurance

For that they are developing a channel i.e. recruiting world-class insurance
advisors/agents who sell their products or policies. But what a consumer needs or
what he perceives about life insurance still needs to be answered these are some
questions I have tried to answer in the project.

The service industry is one of the fastest growing sectors in India today. The
upcoming sectors which are really showing the graph towards upwards are -
Telecom, Banking, and Insurance. These sectors really have a lot of responsibility
towards the economy.

Amongst the above-mentioned areas insurance is one sector, which took a
lot of time in positioning itself. The insurance business of non-life companies was
not much in problems but the major problem was with life insurance. Life
Insurance Corporation of India had monopoly for more than 45 years, but the
picture then was completely different. Previously people felt that Insurance is
only for classes not for masses but now the picture is vice-versa.

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Winston Churchill once said: If I can do, surly I will put insurance on
everyones door and every officials brochure. Because I believe that every family
can cost little to avoid disasters, which may be doomed internally, by insurance.

There is hardly a facet of the Indian psyche that the concept of foreign has not
permeated. This term, connoting modernization, international brands and
acquisitions by MNCs in popular imagination, has acquired renewed significance
after the reforms initiated by the Indian Government in 1991. Generally speaking
FDI refers to capital inflows from abroad that invest in the production capacity of
the economy and are usually preferred over other forms of external finance
because they are non-debt creating, non-volatile and their returns depend on the
performance of the projects financed by the investors. FDI inflow helps the
developing countries to develop a transparent, broad, and effective policy
environment for investment issues as well as, builds human and institutional
capacities to execute the same. The insurance sector is of considerable importance
to every developing economy; it inculcates the savings habit, which in turn
generates long-term investible funds for infrastructure building. The nature of
insurance business ensures constant inflow of funds - the payout is staggered and
contingency related - thereby making it readily available for investment on
infrastructure building. Its contribution to GDP is quite significant. The Union
government had opened up the insurance sector for private participation in 1999,
also allowing the private companies to have foreign equity up to 26 per cent.
Following the opening up of the insurance sector, many private sector companies
have entered the insurance business. The insurance sector has been a fast
developing sector with substantial revenue growth in the non-life insurance market,
but in spite of its huge population.
The insurance sector in India has become a full circle from being an open
competitive market to nationalization and back to a liberalized market again.
Tracing the developments in the Indian insurance sector reveals the 360-degree
turn witnessed over a period of almost two centuries.

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An insurance contract provides risk coverage to the insure. A purchaser of
insurance pays a fixed premium in exchange for a promise of compensation in the
event of some specified loss. Insurance is bought because it gives peace of mind to
the holders. This comfort level is important in personal and business life. Though
the primary purpose of insurance is to provide risk coverage, when the contract
period extends over a long time, as in the case of life insurance, premium payments
comprise of two components one for buying risk coverage and the other towards
savings. This bundling together of risk coverage and savings is peculiar to life
insurance and is more common in developing countries like India.

In the industrially advanced countries, this is not necessarily so and short
duration life insurance contracts without savings components are equally popular.
In the developing economies because of the savings component and the long nature
of the contract, life insurance has become an important instrument of mobilizing
long-term funds. The savings component puts the life insurance in direct
competition with other financial institutions and savings instruments.

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To know what are the strength/opportunity and weakness and threats.
To know the significance of Foreign Direct Investment for Indian Insurance
To know what are the problems faced by in insurance sector in India.
To know why opposite parties against raising FDI in insurance sector.
To know what are the issues regarding FDI in insurance sector in India.

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The history of 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).
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The Insurance Amendment Act of 1950 abolished Principal Agencies. However,
there were a large number of insurance companies and the level of competition was
high. There were also allegations of unfair trade practices. The Government of
India, therefore, decided to nationalize insurance business. An Ordinance was
issued on 19th January, 1956 nationalizing the Life Insurance sector and Life
Insurance Corporation came into existence in the same year. The LIC absorbed 154
Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and
foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance
sector was reopened to the private sector.This millennium has seen insurance come
a full circle in a journey extending to nearly 200 years. The process of re-opening
of the sector had begun in the early 1990s and the last decade and more has seen it
been opened up substantially. In 1993, the Government set up a committee under
the chairmanship of RN Malhotra, former Governor of RBI, to propose
recommendations for reforms in the insurance sector. The committee submitted its
report in 1994 wherein, among other things, it recommended that the private sector
be permitted to enter the insurance industry. They stated that foreign companies be
allowed to enter by floating Indian companies, preferably a joint venture with
Indian partners.Following the recommendations of the MalhotraCommittee report,
in 1999, the Insurance Regulatory and Development Authority was constituted as
an autonomous body to regulate and develop the insurance industry. The IRDA
opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26%. In
December, 2000, the subsidiaries of the General Insurance Corporation of India
were restructured as independent companies and at the same time GIC was
converted into a national reinsurer. Parliament passed a bill de-linking the four
subsidiaries from GIC in July, 2002. Today there are a number of private sector
insurance companies. The table below shows the breakup of insurance companies:-

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Type of Business No of Public
No of Private
Total Companies
Life Insurance 01 20 21
General Insurance 06 14 20
Re insurance 01 0 1
Total 08 34 42

The insurance sector in India used to be dominated by the state-owned Life
Insurance Corporation and the General Insurance Corporation and its four
subsidiaries. But in 1999, the Insurance Regulatory and Development Authority
(IRDA) Bill opened it up to private and foreign players, whose share in the
insurance market has been rising.As a part of overall financial sector reforms, the
Government set up the Committee for Reforms in the Insurance Sector in 1992. In
its report released in early 1994, it recommended the opening up of the sector to
private sector participation.

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The insurance premium in India accounted for a mere 2% of GDP as against
the world average of 7.8% and G-7 average of 9.2% during 90s. The insurance
premium as a percentage of savings in India is 5.95% as compared to 52.5% in
UK. The nationalized insurance companies could barely unearth the vast potential
of the Indian population since the policies lacked flexibility and the Indian life
insurance products are not linked to the contemporary investment avenues.

LIC had a total premium income of $5 billion during 1995-96 and General
Insurance recorded a net premium of $1.3 billion. LICs income has grown
substantially on an average of 10% as against the industrys 6.7% in the rest of
Asia. LIC has catered its services to more than 5 million people living below
poverty line with a subsidized premium rate. Claim settlement ratio of LIC stood at
95% and GIC at 74% which much higher than the global average of 40%.

But the other side of the coin gives a dismal picture. Large-scale operations
and bureaucracies entangled in the public sector companies were the main areas of
concern of the nationalized insurers. The state owned insurance companies did not
show any initiative to venture into the rural areas to sell crop insurance or any
other personal insurance.

Another area, which requires an in-depth study, is the pension segment.
Indian demand for pension products will be huge keeping in mind the lack of a
comprehensive social security system leading to an upward trend in the savings
sentiments. But LIC despite its optimal performing abilities brought in pension
premium only to the tune of $22 million. Hence innovative measures to convert the
pension products into lucrative saving instruments became the need of the day by
which the investors would be allowed to deploy funds before the annuities
commence and to invest them in different schemes that would yield a relatively
higher income.

Another potential area insufficiently served was the health insurance and
other personal insurance products such as householders, shopkeepers, personal
accident, travel insurance and professional indemnity covers, which constitute only
12 per cent of Indian general insurance premium. General Insurance Companys
Mediclaim scheme served only 2.5% of the total population. The Indian health
insurance products were not comprehensive in nature there was no cover against
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More liberalized reforms are inevitably essential not only to drive the Indian
economy towards an annual growth rate of 7% to 8% but also to sustain the
growth. A faster growth would attract foreign direct investment (FDI) inflow of
$10 billion every year as against the current FDI in the range of $3 billion. Given
the saving scenario in India, there is much more growth potential and the
liberalized insurance sector will mobilize the long-term funds for infrastructural

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While nationalized insurance companies have done a commendable job in
extending the volume of the business, opening up insurance sector to private
players was a necessity in the context of globalization of financial sector. If
traditional infrastructural and semipublic goods industries such as banking,
airlines, telecom, power etc., have significant private sector presence, continuing a
state of monopoly in provision of insurance was indefensible and therefore, the
globalization of insurance has been done as discussed earlier. Its impact has to be
seen in the form of creating various opportunities and challenges.

The introduction of private players in the industry has added colours to 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 the sector. The new players have
improved the service quality of the insurance.

As a result LIC down the years have seen the declining in its career. The
market share was distributed among the private players. Though LIC still holds
75% of the insurance sectors the upcoming nature of these private players are
enough to give more competition to LIC in the near future.

LIC market share has decreased from 95 %( 2002-03) to 81% (2004-05).
The following company holds the rest of the market share of the insurance
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
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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 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
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There has been an overall expansion in the market. This has been possible
due to improved awareness levels thanks to the large number of advertising
campaigns launched by all the players. The scope of expansion is still unlimited as
virtually all the players are concentrating on large cities and towns-except by LIC
to an extent there was no significant attempt to tap the rural markets but the private
companies are also targeting the untapped rural market.


There has been a plethora of new and innovative products offered by the
new players, mainly from the stable of their international partners. Customers have
tremendous choice from a large variety of products from pure term (risk) insurance
to unit-linked investment products.

Customers are offered unbundled products with a variety of benefits as
riders from which they can choose. More customers are buying products and
services based on the true needs and not just traditional money-back policies,
which is not considered very appropriate for long-term protection and savings.
However, there are still some key new products yet to be introduced


Not unexpectedly, this was one area that witnessed the most significant
change with the entry of new players. There is an attempt to bring in international
best practice in service and operational efficiency through use of latest
technologies. Advice and need based selling is emerging through much better
trained sales force and advisors.

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There is improvement in response and turnaround times in specific areas
such as delivery of first policy receipt, policy document, premium notice, final
maturity payment, settlement of claims etc. However, there is a long way to go and
various customer surveys indicate that the standards are still below customer
expectation levels.


Till two years back, the only mode of distribution of life insurance products
was through Agents. While agents continue to be the predominant distribution
channel, today a number of innovative alternative channels are being offered to
consumers. Some of them are banc assurance, brokers, Internet and direct

Though it is too early to predict, the wide spread of bank branch network in
India could lead to banc assurance emerging as a significant distribution
mechanism. If anyone analyses the history of the growth of insurance since
reforms, it is marked by all round growth of all players. More or less all players
(including the market leader LIC) have aggressively recruited and trained advisors,
appointed agents, launched new products, improved customer service standards
and revamped/expanded their distribution networks.

If at all there are major difference between players it was only in time lag in
launching of service. Every player will like the customers to believe that its service
standards are the best or that its agents are the most informed and ethical, but it is
debatable whether there are any significant differences. In other words, each
company is trying to be everything to everybody.

Our argument is that the strategy of being everything to everybody is risky.
Some players justify the above strategy on the basis that the Indian market is huge
and it can accommodate everybody. Still, in a market where it is difficult to
distinguish oneself sufficiently on services or on any other parameter to be able to
change a premium, it will lead to unmitigated price competition to the detriment of
all players.

One may achieve sales turnover, but margins and profitability will suffer
severely. In the insurance industry where large amounts of capital are required, this
is risky.

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Company Indian
Market share
Aviva life Dabur Aviva, UK 3.1%
Bajaj Auto Allianz,

Birla sun
Sun Life,
HDFC Standard
Life, UK


Old Mutual
South Africa
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Max India Max India (recently

MetLife Jammu &
MetLife, US 5.3%
SBI Life SBI Cardiff,
Tata AIG Tata
AIG, US 7.0%
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The majority domestic insurance joint ventures are now busy preparing the ground
work for raising their foreign partners stake to 49% from 26%. This is in
anticipation of the development that UPA government which in its first stint had
assured that the FDI in insurance sector would be raised from 26 to 49% and will
be able to pass the necessary Bill in the Budgetary session of the Parliament.

US Roy, MD & CEO, SBI Life Insurance said, We are waiting for the Insurance
Bill to be passed by the government for increasing the FDI cap in the sector. Once
it happens, our shareholders will decide upon the topic how to go for it. As there is
no regulatory requirement of valuation, we have not gone for it as of now.

Puneet Nanda, executive vice-president, ICICI Prudential Life said any reform in
terms of increasing in foreign ownership limit for the insurance industry to 49%
from 26% is directionally desirable and is a welcome move.

Given that life insurance is a capital intensive industry, this move will help
insurers access larger international capital over a period of time. This FDI would
be long-term foreign capital and not volatile money, he said. Anil Sahgal, chief
investment officer, Aviva Life Insurance said the company is keenly awaiting the
change in the guidelines in connection with increasing the FDI cap into the sector.

Dabur, the domestic partner in Aviva Life Insurance is one of the players which
had already expressed its desire to allow its foreign partner Aviva to hike its stake
from 26% to 49%.
Some of the other players which are also waiting for the passage of the Bill to rise
their foreign partners stake to 49% from 26% include Bajaj Allianz which have
both life and general insurance- companies, Birla SunLife Insurance, Kotak
Insurance where South African Old Mutual is a partner, Max New York Life.
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Swaraj Krishnan, Bajaj Allianz General Insurance said, We believe that there will
be no impact in our business in case the government increases the FDI cap in the
sector as it is a matter of shareholders. Analysts say the valuation of the 23%
which the Indian partner would divest in favour of the foreign partner would be
substantial as all these companies have done well.

From its side the insurance regulator Irda is also now preparing the basic
framework for calculating the valuation of a life insurance company.
The Embedded Value (EV) of a life insurance company is the present value of
future profits plus adjusted net asset value.

The life insurance policies are long-term contracts, where the policyholder pays a
premium to be covered against a possible future event (such as the death of the

Future income for the insurer consists of premiums paid by policyholders whilst
future outgo comprises claims paid to policyholders as well as various expenses.
The difference represents future profit.

For companies, the net asset value is usually calculated at book value. This needs
to be adjusted to market values for EV purposes. The IRDA will ask the insurance
companies to comply with the International Financial Reporting Standards (IFRS)
and make it mandatory for them to announce embedded values of their business

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26% TO 49%

UPA claims that to improve insurance penetration in country additional capital of
Rs.60,000crores required over 2010-2015 based on IRDA projections. Since
constraints of Indian partners to currently contribute 74% of capital are a hurdle,
foreign partners will contribute if cap relaxed. BUT IRDA Chairmans deposition
to Parliamentary Standing Committee itself states these projections are not very
accurate and just an arithmetic. Public Sector insurance companies are
confident of being able to raise money from domestic capital markets as and when
required. No need for hiking cap.
UPA claims investments are required in crucial infrastructure sector and increasing
FDI will enable private insurers to hike spend on infra BUT LICs share of
investment in infra was 70% and that of public sector general insurers was 71%
compared to the private sector during 2009-10 so it is obvious that private insurers
with foreign partners are more interested in profits than in investing in
buildingIndia! Presence of foreign equity does NOT increase infra investments.
Product portfolios of the public sector insurers are comparable to those of private
sector. Most new products introduced by foreign insurers are investment-oriented
in nature with HIGH RISKattached and are totally inappropriate in providing
social security to the Indian people, especially for the poor and aamaadmi. These
reasons were used by government to bring in 26% foreign equity and assurances
were given that the cap would not be increased- it is absurd that the very same
reasons are now being given to justify increase in FDI limit!

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The North Zone Insurance Employees Association (NZIEA) opposed the
government's proposal to raise the foreign direct investment (FDI) in the insurance
sector from 26 to 48 per cent protesting that the FDI in the sector will mostly
benefit the speculative market and "do no good to the country".

Addressing a press conference NZIEA general secretary Anil Kumar Bhatnagar
said that the Centre had recently approved the insurance laws (amendment) bill,
2008, and it was being proposed to be placed for discussion in the RajyaSabha
.Bhatnagar said that the Parliamentary standing committee headed by former
finance minister YashwantSinhahad unanimously submitted its report on
December2013 to the parliament, and the committee had opposed the increase in
FDI in the insurance sector.

The CPI(M), which has been opposing the opening up of the insurance and
pension sectors, said the Cabinet's decisions will make India's finance sector more
vulnerable to speculative finance capital.

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The governments intention was to create a monopoly and protect it from foreign
and private competition. So, what were the implications of such a conservative
approach? Insurance sector faced problems such as capital scarcity, poor product
quality and technological obsolescence. In the year 2000, life insurance penetration
in india stood at an abysmal 2.4%.

There is a huge lack of proper awareness regarding the need of insurance.
Insurance premiums are looked at as a means of tax evasion and savings.
The true importance of insurance often gets overlooked. In addition to this,
india is a country with a huge lower middle class section.In their daily
struggle to try and get both the ends meet, insurance premiums come as a
The inflexible and expensive plans offered in the market make it more
difficult for the common people to invest.
The situation in rural india is even worse. A small fraction of the people
have bank accounts, and the concept of insurance is very much alien. People
have little disposable income, and the only form of life insurance is joint

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1.Efficiency of the companies with FDI: The opening up of this sector for private
participation in 1999, allowed the private companies to have foreign equity up to
26 per cent. Following this up 12 private sector companies have entered the life
insurance business. Apart from the HDFC, which has foreign equity of 18.6%, all
the other private companies have foreign equity of 26 per cent. In general
insurance 8 private companies have entered, 6 of which have foreign equity of 26
per cent. Among the private players in general insurance, Reliance and
Cholamandalam does not have any foreign equity. The aggregate loss of the
private life insurers amounted to Rs. 38633 lakhs in contrast to the Rs.9620 crores
surplus (after tax) earned by the LIC. In general insurance, 4 out of the 8 private
insurers suffered losses in 2002-03, with the Reliance, a company with no foreign
equity, emerging as the most profitable player. In fact the 6 private players with
foreign equity made an aggregate loss of Rs. 294lakhs. on the other hand the public
sector insurers in general insurance made aggregate after tax profits of Rs. 62570

2. Credibility of foreign companies: The argument that foreign companies shall
bring in more expertise and professionalism into the existing system is debatable
after the recent incidents of the global financial crisis where firms like AIG,
Lehman Brothers and Goldman Sachs collapsed. Earlier too, The Prudential
Financial Services (ICICIs partner in India) faced an enquiry by the securities and
insurance regulators in the U.S. based upon allegations of having falsified
documents and forged signatures and asking their clients to sign blank forms. This
was after it made a payment of $2.6 billion to settle a class-action lawsuit attacking
wrong insurance sales practices in 1997 and a $ 65 million dollar fine from state
insurance regulators in 1996. AMP closed its life operations for new business in
June 2003. Royal Sun Alliance also shut down their profitable businesses in 2002.
A recent report by Mercer Oliver Wyman, a consultancy, found that European life
insurance companies are short of capital by a whopping 60 billion Euros.
According to the Mercer Oliver Wyman Report the German, Swiss, French and
British insurers suffer from severe capital inadequacy, which is a result of
undertaking risky investments in equity and debt instruments in the past. Hence
FDI in Insurance in India would expose our financial markets to the dubious and
speculative activities of the foreign insurance companies at a time when the virtues
of regulating such activities are being discussed in the advanced countries.

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3. Greater channelization of savings to insurance: One of the most important
duties played by the insurance sector is to mobilize national savings and channelize
them into investments in different sectors of the economy. However, no significant
change seems to have occurred as far as mobilizing savings by the insurance sector
is concerned even after the liberalization of the insurance sector in 1999. Therefore
the private or foreign participation has not been able to achieve the goal.

4. Flow of funds to infrastructure: The primary aim of life insurance is about
mobilizing the savings for the development of the economy in long term
investment in social and infrastructure sectors. The same vision was argued for the
opening up of insurance market would enable huge flow of funds into
infrastructure. But more than fifty percent of the policies they sell are ULIPS
where the investments go into the equity markets. As per a report, 95% of policies
sold by Birla Sun Life and over 80 percent of policies sold by ICICI Prudential
were unit-linked policies during 2003-04. Under these schemes, nearly 50 percent
of the funds are invested in equities thus limiting the fund availability for
infrastructural investments. On the other hand, the LIC has invested Rs.40,000
crore as at 31.3.2003 in power generation, road transport, water supply, housing
and other social sector activities. IRDA figures further imply that the share of the
public sector life and non-life insurance companies in investment in infrastructure
is greater than their market share. Despite the FDI cap being set at 26%, the
investment from the insurance sector to the infrastructure sector was
predominantly from the public sector companies. Hence the point of raising the
FDI cap in the insurance sector for mobilizing resources does not hold good

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1. Capital for expansion: FDI has the potential to meet Indias long term capital
requirements to fund the building of infrastructures which is critical for the
development of the country. Infrastructure has been the major factor which has
restricted the progress of the Indian economy. Insurance sector has the capability
of raising long term capital from the masses as it is the only avenue where people
put in money for as long as 30 years even more. An increase in FDI in insurance
would indirectly be a boon for the Indian economy, the investments not
withstanding but by making more people invest in long term funds to fuel the
growth of the Indian economy.

2. Wider Scope for Growth: FDI in insurance would increase the penetration of
insurance in India, where the penetration of insurance is abysmally low with
insurance premium at about 3% of GDP against about 8% global average. This
would be better through marketing effort by MNCs, better product innovation,
consumer education etc.

3. Moving towards Global Practices: Indias insurance market lags behind other
economies in the baseline measure of insurance penetration. At only 3.1%, India is
well behind the 12.5% for the UK, 10.5% for Japan, 10.3% for Korea and 9.2% for
the US. Currently, FDI represents only Rs.827 core of the Rs.3179 crore
capitalizations of private life insurance companies.

4. Provide customers with competitive products, more options and better
service levels: Opening the FDI in the insurance sector would be good for the
consumers, in a lot of ways. Increasing FDI limit would impact a lot of industries
in a positive way and that we could even do without the FDI in many other sectors
for some for example in real estate.

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A range of new products had been launched to cater to different segments of the
market, while traditional agents were supplemented by other channels including
the Internet and bank branches.
These developments were instrumental in propelling business growth, in real
terms, of 19% in life premiums and 11.1% in non-life premiums between 1999 and
India has a large population with an increase in its per capita income.
Indias middle income is rapidly increasing emerging as a profitable market.
Indias improving economic fundamentals will support faster growth in per capita
income in the coming years, which will translate into stronger demand for
insurance products.
Strong growth can be sustained for 3040 years before the market reaches
There is plenty of room for growth in personal accident, health and other liability
Rising household income and risk awareness will be the key catalysts to spurring
more demand for these lines of business in the future.
Health insurance could potentially have an important role in driving insurance
market development forward.

India is among the lowest-spending nations in Asia in respect of purchasing
insurance (China, which spent USD 36.3 per capita on insurance products & Indian
spent USD 16.4) .
Even after the liberalization of the insurance sector, the public sector Insurance
companies have continued to dominate the insurance market.
In the long run, other forms of non-price competition like aggressive
advertisement wars are likely to lead to increasing costs, eventually harming the
interests of the consumers.
A key challenge for Indias non-life insurance sector will be to reform the
existing tariff structure. From a pricing perspective, the Indian non-life segment is
still heavily regulated
Reinsurance is only provided by GIC .
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While the insurance business is highly concentrated in India, the share of foreign
companies is low.
Strong growth prospects pose pressure on the industry, and the economy at large,
to better manage the exposure to natural perils.
Questionable Reputation of the Foreign Partners.

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Since end of 2000, While Life insurance has been privatized. Indian Government
have opened the entry door for foreign players and private companies in Life
insurance sector. In the present scenario has revealed 22 Private Life Insurance
Companies working in Indian markets, Private life insurance companies have been
keeping behind Indian largest public companys (LIC) in an innovative products,
smart marketing, and aggressive distribution attracts customer toward the private
life insurance companies, sign up Indian customers faster than anyone expected.
Indian, who had always seen life insurance as atax saving device, are now
suddenly turning tothe private sector and snapping up the newinnovative products
offer to customers and investmentplans. The Life Insurance companiesin India
have grew by an impressive 36% withpremium income in the year 2003-2004 Rs
24.29billion from new business Rs253.43 billion during the fiscal year 2004-2005
in this duration havebeen braving stiff completion from Private Life Insurance
Companies. In which LIC has clocked21.87% growth in business at Rs 197.86
billion by selling 2.4 billion in new polices in the year 2004-2005, but this was still
enough the fall. Its market share as Private Player grew 129% Rs 55.57 billion in
the year 2004-2005 with annual growth rate 15-20 %, the largest number of Life
Insurance Polices in force, the potential of the Indian Insurance industry is
huge.The total value of insurance market estimated Rs 450 billion in 2004-
2005.Theinsurance business grow in India 17% in Fiscal year 2008-2009 $ 30
billion. The country economy clocks GDP 7.6%. In Fiscal year 2007-2008 Life
Insurance has been grown up their business 23.3%Rs 930 billion, The Private Life
Insurance Companies have made a record first quarter year in 2009,has recorded
13.22% growth in first year premium and 20.36% number of polices increase after
the considering to extend the limit of FDI in insurance industry. In the year 2002-
03 public companys (LIC) was collected 546228.49 cr. in the comparison with
five selected private sector companies their were total collection 733.52 cr. we can
discus in the year 2004-05 while total significant collection of public company was
75127.29 and in a comparatives withselected private companies their were total
collection of premium around 4402.29 cr. In the year 2007-08 while total
collection of public companys was 149789.99 cr. and selected private companies
their were total collection of premium 27979.99 cr. In during the last session 2009-
10 public company has been collected total premium around 1, 85,985, its
comparison of selected private companies, their were total collection of premium
16,495.86 cr. The huge premium collection have increased every financial year
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that was gearing insurance business in India on fast pace.Presents the resultant
figure of the insurance companies and its market share that indicate the penetration
of life insurance companies in Indian markets, such penetration indicate the fruitful
growth and its positive result of utilization foreign investment in life insurance
sector. The new players have improved the service quality of the life insurance. As
a result haveseen LIC continuing declining in its career from theyear 2000 onward,
market share have been distributing among the private players. In the financial year
2009-10, LIC still hold 65% market share among doing business of life insurance
companies in India, for upcomingnature of these private players are gaining
strength togive more competition to LIC in earlier future. Marketshare of LIC has
decreased from 95 %( 2002-03) to 81%(2004-05), in the financial year 2007-08
still hold 74.39%and following private players hold the rest of themarket share.The
central government has proposed to enhance foreign direct investment (FDI) in
insurance to 49% in its second wave of reforms announced recently. At present
foreign investment in private insurance companies is restricted to 26% of their
capital, which is now proposed to be increased to 49% by passing an amendment to
the Insurance Act in the ensuing session of Parliament. Announcing this decision,
finance minister P Chidambaram said the benefits of this amendment to the
insurance act will go to the private sector insurance companies, which require huge
amounts of capital and that capital will be facilitated with the increase in foreign
investment to 49%. He also clarified that this will not apply to public sector
insurers like Life Insurance Corporation of India (LIC) and the five general
insurancecompanies. At present there are 44 private insurance companies
authorized by the Insurance Regulatory and Development Authority (IRDA)
operating in the country. These comprise of 23 life insurance, 17 general insurance
and four health insurance companies, since the insurance sector was opened for
private sector in the year 2000. These are all joint ventures between the Indian
promoters who hold up to 76% and foreign insurance companies who hold up to
26% as mandated by the law.The insurance business requires additional capital as
it grows and this has to come from the promoters. If the Indian promoters are
unable to contribute their share of the capital, they will not be able to grow.
Foreign companies with deep pockets will be able to fill this gap, if they are
allowed to invest up to 49% of the capital. It is estimated that the private insurers
need about Rs60,000crore of additional capital during the next five years.
Therefore, the raising of FDI cap to 49% will come handy for the foreign partner to
increase their stake in the company, without the local partner having to put
matching capital in to the company. The foreign partner will bemore than happy to
increase its stake, as it will help it get a bigger share of the pie, and will also give it
a larger role in running the company according to its ways, by virtue of a higher
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shareholding in the company. This will, therefore, be a boon to the foreign insurers
to come to India in a big way.

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Multinational insurers are keenly watching the transformation of the Indian
insurance sector, mainly because the domestic markets have become saturated for
the respective insurer.

International insurers capture a significant part of their business from their
multinational operations only. UKs largest life and non-life insurers acquired 40%
to 60% of their total premium from their multinational operations. The foreign
investors are finding the Indian market more attractive because even a small share
of a growing market looks lucrative.

The other reason as to why the global insurers are interested in investing
their funds is the nature of the Indian markets. Generally insurance companies
operate on the principle of spreading.

Spreading the area of operations over a wide geographical area would
eliminate sudden dips in earnings due to the unexpected risk spread. Sigma Report
presented by the worlds second largest reinsurer Swiss Re on global insurance,
reports complete saturation of international market.

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Indias insurance sector is likely to clock an unprecedented growth of over
200 per cent by 2009-10. During this period, private players will grow at 140 per
cent owing to their aggressive marketing techniques as against a growth rate of 35-
40 per cent of state owned insurance companies, according to the Associated
Chambers of Commerce and Industry of India (ASSOCHAM).

The Chamber expects the total insurance business to reach Rs. 2000 billion
in the next two years from current level of Rs. 500 billion. On account of intense
marketing strategies adopted by private insurance players, the market share of state
owned insurance companies like GIC, LIC and others have already come down to
70 per cent in the last four-five years from over 97 per cent and more intense
competition is likely to be witnessed in the near future.

Till very recently, the insurance sector was largely under the government.
However, many private multinational firms have now entered the scene, such as
HDFC, ICICI, Kotak Mahindra and Birla Sunlife.

There is presently building in India an upsurge in consumer awareness,
putting immense and unavoidable pressure on the insurance industry. A lifting of
the bar on composite insurance, where companies are allowed to do only life or
non-life business today, can also be expected. Instead of categorizing insurance by
class, the focus may shift more to the period for which the cover was offered and
the risk underwritten. Already there is demand for permitting the industry to
underwrite pure risk and leaving investment decisions to policyholders.

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
different players are the products, pricing, and service. Meanwhile, the profile of
the Indian consumer is also evolving. 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 also at integrated financial solutions that can offer stability of returns
along with total protection.

To satisfy these myriad needs of customers, insurance products will need to
be customized. Insurance today has emerged as an attractive and stable investment
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alternative that offers total protection Life, Health and Wealth. In terms of
returns, insurance products today offer competitive returns ranging between 7%
and 9%. Besides returns, what really increases the appeal of insurance is the
benefit of life protection from insurance products along with health cover benefits.

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 not only live longer and retire earlier
are now emerging in India.

Where once the fear was one of dying too early, now, with increasing
longevity, the fear also is one of living too long and outliving one's assets. With the
breakdown of traditional forms of social security like the joint family system,
consumers are now concerning themselves 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.

This all adds up to major change in demand for insurance products. While
sales of traditional life insurance products like individual, whole life and term will
remain popular, sales of new products like single premium, investment linked,
retirement products, variable life and annuity products are also set to rise. Firms
will need to constantly innovate in terms of product development to meet ever-
changing consumer needs. However, product innovations are quickly and easily
cloned. Pricing will also not vary significantly, with most product premiums
hovering around a narrow band. In this competitive scenario, a key difference will
be the customer experience that each life insurance player can offer in terms of
quality of advice on product choice, along with policy servicing, and settlement of
claims. Service should focus on enhancing the customer experience and
maximizing customer convenience. Long-term growth in the business will depend
greatly on the distribution network, where the emphasis must evolve from merely
selling insurance to acting as financial advisors, helping customers plan their
finances depending on life stage and personal requirements.

This calls for a strong focus on training of the distribution force to act as
financial consultants and build a long lasting relationship with customer. This
would help create sustainable competitive advantage not easily matched.

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HDFC Limited
HDFC incorporated in 1977 with a share capital of Rs 10 crore.
HDFC Limited, Indias premier housing finance institution has assisted more than
3.3 million families own a home, since its inception in 1977 across 2400 cities and
towns through its network of over 250 offices.It has international offices in Dubai,
London and Singapore with service associates in Saudi Arabia, Qatar, Kuwait and
Oman to assist NRIs and PIOs to own a home back in India.As of December
2008, the total asset size has crossed more than Rs. 95,000 crore including the
mortgage loan assets of more than Rs. 82,800 crore. The corporation has a deposit
base of Rs. 17,551 crore, earning the trust of more than 9,00,000 depositors.
Customer Service and satisfaction has been the mainstay of the organization.

Standard Life Group

Standard Life is Europes largest mutual life assurance company.
The Standard Life Group has been looking after the financial needs of customers
for over 180 years. It currently has a customer base of around 7 million people who
rely on the company for their insurance, pension, investment, banking and health-
care needs.Its investment manager currently administers 125 billion in assets.
It is a leading pensions provider in the UK, and is rated by Standard & Poor's as
'strong' with a rating of A+ and as 'good' with a rating of A1 by Moody's.
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Standard Life was awarded the 'Best Pension Provider' in 2004, 2005 and
2006 at the Money Marketing Awards, and it was voted a 5 star life and pensions
provider at the Financial Adviser Service Awards for the last 10 years running. The
'5 Star' accolade has also been awarded to Standard Life Investments for the last 10
years, and to Standard Life Bank since its inception in 1998. Standard Life Bank
was awarded the 'Best Flexible Mortgage Lender' at the Mortgage Magazine
Awards in 2006.

J oint Venture
HDFC Standard Life Insurance Company Limited was one of the first
companies to be granted license by the IRDA to operate in life insurance sector.
Reach of the JV player is highly rated and been conferred with many awards.
HDFC is rated AAA by both CRISIL and ICRA. Similarly, Standard Life is rated
AAA both by Moodys and Standard and Poors. These reflect the efficiency
with which HDFC and Standard Life manage their asset base of Rs. 15,000 Cr and
Rs. 600,000 Cr. Respectively.

HDFC Standard Life Insurance Company Ltd was incorporated on 14th
August 2000. HDFC is the majority stakeholder in the insurance JV with 81.4
%stale and Standard: of as a staple pf 18.6% Mr. Deepak Satwalekar is the MD
and CEO of the venture.

HDFC Standard Life Insurance Company Ltd. Is one of Indias leading
Private Life Insurance Companies., which offers a range of individual and group
insurance solutions. It is a joint venture between Housing Development Finance
Corporation Limited (HDFC Ltd.) Indias leading housing finance institution and
the Standard Life Assurance Company, a leading provider of financial services
from the United Kingdom. Both the promoters are well known for their ethical
dealings and financial strength and are thus committed to being a long-term player
in the life insurance industry all important factors to consider when choosing your
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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 their entire infrastructure is in
place so that they can reap the benefit of an "unlimited potential."

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1. Joint venture and foreign collaborations laws and procedure-
by R. Kishnan

2. Recent trends in insurance sector in India- By K.

3 Life Insurance In India - Its History, Law- By R. M. Ray

4. www.financialexpress.com

5. www.economictimes.co.in

6. www.licindia.com