EMERGENCY TREND INSURANCE

INTRODUCATION
Market by 2015, particularly in countries like India and China. The IRDA is
the major body, which is providing better opportunities for the private
player in India. GIC & LIC's monopoly market approach is no more
prevalent in India. The new market scenario for insurance is growing; no
doubt it is a flying bird.
Change is the eternal law of nature. Everything is changing according to the
need of the time. Economic growth and social development in present
scenario is due to sudden change in industrial policy and economic planning.
Globalization has been the basic mantra after 1991, so every one thinks of
being global. Liberalization, privatization and globalization is the basic
concept of success in all aspect of development. Competition is tough now
due to globalization. Business has positioned the entire economy, and
industrialists think about making things global. There are no stringent rules
or regulations for making any business house or industry. Government gives
more emphasis on export and entrepreneurship. This is a changing world.
Everyone has to compete for better success. Marketing is the major concept
for developing any type of business. After globalization, marketing has taken
a new dimension and it is the most challenging task now. The new horizon
of marketing in the field of finance and insurance in present scenario is a
good sign of development.

Globalization - "The Dynamic Force"

Many people consider globalization nothing new - societies have been
interconnected for years. The world has never experienced globalization at
this level of intensity before, or the speed at which it is transforming and
integrating societies.
Herman E. Daly, an analyst of Global Policy Forum, characterizes
globalization as, "Global integration of many former national economies into
global economy, mainly by free trade and free mobility, but also by easy or
uncontrolled economic purposes." He further clarifies that globalization is
not internationalization - globalization brings about a single, integrated,
global economy, while internationalization is a federation of nations
cooperating as sovereign units to advance the national interest of all
members. Though globalization has become a broad heading for a multitude
of global interactions, ranging from the expansion of cultural influences
across borders to the enlargement of economic and business relations
throughout the world, it has different dynamic force for different person. For
the economist, globalization is essentially the emergence of a global market.
For a historian, it is an epoch dominated by global capitalism. Sociologists
see globalization as the celebration of diversity and the convergence of
social preferences in matters of life style and social values. To the political
scientist, it represents the gradual erosion of state sovereignty. But discipline
specific studies explain only a part of the phenomenon.
From a multi-disciplinary angle, globalization may be treated as a
phenomenon, a philosophy and a process, which affects human beings as
profoundly as any previous event. Several factors have been responsible for
2

this phenomenon. This study confines its attention to four growth-enhancing

facets of globalization that have been among its key drivers, namely trade,
finance, communication and transport.
MNCs - "The New Path Maker"
After globalization, so many MNCs are the major path maker for economic
growth. The world-class MNCs constantly pursued their strategy of gaining
access to every promising market world over, which had sound growth
potentialities, in order to expand their network and control over the
respective local economies. The consequence was that some of the markets,
particularly in developing countries like China and India, adopted some sort
of self-protectionist mechanisms by imposing certain deliberate politicolegal restrictions in order to restrict the entry of capital goods of these MNCs
into their markets.
Insurance being an integral part of financial service could not claim
immunity to the impact of the globalization process and opened up to private
and global players world over, including India. So many MNCs are now
entering into the insurance sector which is now a booming sector.
New Horizons of Insurance Market after Globalization
After 1970, insurance sector has become more prosperous. For a long time,
the two most important insurance players were LIC & GIC. Now so many
MNCs have entered into the same sector like Bajaj Allianz, Aviva, Birla
Sunlife, ICICI Prudential, etc. Insurance is now acting on two dimensions,
i.e., the element of investment and the element of protection. The Economic
Value Addition (EVA) has taken the major concern of the same business.
3

Marketing after globalization has become: More customer oriented

Mostly better service oriented
More competitive
Better satisfaction, more value addition and strategic development can help
any insurance sector to sustain in the present era.
New Market Scenario & Insurance
Insurance market in present scenario though is a booming sector, but the
market has changed from simpler to complex, less challenging to more
challenging. Going domestic to international is a very difficult task.
Understanding market synergy and cognisation of perception of customer in
the insurance field is very difficult. The Regulatory Board like 'IRDA' is
playing a very crucial role for the benefit of the insurance holder. The
premium and interest rate can't be violated for better profit and development.
The market is becoming tougher gradually.
Globalization of Insurance Market
Historically, insurance has been an integral part of financial services system
and recognized as a corner-stone of a country's financial health and symbol
of progress. Insurance provides for the financial security of citizens and their
families. It offers valuable investment advice and serves as an effective step
towards both individual and national financial stability.

After the terrorist attack on the World Trade Center in September 2001, the
momentum of growth of world economy suffered some temporary setback.
According to 3rd Annual Globalization Index Report of World Watch
Institute, the growth rate fell sharply from 4% in 2000 to 1.3% in 2001. But
the world had become stabilized after that and the economic growth was
back with entry of so many MNCs and insurances.
Triggered

by

the

sound

fundamentals

in

global

economy

and

internationalization of world markets, several countries turned towards free

market regimes in banking and insurance, putting an end to several decadeold state-owned controlled markets. The insurance market in China & India
is brighter. The leading reinsurance company like Swiss Re & Munich Re
has projected 20-25% growth in life and health insurance market by 2015,
particularly in countries like India & China

INSURANCE INDUSTRY: CLASSIFICATION

INSURANCE

GENERAL
INSURANCE

LIFE
INSURANCE

Fire
insurance

Mediclaim

Marine
insurance

Motor
vehicle

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 Nonfunctional 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 insurers 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 insurers incurring the risk
of paying a large sum upon a given contingency.
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Working of Insurance

Pre-Liberalization Scenario
Indian History: Time to turn the clock back-and open up insurance
Fifty years ago, India had a bustling, if somewhat chaotic, entirely private
insurance industry. The year after Independence, 209 life Insurance
companies were doing business worth Rs712.76 crore (which grew to an
amazing Rs 295,758 crore in 1995-96). Foreign insurers had a large market
share 40 per cent for general insurance but there were also plenty of Indian
companies, many promoted by business houses like the Tatas and Dalmias.

10

The first Indian-owned life insurance company, the Bombay Mutual Life
Assurance Society, was set up in 1870 by six friends. It Insured Indian lives
at the normal rates instead of charging a premium of 15 to 20 percent as
foreign insurers did. Its general insurance counterpart, Indian Mercantile
Insurance Company Ltd., opened in Bombay in 1907.
A plethora of insufficiently regulated players was a sure recipe for abuse,
especially because there was no separation between business houses and the
insurance companies they promoted. The Insurance Act, 1938, introduced
state controls on insurance, including mandatory investments in approved
securities, but regulation remained ineffective. In 1949, Purshottamdas
Thakurdas, chairman of the Oriental Assurance Company, admitted: "We
cannot deny that, today, there is a tendency on the part of insurance
companies in general to make illicit gains. Can we overlook the cutthroat
competition for acquiring business? And still worse is the dishonest practice
of adjusting of accounts." After a 1951 inquiry, the government was
dismayed that companies had high expense and premium rates, were
speculating in shares, and giving loans regardless of security. No wonder
that between 1945 and 1955, 25 insurers went into liquidation and 25
transferred their business to other companies.
This reckless record stoked the pro-nationalization fires. The 1956 life
insurance Nationalization was a top-secret intrigue; for fear that
unscrupulous insurers would siphon funds off if warned. The government
resolved to first take over the management of life insurance companies by
ordinance, then their ownership. The then finance minister C.D. Deshmukh
later wrote: 'Seth Ramakrishna Dalmias extraction of Rs.225 crore
(misappropriation by the Bharat Insurance Company) was a heaven-sent
11

opportunity. We were ready to nationalize, with every detail worked out."

On 19 January 1956, the news was announced on the radio, though even the
director- general of AIR was not shown the speech. The next morning, at 9
am, while executives were frantically seeking details over the trunk
telephone, says Deshmukh in his autobiography, our officers walked into the
respective insurance offices, showed their authority and then took over the
business. I believe this will be regarded as one of the best kept secrets of the
Government of India in all times to come." The ordinance transferred control
of 245 insurers to the government. LIC, established eight months later, took
over their ownership. General Insurance had its turn in 1972, when 107
insurers were amalgamated into four companies headquartered in the four
metros, with GIC as a holding company. Nationalization brought some
benefits. Insurance spread from an urban-oriented, high-end business to a
mass one. Today, 48 per cent Of LIC's new business is rural. Net premium
income in general insurance grew from Rs222 crore in 1973 to Rs 5,956
crore in 1995- 96. Yet, rigid controls hamper operational flexibility and
initiative so both customers service and work culture today are dismal. The
frontier spirit of the early insurers has been lost. Insurance companies have
also been timid in managing their investment portfolios. Competition
between the four GIC subsidiaries remains illusory. If Nationalization ever
had a purpose, it has been served. It's now time to turn back the clock in
some respects, and open up the sector again. The government already
intends to insist on large minimum capital requirements, a strong regulator,
and a healthy distance between insurers and industry. To ensure that history
doesn't repeat itself

12

Post Liberalization Scenario

While no aspect of the reform process in India has gone smoothly since its
inception in 1991, no individual initiative has stirred the proverbial hornets'
nest as much as the proposal to liberalize the country's insurance industry.
However, the political debate that followed the submission of the report by
the Malhotra Committee has presumably come to an end with the ratification
of the Insurance Regulatory Authority (IRA) Bill both by the central Cabinet
and the standing committee on finance. This section traces the evolution of
the life insurance companies in the US from firms underwriting plain vanilla
insurance contracts to those selling sophisticated investment contracts
bundled with insurance products. In this context, it brings into focus the
importance of portfolio management in the insurance business and the nature
and impact of portfolio related regulations on the asset quality of the
insurance companies. It also provides a rationale for the increased
autornatisation of insurance companies, and the increased emphasis on
agent-independent marketing strategies for their products. If politicized,
regulations have potential to adversely affect the pricing of risks, especially
in the non-life industry, and hence the viability of the insurance companies.
Finally, the backdrop of US experience provides some pointers for Indian
policymakers

13

Chapter 2
Trends in Insurance Sector
INDIAN INSURANCE IN 21ST CENTURY:
2000: IRDA starts giving licenses to private insurers: ICICI prudential and
HDFC Standard Life insurance first private insurers to sell a policy
2001: Royal Sundaram Alliance first non life insurer to sell a policy
2002: Banks allowed selling insurance plans. As TPAs enter the scene,
insurers start setting non-life claims in the cashless mode
2007: First Online Insurance portal, https:/// set up by an Indian Insurance
Broker, Bonsai Insurance Broking Pvt Ltd.
The Government of India liberalized 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.
Minimum capital requirement for direct life and Non-life Insurance
company is INR1000 million and that for reinsurance company is INR 2000
million. In the 2004-05 budgets, the Government proposed for increasing the
foreign equity stake to 49%, this is yet to be effected. Under the current
guidelines, there is a 26 percent equity cap for foreign partners in direct
insurance and reinsurance Company.

14

Growth of Insurance
GROWTH OF LIFE INSURANCE SOME FACTS (MAY 2014):
HOW THEY STACK UP
Premium income of life insurers in Rs crore
April - June

Growth

Total

%
Share (%)
2007
2008
LIC
8580.84
7524.56
-12
52.55
ICICI Prudential
1056.45
1,590.27
51
11.11
Bajaj Allianz
731.85
829.24
13
5.79
SBI Life
426.39
1,148.67
169
8.02
HDFC Standard
355.93
490.40
38
3.42
Max New York
289.74
501.16
73
3.50
Reliance Life
204.10 Markets
557.33
173
3.89
Emerging
Birla Sun Life (Total Premium,
174.63figures in
501.53
3.50
$billion) 187
Total Private
3930.95
6,795.6417.3
73
47.45
Taiwan
Total Market
12511.80 14,320.2013.4
14
100.00
China
India
7.2
Hong Kong
6.1
Israel
5.8
Singapore
5.0
Global Industry Statistics

15

Present Scenario of the Insurance Sector in India

As per the findings of a survey carried out in 2003-04, the Indian insurance
market ranked 5th in the Asian continent after Japan, South Korea, China &
Taiwan, and 19th
In India, the process of liberalization and opening of insurance sector to
private and foreign players started taking shape as part of the series of
financial and economic reforms brought in by the Government in the late
1990s, in accordance with the recommendations made by R. N. Malhotra
Committee constituted by the Government in April 1993. By amending the
relevant provisions of the Insurance Act, 1938, and passing the IRDA Act,
1999, by an Act of Parliament, Insurance Regulatory and Development
Authority (IRDA) was established in the year 2000, which marked the
opening act of the insurance sector to private participation and foreign
investment.
GDP & Insurance
Though potentially insurance is more than Rs. 500 Billion business in India,
and together with banking, it adds slightly more than 7.5% to the GDP, of
the country, the gross premium collection has been hardly 2% of the GDP,
not withstanding its growth between 15-20% annually, during the decade
preceding the opening up of insurance market for private and foreign players
in the year 2000. As the insurance premium database of various developed

16

and developing countries for the year 1999 indicates, the per capita premium
of India was just around $ 8 as against the same having been very high in the
developed countries. In other words, and in terms of percentage of GDP, it
was 14% for Japan, 12% for Korea and 9% for UK as against the same
staggering below 2% for India for the fiscal year 2000-2001.
In the new economic reality in globalization, insurance companies in 21st
century face a dynamic global business environment. Radical changes are
taking place owing to the internationalization of activities. The appearance
of new risks, new types of cover to match with new risk situation,
unconventional and innovative ideas on customer service, low growth rates
in developed markets, changing customer needs and the uncertain economic
conditions in the developing world are exerting pressure on insurers
resources while testing their ability to survive. The existing insurers are
facing difficulties from non-traditional competitors that are entering the
retail market with new approaches and through new channels. The basic
premise of globalization is opening up of new service markets to provide the
developing countries with new opportunities for the expansion of trade and
economic growth.
The rapidly changing economic scene, the political attitude, social values
and structures, cultural patterns, developments in IT have transformed
lifestyles in urban and rural areas. Developments in other parts of the world,
which are witnessing sweeping changes in terms of convergence of financial
and insurance markets through banc assurance, replacement of reinsurance
contracts by financial instruments, sale of insurance through mergers and
acquisitions will also have their impact on Indian Insurance Industry.During
the long monopoly regime, the government attempted minor changes in the
17

procedures without going into the root cause. The deregulation requires
comprehensive changes in the character and basic policies of the industry.
Till the year 2000, the insurance industry was a government monopoly
and is now experiencing cut-throat competition because a number of players
have entered into the Indian market in the form of Joint ventures with Indian
private sector partners.
Consequently, Indian Insurance Industry has closely integrated with
world economy thereby making crucial for insurance companies to operate
outside national boundaries.
India Insurance sector after globalization has brighter future. The
economic status of people is changing. So many new government policies
and economic reforms are impetus for insurance sector. The firmament of
economic growth is vast and never ending but the insurance as a bird have
to fly. No doubt insurance market after globalization is "A flying bird"!

TECHNOLOGY TREND IN INSURANCE MARKET ARE AS FOLLOWS

18

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

Internet:
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
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.
Electronic Clearance Service (ECS):

19

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.
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
Globalization of Life Insurance Market
SOME GENERAL INFORMATION ABOUT LIFE INSURANCE IN
INDIA

20

2nd largest financial service in after banking

Statutory requirements to provide reach to rural areas
Total number of lives insured and on books as on March 31, 200
channel
household
savings
capital
formation
Total Assets UnderSignificant
Management
of LifeforInsurance
Cos.
as on into
March
31, 2008Rs. 8,50,000 crores

GDP penetration of 4.1%

Life Insurance

21

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 underinsured 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 premium 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-

22

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

23

Market Share of Private Sector life Insurance Companies

Chapter 3
Impact of Budget on Insurance Sector

24

IMPACT OF BUDGET 2004

The finance ministers reform to strengthen risk management in banking The

Finance Bill has some brilliant promises to offer and yet there are adverse to
the financial service sector.
The decision to permit 49 per cent foreign direct investment (FDI) in
insurance is welcome. The industry will agree that there is an acute need for
it to grow and to write more business. If one were to analyze the growth of
some new private sector insurance players the underlying strength seems to
be their ability to get more capital and meet the solvency requirement
perform, write more business and grow faster. Lets not forget that these
insurance companies will be able to tap the capital market in two to three
years.
The best performer in the sector have also expanded their capital to about
Rs. 700 to 800 crore. A look at the non performers suggests that they do not
have adequate capital to grow. Hence the increase in the FDI limit would
help. More importantly, this will give greater control to the foreign partners
in areas of management control and governance. They will now be more
willing to bring in their expertise in product development, technology, and
implement best practices.
The striking future of the Finance Bill is that the government has accepted
defined contribution as the way forward for pension reforms, particularly for
new government employees.
One could have expected some clarity on the subject of multiple regulators
for pension. Though there be some benefits having a separate pension
25

regulator, one supposes that there would be a strong case for just one
regulator both the pension and insurance sectors. The government must
examine the confusion that may arise on account of having multiple
regulators.
Banking and insurance companies are significant players in the securities
market today. Midsize public sector banks may have made a turnover of
about Rs. 40,000 crore on securities trade and larger banks would have made
two to three times the number. The transaction tax of a 0.15 per cent would
certainly eat away a good part of banks profits.
Likewise, all services rendered by banks (except the fund based assistances)
would attract service tax. Banks would be able to conveniently pass on some
of these costs to the customers. So, each time an individual goes and gets a
demand draft or pay order, they will end up paying much more than the
existing rates. However, if competition becomes acute, banks would have to
bear it, which is bad news for the banking companies.

Chapter 4
26

Private V/S Public Insurance Sector

PRIVATE V/S PUBLIC INSURANCE SECTOR
Private players in the life insurance business are growing at a scorching
pace. Within three years of their inception, they have seized about 14 per
cent of the market.
Compare this to new generation private-sector banks, which took nine years
for 20 per cent share in the Indian banking industry. And after seven years in
the industry, in 2000, private mutual funds accounted for just 9 per cent of a
market that had been dominated by the Unit Trust of India.
There's another dimension to the insurance numbers game. While the private
insurance companies have attained 13 to 14 per cent share of the overall
insurance market, their share in the key metros (Mumbai and Delhi) is as
high as 30 to 40 per cent.
"We have to struggle to complete a deal in the metros now, because
policyholders are comparing products and asking for better deals," says S B
Mathur, chairman of the Life Insurance Corporation of India.
Private insurance companies are essentially joint ventures with global
insurance companies holding a maximum of 26 per cent stake. The foreign
partners are investing heavily in the Indian market and, thereby, driving
sales, because they see India emerging as one of the biggest markets in the
Asian region.

27

"India will become the biggest market for us in the next three to four years,"
predicts Dan Bardin, Prudential Corporation Asia managing director south
Asia and greater China.
Private players have certainly done their bit to increase the penetration levels
of insurance, mainly by creating alternative distribution channels--such as
associations with banks, brokers and corporate agents.
"Our bancassurance channel--with tie-ups with four banks--contributes
almost 70 per cent of our total sales," says Aviva CEO Stuart Purdy.
OM Kotak Mahindra Life, which is ranked eighth among private players, is
also leaning towards alternative distribution channels that will contribute to
45 per cent of total sales, in line with the contribution from its tied agency
force.
In sharp contrast, most of the LIC's policies continue to be sold through its
tied-agency network. The state life corporation acknowledges that it is
unable to maintain its lead in some metros: penetration by the private-sector
insurers has come of age and they are giving the LIC a run for its money.
The multi-channel approach adopted by private insurance companies has
proved to be a boon in terms of costing and their ability to capture business.
Earlier, most private insurance companies focused their energies on the top
20 cities. Today they are moving to smaller cities.
"The potential in smaller cities is increasing and companies are moving to
smaller cities and towns because these are increasingly becoming more
prosperous with a rise in agricultural income. With the increase in buying

28

power, this has fuelled growth opportunities for us," says Max New York
Life CEO Anuroop Tony Singh.
AMP Sanmar, another private player, has tied up with various chit funds and
transport finance companies in the country, where it is selling life policies on
the back of fixed deposits and bonds. A senior company official cites the
example of Vijaywada where a significant portion of the income is derived
from farming activities.
"The rural populace is managing their money well and no longer keeping it
under their beds. They have mobile phones and have opened bank accounts.
They are not very different from their urban counterparts when it comes to
purchasing life insurance covers," he points out.
And that's making the private sector optimistic about its future in the Indian
insurance market. "We [private insurers] are becoming an alternative to LIC.
If a customer has already bought an LIC plan, his second policy is likely to
be bought by the private insurance sector on account of various reasons-more specifically flexibility and transparency," says OM Kotak Mahindra
Life CEO Shivaji Dam.
Perhaps this partly explains why the LIC has increased its advertising spend
multifold since the insurance sector was privatized. Its ad spend more than
doubled to Rs 81 crore (Rs 810 million) in fiscal 2003, against Rs 37 crore
(Rs 370 million) in 1999-2000, prior to the industry being privatized.
Of course, the private insurance sector has also been steadily increasing its
ad spend, from Rs 29 crore (Rs 290 million) in fiscal 2001 when the industry

29

opened up, to Rs 92 crore (Rs 920 million) the following year. In fiscal
2003, private insurers spent Rs 143 crore (Rs 1.43 billion) on advertising.
But it's not the increased spend on advertising alone that has helped private
players in grabbing market share. One of the key differential factors
responsible for their growing market is the 150,000-odd life insurance
advisors of the private insurance companies.
"The private insurance agents sell better than their counterparts at the LIC.
Life insurance advisors of private sector insurance companies adopt the
need-based selling approach, unlike the LIC's agency force that pushes the
number of policies," says Dam.
This also gets reflected in the average sum assured by private insurance
companies being higher than that of the LIC. Policies sold by the private
players tend to be of a higher value.
For instance, Birla Sun Life's average premium stands at Rs 24,500, while
that of OM Kotak Mahindra Life is equally high at Rs 20,400. Against this is
the LIC's average premium of Rs 3,200.
Of course, there's also a difference in the target client of the private and the
state-run insurance companies. While the private players are targeting the
upper middle-class and high net-worth individuals, the LIC aims for the
masses through its 2,048 branches spread across semi-rural and rural towns.
Meanwhile, private insurance companies are capitalizing on global
relationships. "Business deals are often a call away since we capitalize on

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AIG's global relationship with multinational companies such as GE and

Kodak," says Tata AIG Life Ian Watts.
OM Kotak has gone a step further and tied up with Swiss Life International
so that it can capitalize on the latter's relationship with 300 multinational
subsidiaries and affiliates.
But it's not as if LIC has lost out on group insurance. The insurance major's
group business reached new heights in fiscal 2004, recording a 119 per cent
growth in new premium income and 50 per cent increase in the number of
lives covered.
Still, new business income for private companies has grown at 146 per cent
in fiscal 2004, compared to the 18 per cent average industry growth in new
premium income for the same period.
"The key in product sales lies in offering unbundled and transparent
products that give customer value," points out Dam.
The biggest draw in insurance in fiscal 2004 was unit-linked plans. Ninetyfive per cent of the policies sold by Birla Sun Life and over 80 per cent of
the 436,000 policies sold by ICICI Prudential were unit-linked plans.
And even though the LIC was late (January 2004) in pushing its unit-linked
product "Bima Plus", it managed to mop up a premium income of Rs 373
crore (Rs billion) with the sale of just under 1.7-lakh unit-linked policies, the
highest sales figure in the industry.

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FINDINGS
The advantage with unit-linked plans is that they offer policyholders
transparency in terms of costs, annual returns and bonus calculations. With
many companies guaranteeing the capital investment (some like Birla Sun
Life even guarantee 3 per cent assured returns on its unit-linked plans), the
interest in unit-linked plans only increased.
And the switch from traditional products to unit-linked plans gained
momentum as the Sensex climbed higher: the returns on such policies are
linked to the equity market.
"The stock market has helped to a certain extent and has contributed to our
growth and performance," agrees Birla Sun Life CEO Nani Javeri.
Aviva has shown a compounded aggregate growth rate of 36 per cent since
the inception of its fund. Returns on OM Kotak's balanced and growth funds
stand at 31.79 to 43.25 per cent respectively.
Dam claims that OM Kotak has sold several policies of Rs 25-50 lakh (Rs
2.5-5 million) since the "savvy investor thinks it best to invest in unit-linked
products." He adds: "Growth is coming faster in insurance companies with
unit-linked plans."

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CONCLUSION
The huge and ever rising population levels in our country provide
anattractive opportunity for the global insurance majors to seek
their fortunes here. That is the reason why we find so many private
playerstoday competing with LIC the only life insurer prior to liberalization
of out economy, for insuring Indian lives. In spite of the loud noises made by
the various companies vying for a slice of the large Indian Insurance pie,
the irony is that even today not more than 20% of the population of out
country is aware about the very basic concepts regarding LifeInsurance. This
is the precisely the reason why we see a mandatory tagtoday with every
advertisement that advertises for a insurance product,that goes INSURANCE IS
THE

SUBJECT

MATTER

OFSOLICITATION.

The

INSURANCE

REGULATORYDEVELOPMENT AUTHORITY OF INDIA (IRDA) is

aware of thefact that many Indian consumers can be taken for a ride by fly
by nightoperators who could seek to sell insurance as a pure
investmentinstrument and make good with their hard earned money,
promisingthem huge returns.

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