PROJECT REPORT ON A Comparative Study of Performance and Trends of Life Insurance CompaniesHealth Products in North India

Submitted in partial fulfillment of the requirement for the Award of MASTER OF BUSINESS ADMINISTRATION
Session: 2007-2009

Under the Guidance of : Dr. Sidharth Bhardwaj

Submitted by: Sushan Gill

Lecturer Kurukshetra University Kurukshetra ACKNOWLEDGEMENT

Roll No. 48 M.B.A (Gen.)-Final

The successful completion of this project marks the beginning of an ever going learning experience along with the knowledge enhancement. It would be worthwhile here to mention the contributions made by people around me leading to successful completion of this project. I would like to express my deepest sense of gratitude to my Project guide Dr. Sidhatrh Bhardwaj for his valuable guidance, inspiration and encouragement that I received from him throughout the project. My effort in accomplishing this project is result of constant motivation and patient hearing by him. At the same time my sincere thanks to all the respondents who participated in my project research. The project could not have been completed without their contribution.

DECLARATION

I undersigned hereby declare that this Project entitled A Study of Comparative Performance & Trends of life insurance companieshealth products in North India is an original piece of work and has not been copied from any source. I further declare that this project has not been submitted to any other Company/University for any other purpose.

(Sushan Gill)

PREFACE
Project report is very important and significant part of MBA PROGRAM as it tries to bridge a gap between theory & practice. it skillful blends the theoretical aspects with practical business situation , thus preparing an MBA in a better manner for the future responsibilities & challenges that one is likely to face then he enters the business world to star the carrier. This project report really provides me an opportunity to demonstrate my ability in applying theory to practical business situation. Infect, I have experienced a drastic change in my ability to grasp the available facts after completing this project. The study is divided in to ten chapters. The first discusses the introduction about insurance in India, operational risk in operating business of insurance. The second chapter & third chapter provide detail of review of literature & research objectives respectively. The fourth chapter is on the research methodology, which describes the, tools, research design, sampling size & analytical techniques. The fifth & six chapter is about analysis & interpretation of the data, and conclusion of my study respectively. The last but not the least chapter describes the limitation of the work. In last we have some additional data in annexures and information about my secondary data in references.

TABLE OF CONTENT
1. INTRODUCTION
1.1 1.2 1.3 1.4 Introduction about Insurance Introduction to Life Insurance Introduction to Health Insurance Operational risks in Insurance Industry

2. Review of Literature 3. Research Objectives 4. Research Methodology

4.1 Research Design 4.2 Sampling Techniques 4.3 Data Collection Methods 4.4 Tools

5. Analysis & Interpretation of Research

5.1 5.2 Findings & Analysis of data Recommendations

6. Conclusion 7. Limitations of the study 8. Annexures 9. References & Bibliography

9.1 Books & Journals 9.2 Various web-sites

List of Graphs/Tables

Table No. 5.1.(i) 5.1.(ii) 5.1.(iii) 5.1.(iv) 5.1.(v) 5.1.(vi) 5.1.(vii)

Title

PAGE

NO. Awareness among people about life insurance 75

products in North India Source of being inform about insurance Type of Insurance most important for insured

76 77

Relationship of occupation with ownership of 78 health insurance products Financial dependency of no. of person upon 79 chief earner What insured, in North India, expect from 80 policies Relationship of health insurance policies with 81

martial status 5.1.(viii) Source of getting health insurance policies for 82

5.1.(ix) 5.1.(x) 5.1.(xi) 5.1.(xii)

an employee How much employees are concern, about 83 having the appropriate health plan How much ULIP plans can contribute for 84 households financial needs Relationship of maturity in life & health 85 insurance ownership How buying behavior related to insurance 86 policies works

Chapter-1 1.1 Introduction to Insurance

The world "Fear" has only four alphabets like love but both of them are having very different meaning. Whatever man (male or female) does for the love of their families always starts with the background of fear. Generally so many times we have been asking our selves that, what will happen if we were not there, but we keep on asking rather then doing something for it. Time is precious, it never stops for any one and we are living in the world of uncertainty; the uncertainty of job, the uncertainty of money, the uncertainty of property and like this the story continuous for the whole life of a man. Should I say, our narrow vision restricts us to see only through a pipe, we can imagine how big the world might be if we see beyond a hollow pipe. As the competition is intensifying more the number of "Mr. Chintamanies" are roaming around the streets. How you can save your had earned money? or shall I say, where you can invest? The answer to these questions is Banks, Equity, Mutual Funds, Capital Goods, and Insurance Oh I have written insurance and I have a reason to that, don't be surprise. Yes, except insurance all the investment alternatives involves risk and the only rule that prevails is high risk high profit, if the economic

circumstance is not favoring our investment we will loose our hard earned money, further more all these investment plans are for the short period on the other hand Insurance has a long term perspective. As investment it not only covers the risk of your life rather then it also secure the future of your loved ones. The idea is to derive two basic investments need from insurance; one is the investment that means the returns on his money. In the age of reforms we have witnessed the falling interest rates of banks, post offices and also the prices are climbing by the lift and moreover the state is economy can not be considered as a stable economy. Every economic event is eying on the returns that you would be getting on your investments and ready to take their share. The other aspects of investment is assurance form the investment that this is the amount you will be getting, it is impossible to predict this uncertainty and expect Insurance no other mode promises you that after a certain period or maturity on long term basis. In view of these insights insurance emerges as the combination of both Investment and assurance.

Insurance = Investment + Assurance

1.1.1What is Insurance
1.

The business of insurance is related to the protection of the

economic values of assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefits from

it. The benefit may be an income or some thing else. It is a benefit because it meets some of his needs. In the case of a factory or a cow, the product generated by is sold and income generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income.
2.

Every asset is expected to last for a certain period of time during

which it will perform. After that, the benefit may not be available. There is a life time for a machine in a factory or a cow or a motor car. None of them will last fro ever. The owner is aware of this and he can so manage his affairs that by the end of that period or life time, a substitute is made available. Thus, he makes sure that the value or income is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it non-functional. In that case, the owner and those deriving benefits there from, would be deprived of the benefit and the planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effect of such adverse situation.

1.1.2 PURPOSE & NEED OF INSURANCE

Assets are insured, because they are likely to be destroyed, through accidental occurrences. Such possible occurrences are called perils. Fire, floods, breakdowns, lightning, earthquakes, etc, are perils. If such perils cab case damage it the asset, we say that the asset is exposed to that risk. Perils are the events. Risks are the consequential losses or damages. The risk to an owner of a building, because of the peril of an earthquake, may be a few lakhs or a few crores of rupees, 10

depending on the cost of the building and the contents in it. The risk only means that there is a possibility of loss or damage. The damage may or may not happen. Insurance is done against the contingence that it may happen. There has to be an uncertainty about the risk. Insurance is relevant only if there are uncertainties. If there is no uncertainty about the occurrence of an event, it cannot be insured against. In the case of a human being, death is certain, but the time of death is uncertain. In the case of a person who is terminally ill, the time of earth is not uncertain, though not exactly known. He cannot be insured. Insurance does not protect the asset. It does not prevent its loss due to the peril. The peril cannot be avoided through insurance. The peril can sometimes be avoided, through better safety and damage control management. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It only compensates the losses- and that too, not fully. Only economic consequences can be insured. If the loss is not financial, insurance may not be possible. Examples of non-economic losses are love and affection of parents, leadership of managers, sentimental attachments to family heirlooms, innovative and creative abilities, etc. The mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of them suffers a loss, the others will share the loss and make good to the person who lost. All people who send goods by ship are exposed to these risks, which are related to water damage, ship sinking, piracy, etc. Those owning factors are not exposed to these risks, but they are

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exposed to different kinds of risks like, fire, hailstorms, earthquakes, lightning, burglary, etc. Like this, different kinds of risks can be identified and separate groups made, including those exposed to such risks. By this method, the heavy loss that any one of them may suffer (all of them may such losses at the same time) is divided into bearable small losses by all. In other words, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all. If a Jumbo Jet with more than 350 passenger's crashes, the loss would run into crores of rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jets will crash at the same time. If 100 airline companies flying Jumbo Jets, come together into an insurance pool, whenever one of the Jumbo Jets in the pool crashes, the loss to be borne by each airline would come down to a few lakhs of rupees. Thus, insurance is a business of "haring". There are certain principles, which make it possible for insurance to remain a fair arrangement. The first is that it is difficult for any one individual to bear the consequences of the risks that he is exposed to. It will become bearable when the community shares the burden. The second is that the peril should occur in an accidental manner. Nobody should be in a position to make the risk happen. In other words, none in the group should set fire to his assets and ask others to share the costs of damage. This would be taking unfair advantage of an arrangement put into place to protect people from the risks they are exposed to. The occurrence has to be random, accidental, and not the deliberate creation of the insured person. The manner in which the loss is to be shared can be determined before-hand. It may be proportional to the risk that each person is 12

exposed to. This would be indicative of the benefit he would receive if he the peril befell him. The share could be collected from the members after the loss has occurred or the likely shares may be collected in advance, at the time of admission to the group. Insurance companies collect in advance and create a fund from which the losses are paid. The collection to be made from each person in advance is determined on assumption. While it may not be possible to tell beforehand, which person will suffer, it may be possible to tell, on the basis of past experiences, how many person, on an average, may suffer losses.

1.2 INTRODUCTION TO LIFE INSURANCE

Life Insurance is a contract for payment of a sum of money to the person assured on the happening of the event insured against. Usually the contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or at unfortunate death, if it occurs earlier. It is concerned with two hazards that stand across the life- path of every person that of dying prematurely leaving a dependent family to fend itself and that of living to old age without visible means of support. Life insurance is a guarantee that your family will receive financial support, even in your absence. Put simply, life insurance provides your family with a sum of money should something happen to you. It thus permanently protects your family from financial crises. In addition to serving as a protective cover, life insurance acts as a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your children married and even retire comfortably.

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Life insurance is designed to protect you and your family against financial uncertainties that may result due to unfortunate demise or illness. You can also view it as a comprehensive financial instrument as a part of your financial planning offering you savings & investment facilities along with cover against financial loss. By choosing the right policy as per your needs i.e. customised solutions, you will be able to plan for a secure future for yourself and your loved ones. Popular Products: Endowment Assurance (Participating),and Money Back (Participating). More than 80% of the life insurance business is from these products. 1.2(i) What are the Tax benefits applicable to me if one invest in a Life Insurance Policy?

Some insurance policies guarantee the amount of money that you would receive upon maturity or the minimum amount that you would receive upon maturity. Usually, this amount is a proportion of the sum assured such as a bonus or a guaranteed addition of say Rs 70 per Rs 1,000 of the sum assured. This means if you have an insurance policy for a sum assured of Rs 100,000 then you earn a bonus of Rs 7,000 each year on the sum assured. Other policies may offer you a guaranteed bonus as a percentage such as a guaranteed addition of 3.5% per annum on a compounded basis. This means you earn Rs 3,500 on a sum assured of Rs 100,000 in the first year while in the second year you earn Rs 3,623 (3.5% of Rs 103,500). Some companies also offer unit-linked policies.

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1.3 Introduction to Health Insurance

Insurance lines can be broadly classified into two categories: 1. Life 2. Non-Life, but Health Insurance occupies a peculiar position. Regulation apart, in a way, it fits into both life and non-life sectors as it about humans. In the evolving scenario, both life and non-life insures are covering health risks. However, the basic cover of hospitalization on indemnity basis is covered only by non-life insurers. The basic differences are: i.) In case of non-life insurers, it can be on indemnity basis, that is, payment of actual expenses(subject to the limit of sum insured), whether cashless or reimbursement. In the case of life insurers, these are agreed value policies, meaning that the pre-agreed sum will be paid to the insured ii.) person on the happening of the covered illness/conditions. Expenses need nt be established. Another difference is that non-life policies are short-term policies, they are mostly for a year. Some non-life insurers provide upto two years. But in case of life-insurers policies are for 10 to 20 years or for long-term. A health insurance policy is a contract between an insurer and an individual or a group, in which the insurer agrees to provide specified health insurance at an agreed-upon price the premium. Depending on the policy, the premium may be payable either in a lump sum or in installments. Health insurance usually provides either direct payment or reimbursements for expenses associated with illnesses and injuries.

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The cost and range of protection provided by the health insurance will depend on the insurance provider and the particular policy purchased. These days, most companies give the benefit of health insurance to the employees. However, in case your employer does not offer a health insurance plan, it is advisable to opt for a health insurance scheme. Health insurance has become a necessity in todays world considering the rise in the cost of medical care and treatment and the huge population of the country. The escalating cost of medical treatment today is beyond the reach of the common man. Even if an individual is healthy and has never had any major problem, it is not possible to predict what may happen in the future. There is a growing public awareness for better health care and desire to have better health care from private medical providers. In case of a medical emergency, cost of hospital room, doctors fees, medicines and related health services all add up to a huge sum. In such times, health insurance provides the much needed financial relief. Health insurance can be availed by people aged between five and seventy five (The upper and lower age limits may vary slightly depending on the policy). The health insurance scheme could either be a personal scheme or a group scheme sponsored by your employer. In anticipation of unexpected events that create the need for medical goods and services, the health insurance does not cover certain ailments. It does not cover ailments in the first year after the policy is taken. It covers hospitalisation charges for:

Heart attacks Strokes Prolonged illnesses Loss of limb, eye, or other parts of the body due to accident 16

Injuries Maternity expenses Medicines

Health insurance is one of the most regulated forms of insurance business in those countries where it plays a dominant role in financing of health expenditures. Spiraling healthcare costs and rapid technological advances in the medical field have triggered the need for cost-containment by the health insurers without sacrificing the interest of the policyholders or claimants. The nature of loss in health insurance might result in differences of opinion. All these call for intervention by regulatory authorities to protect the consumers.

1.3(i) The Different Types of Health Insurance

1. Employment-based health insurance. Private health insurance is a health plan that is provided by a person's employer or the labor union he or she belongs to. This type of insurance is purchased from a private health insurance company by the company they work for. 2. Direct purchase health plans. These are the health insurance coverage plans that are bought personally from a private health insurance provider. Direct purchase health insurance plans come in different levels of coverage. And right now, a lot of health insurance providers offering low cost individual health insurance for people with relatively low income. But of course, these company's flagship plans are the comprehensive policy that comes with high monthly premiums.

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3. Government health insurance: The U.S. government funds health insurance in local, federal, and state levels. There are different coverage under the government sponsored insurance and these are the Medicare, Medicaid, SCHIP, and Military health care. The people who qualify under these plans are better off to be ensure with them, as the government finances a big part of the policy. 4. State-specific plans. These are state sponsored health insurance plans. This type is a form of a special coverage given by the state office to its constituents and it may be called by different names across different states. Examples of these are low cost family health insurance and low cost health insurance for child that the local office provides, among others.

1.3(ii)

What is a unit linked health insurance plan?

Simply put, it means that you can now pay one annual premium, part of which will get invested to give you returns, and the rest will be used to buy you a health insurance, more popularly called mediclaim. Our reader Manoj Kumar, 41,* who lives in New Delhi wants to know whether he should opt for this scheme. Manoj's wife is 37 and they have two children, aged, 7 and 9 respectively. All these years he has been buying a medical insurance policy for his family. He would pay an annual premium of Rs 9,137 and get a cover of Rs 7 lakh for his family. This would care of all their medical needs. And since he had not made a claim yet on his policy, 18

he had accumulated a no-claim bonus of Rs 2.31 lakh, thus increasing his total cover to Rs 9.31 lakh. Now, he says, "I have read many articles in the newspapers recently regarding mediclaim policies and I am really confused. I have decided to discontinue my existing mediclaim policy and to go for the new unit linked health insurance policies being offered by leading life insurance companies. Here, by paying a sum of Rs 28,500 as yearly premium I can get my family insured for Rs 14 lakh (Rs 5 lakh for my wife and Rs 3 lakh each for myself and my kids). I can also make investments." He asks two questions: i. Should he switch form a mediclaim policy to a unit linked health insurance plan? ii. How will the premiums be treated, with respect to tax benefits? Before we answer Manish's questions,a few details. Two companies offer this policy presently -- LIC Health Plus and Reliance Wealth + Health. Here's how they work: 1. The policy gives two main types of benefits -- the hospital cash benefit and major surgical benefit. Hospital cash benefit: You can choose an amount between Rs 250 per day (in case of some companies, the minimum amount is set at 5 per cent of the annual premium) and Rs 2,500 per day for each day that you are hospitalised. When there is a medical condition, the insurance

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company will pay you this pre determined sum for each day that you are hospitalised. In case you are admitted to the intensive care unit, a slightly higher amount is paid as per the rules of the company. Major surgical benefit: Each company has a list of predetermined surgeries. For each surgery, they have a fixed payout, as a percentage of the sum assured. For instance, in case of a bypass, 100 per cent of the sum assured would be paid out whereas in case of knee replacement 60 per cent would be paid out. Either ways, this policy gives a lump-sum amount and does not pay on actuals like in the case of mediclaim.

2. On the basis of the hospital cash benefit limit that you choose, your premiums will be set. 3. From your annual premium, some amount will be deducted as health insurance charges. From the remaining amount, again charges will be deducted towards your unit linked investments and the balance will be invested in a fund of your choice, either debt or equity. 4. Each family member can claim one surgery only once. The total claims in a year will be limited to the sum assured for that family member. 5. The units in your investment portion will continue to generate returns and you can withdraw them at the end of the maturity period. You can also make partial withdrawals during the term of the policy subject to some company rules.

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1.4

OPERATIONAL

RISKS

IN

THE

INSURANCE

INDUSTRY:
Risk management is the mantra of modern business and of late the importance in operational risk management has been increasing because of increasing number of large size operational losses, increasing reliance on technology with associated risks and deregulations and globalization. Operational risk assumed prominence since episodes of Barings, Enron etc. The financial services industry which is now relying on highly sophisticated financial engineering together with technology is yet to recognize the associated risks. The Basel Committee on Banking Supervision recognized this and stated that growing use of highly automated systems has the potential to transform high frequency and low severity manual processing errors into low frequency and high severity system failures. Further, the growing use of internet in conducting business also posed risks such as fraud and security which are yet to be properly understood by the business. It is therefore important that business recognizes these areas which cause such kind of operational failures and try to mitigate them by using appropriate risk mitigating techniques. In the insurance industry, in addition to the above factors, it is important to recognize that the value of an insurance company is nothing but the present value of its future cash-flows adjusted for risks. Shareholders value can be increased by reducing the volatility of future cash-flows. In the last few years, financial institutions had developed many sophisticated techniques to manage various risks and in-spite of this volatility in earnings is still matter of concern. Many studies have shown that a major source of such volatility is not related to financial risks but the way in which the company operates.

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What differentiates operational risk from financial risk is the mean effect. Normally, market risk and interest rate risk are considered as zero mean rate risk. A company is equally likely to suffer or gain from market and interest rate movements. Operational losses from a few insurers can cost significant damage to the market value of the whole industry due to contagion effect. Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic risk, reputational risk, and systemic risk. An earlier definition distinguished between direct or indirect loss, but since indirect loss could be construed as opportunity cost which is not intended to be provided for under operational risk capital this distinction has been dropped. There are four sources through which operation risk could occur, viz., people, processes, systems and external factors. If we have to consider various types of operational risk, Basel Committee classified the term as follows: i. Employment Practices and Workplace Safety ii. Internal Fraud iii. External Fraud iv. Damage to Physical Assets v. Business Disruption and System Failures vi. Execution, Delivery and Process Management vii. Clients, Products and Business Practices. Ever since operation risk assumed prominence, the financial institutions like banks etc. try to provide capital for covering operation risks. In this context, measurement of (or) assumes more importance.

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There are three methods of calculating operational risk capital in order of increasing sophistication and risk sensitivity. 1. Basic Indicator Approach: This is an elementary, top-down approach that can be followed by any company irrespective of its size or complexity. Under this approach, the operational risk capital is calculated using a proxy indicator for the entire company proposed as the average annual gross income over the previous three years. This indicator is multiplied by a parameter , which is given by an internal committee or by the regulator. This parameter is calibrated so that the operational risk capital equals 12 percent of minimum regulatory capital. 2. Standardized Approach: This method breaks out the above calculation by business line. For each business line, the operational risk capital is calculated as x Indicator. Originally, the Committee had proposed a variety of indicators such as gross income, annual average assets, total assets under management, and annual settlement throughout, depending on the particular line of business. However, in the absence of demonstrably increased risk sensitivity, the Committee specified that average annual Gross Income over the previous three years be used for all business lines. 3. Advanced Measurement Approach:

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Under this, the regulatory capital requirement will equal the risk measure generated by the banks internal operational risk measurement system using the quantitative and qualitative criteria. The use of advanced measurement approach is subject to supervisory approval. Time has come for the Indian insurance industry to pay due attention to operational risk issues and address them in an adequate manner so that these risks are suitably identified at an early stage and risk mitigating measures are put in place. Compelling reasons for this are: (i) Unlike other risk factors, operational risk takes a long time to surface; In the case of credit risk or interest rate risk, the moment the interest rate changes or credit rating changes, the company assesses the impact of these changes. If there is a serious error in the policy document and a policyholder goes to court, then the operational risk factor is felt only when the court judgment is given. (ii) The contagion effect of operational risk from one insurer to another insurer needs to be recognized. If an insurer has huge operational risks, the policyholders may lose interest in its insurance products. This lack of confidence in insurance products impacts other potential buyers of insurance products from other insurance companies as they lose confidence which will have an adverse impact on the insurance business. In the days of financial convergence, customers will switch from one financial product to another. In the long run this will significantly affect the insurance companies.

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(iii) In a similar vein, if an insurer who has higher operational risks, transfers risks to a financial intermediary belonging to another financial system say banks / NBFCs there could be a systemic impact which will destabilize the financial system. All the above clearly endorse the importance of operational risks which are to be recognized well in advance. Companies must put in place well defined processes for each activity and these processes must be reviewed periodically.

Chapter-2 REVIEW OF LITERATURE

DILEEP MAVALANKER, RAMESH BHAT(2000) in his article Health Insurance in India Opportunities, Challenges and 25

Concerns entitled In India has limited experience of health insurance. Given that government has liberalized the insurance industry, health insurance is going to develop rapidly in future. The challenge is to see that it benefits the poor and the weak in terms of better coverage and health services at lower costs without the negative aspects of cost increase and over use of procedures and technology in provision of health care. The experience from other places suggest that if health insurance is left to the private market it will only cover those which have substantial ability to pay leaving out the poor and making them more vulnerable. Hence India should proactively make efforts to develop Social Health Insurance patterned after the German model where there is universal coverage, equal access to all and cost controlling measures such as prospective per capita payment to providers. Given that India does not have large organized sector employment the only option for such social health insurance is to develop it through co-operatives, associations and unions. The existing health insurance programmes such as ESIS and Mediclaim also need substantial reforms to make them more efficient and socially useful. Government should catalyze and guided development of such social health insurance in India. Researchers and donors should support such development. RAJEEV AHUJA(2004) in his article HEALTH INSURANCE FOR THE POOR IN INDIA mentioned Health insurance is emerging to be an important financing tool in meeting healthcare needs of the poor. Neither market mediated nor government provided insurance is an appropriate way of reaching the poor. Community Based Health Insurance (CBHI) is more suitable arrangement for providing insurance to the poor. Development of private health insurance in the country

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has both potential risks and benefits in improving the access of the poor to health services. Appropriate regulatory changes can minimise the risks and turn potential benefits into concrete gains for the poor. However, currently even the private health insurance market lacks development for the want of proper regulatory decisions both on the supply of health services and on the demand for health insurance. CBHI, which is more appropriate insurance arrangement for the poor, could take different forms and each of this form may be suitable depending on the characteristics of the target population, their health profile, and health risks to which the community is exposed. Indeed, for a country as diverse as India there can be no Pan India model and all different forms need to be explored. The scheme announced in the last budget and recently launched by the Prime Minister of India seems promising provided the insurers find it attractive enough to partake in the scheme. The liberalisation of insurance market has made this less likely, as competition in the market place will turn the focus of companies in most profitable lines of business. However, a regulatory requirement to this effect may then be a possible way out. The proposed scheme being a group insurance scheme is not meant to cover the entire BPL population. Also, it excludes outpatient care. As experience accumulates, the scheme can be fine-tuned and expanded to cover all low income people. But increased public health spending and reforming of public health facilities is a must for the success of these community based health initiatives. Tapen Sinha, Ph.D(2006) with title The Indian insurance industry: challenges and prospects stressed India is among the most promising emerging insurance markets in the world. Its current premium volume of USD 18 billion has the potential to increase to USD

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90 billion within the next decade. In particular, life insurance, which currently makes up 80% of premiums, is widely tipped to lead the growth. The major drivers include sound economic fundamentals, a rising middle-income class, an improving regulatory framework and rising risk awareness. The groundwork for realising potential was arguably laid in 2000 when India undertook to open the domestic insurance market to private-sector and foreign companies. Since then, 13 private life insurers and eight general insurers have joined the Indian market. Significantly, foreign players participated in most of these new companies despite the restriction of 26% on foreign ownership. Incumbent state-owned insurance companies have so far managed to hold their own and retain dominant market positions. Yet, their market share is likely to decline in the near to medium term. Important steps have thus been already taken, but there are still major hurdles to overcome if the market is to realise its full potential. To begin with, India needs to further liberalise investment regulations on insurers to strike a proper balance between insurance solvency and investment flexibility. Furthermore, both the life and non-life insurance sectors would benefit from less invasive regulations. In addition, price structures need to reflect product risk. Obsolete regulations on insurance prices will have to be replaced by risk-differentiated pricing structures.

S.M.MANCHANDA(2006) studied that In the life sector, insurers will need to increase efforts to design new products that are suitable for the market and make use of innovative distribution channels to reach a broader range of the population. There is huge untapped potential, for example, in the largely undeveloped private pension market. At the moment, less than 11% of the working population in 28

India is eligible for participation in any formal old-age retirement scheme. Private insurers will have a key role to play in serving the large number of informal sector workers. The same is true for the health insurance business. In addition, the rapid growth of insurance business will put increasing pressure on insurers capital level. The current equity holding ceilings, however, could limit the ability of new companies to rapidly inject capital to match business growth. It is also the responsibility of non-life insurers to help manage Indias high exposure to natural catastrophes. To do this, technical know-how and financial capability are imperative. SUNIL MAHESWARI (2004) stressed that the largely underserved rural sector holds great promise for both life and non-life insurers. To unleash this potential, insurance companies will need to show longterm commitment to the sector, design products that are suitable for the rural population and utilize appropriate distribution mechanisms. Insurers will have to pay special attention to the characteristics of the rural labour force, like the prevalence of irregular income streams and preference for simple products, before they can successfully penetrate this sector. Indrani Gupta(2004) in Voluntary Insurance Sector in India Partnering To Achieve Greater Coverage For Health concluded Health coverage is still restricted to about 10 percent of the population in India, and there are limits to expansion of Social Health Insurance, social security based health coverage, and stand-alone Community Health Insurance. Extending health cover to the entire population is one of the major ways of achieving the Health for All objective, because it removes an important barrier to health seeking behavior. The growth in voluntary health insurance has been 29

significant over the last several years, and it is clear that the potential for growth in health insurance is immense. One such innovation, which can exploit this huge untapped potential, is productive partnerships among insurance companies, community based organisations and different levels of government. There are currently several such instances of partnerships, where the main beneficiaries are communities, who get low cost health insurance. However, such partnerships need to be studied carefully, from the perspective of costing and subsidies involved, as well as from the operational and financial feasibility angle. Mayur Trivedi (2005) mentioned Another point that may be critical in the scaling up of such innovative products is the reach of insurance companies in rural and other remote areas. Whereas the life insurance products are different from health insurance products, the Life Insurance Corporation (LIC) does have a tremendous network that can be used to distribute newer and better health insurance products as well. At present, LIC offers Critical Illness policies for a few major illnesses. LIC can however, also be mandated to sell a certain volume of health insurance product as well. Needless to say, this and other such newer initiatives would require IRDA to take another look at its current rules and regulations governing insurance business in India. Ramesh Bhat, Sumesh K Babu(2003) in his article Health Insurance and Third Party Administrators: Issues and Challenges entitled With the growth of private voluntary insurance in the unregulated healthcare market, costs of healthcare are likely to go up. Managed care organisations in many developed countries play an important role in containing costs. In India, The Insurance Regulatory and Development Authority (IRDA) has paved the way for 30

insurance intermediaries such as third party administrators (TPAs), who are expected to play a pivotal role in setting up managed care systems. TPAs have been set up to ensure better services to policyholders and to mitigate some of the negative consequences of private health insurance. However, given the demand and supply side complexities of private health insurance and health care markets, insurance intermediaries face immense challenges. Right in the early stages of its development IRDA has defined the role of TPAs as one of managing claims and reimbursement; their role in controlling costs of health care and ensuring appropriate quality of care remains less defined.

S. Krishnamurthy in Insurance Industry in India: Structure, Performance, and Future Challenges stressed that No specialist health insurer has come forward so far to establish operations in India. Therefore, life and general insurance companies are allowed to transact health insurance business. But, they are cautious in their approach primarily because of weaknesses in the infrastructure of health sector and lack of reliable data. The government and the regulator have repeatedly expressed concern on the lack of growth of health insurance business. Nani Jhaveri(2006) in ARE INDIAN FAMILIES ADEQUATELY INSURED?entitled Most families in India may not have adequate insurance in case of a calamity to the bread earner, the amount that the insurance company will pay to the family members will not be enough to enable them to maintain a standard of living (albeit lower) than what they were used to earlier. 31

Sandeep Bakhshi(2005) in his article INTEGRATED APPROACH: KEY TO GROWTH AND DEVELOPMENT summarized India is one of the most under-penetrated markets for insurance. While Indias GDP is 1.5 per cent of the total world GDP, its general insurance premiums are only 0.3 per cent of global premiums. Going forward, the challenge for the industry players is to grow the category by increasing the width as well as the depth of insurance penetration. The key to market growth is through an integrated approach which includes creating awareness about insurance, enhancing reach through cost effective distribution, and meeting customer needs through product innovation. Insurance products can easily be copied thereby limiting differentiation at the product level. In such a scenario, competitive advantage will be gained through constant product innovation, cost effective distribution, and quality of service delivery. This will allow the insurer to differentiate the overall value proposition offered to the customer and to adopt a pricing model based on the perceived value as against discounting. S V Mony(2005) in article NEW INITIATIVES AND IN THE

INSURANCE

SECTOR:

OPPORTUNITIES

CHALLENGES

mentioned the co-operative sector and the micro credit organizations might help in the penetration of insurance in the rural areas by formulating low cost policies. He also stressed that good customer service & information might help insurance companies in the penetration of insurance products in to urban areas. Ashok Jha(2007) in his statement at National Insurance Academy Pune, India emphasized that in the last one year a lot of 32

interest has been shown in the field of health insurance by bodies like State Governments, Media and most importantly by the Ministry of Health. While discussing over the health insurance penetration and the role of private health insurance he sighted that there are very few countries that have penetration of more than 20 percent, Brazil, Chile and USA to name a few. US market and stressed upon the point that in US the health insurance is mainly driven by Employee based Insurance Plan which comprises mainly of the formal sector (large organized sector) but in India its only 10-11 percent of the working population involved in the formal sector. In US and other developed markets private health insurance covers largely the formal sector whereas the vulnerable sectors are mainly targeted by public funded health programmes. Health Insurance has performed well in those market where tax-GDP ratio is very high but it is not so when we look at the Indian economy. We can see out of pocket expenditure in India is as high as 80 percent which shows the opportunity in this sector. K. K. Srinivasan Member (Non-Life), Insurance Regulatory and Development Authority (IRDA) once told Health Insurance is a rapidly growing class of insurance business. But business potential apart, it addresses a major area of public welfare. Realizing the importance of health insurance, the insurance Act provides for preference in granting of registration to health insurers. Section 3 (2AA) of Insurance Act, 1938 states explicitly that Authority shall give preference to register the applicant and grant certificate of registration if such applicant agrees for providing health cover to individuals or group of individuals. while quoting Nobel Laureate Prof. Amartya Sen urged that the insurance companies need to focus on the economically weaker sections of the society as Health deprivation is really the most central aspect of poverty and elementary freedom as said by Prof. 33

Sen. He emphasized upon the twin objectives of the IRDA to protect the interests of holders of insurance policies and to regulate, promote and ensure orderly growth of the insurance industry as explicitly stated in the IRDA Act, to be equally applicable to health insurers also. The twin objectives can be analyzed in terms of specific areas of concern from the regulators perspective as: Availability of appropriate covers Effective distribution channels Pricing and affordability Continuity and renewal Transfer and portability Contract certainty and fairness Market conduct and disclosures Claims servicing Profitability and solvency Others e.g. Fraud and misuse prevention

Mr. P. C. James, Executive Director, IRDA while making his presentation on Regulatory Environment for Development of Health Insurance narrated various selling methods among which he emphasized upon the licensing of Agents and Intermediaries. He also raised voice on behalf of the policy holders that there are often complaints against the insurance companies of refusing to pay claims without reasonable investigation or many a times failing to even explain the basis of denying a claim. He threw light on the definition of Health Insurance business or health cover as per the IRDA (Registration of Indian Insurance Companies) Regulations, 2000. He

34

also

focused

on

Third

Party

Administrators

Health

Services

Regulations 2001 and Policyholder Protection Regulations 2002 where he discussed the various roles of TPA, the scope of benefits and the extent of cover in health insurance products. Mr. James stressed upon the point that the insurers are free to float innovative products as underwriting and pricing freedom is given to the insurance companies practicing health insurance business.

Mr. Thomas D. Snook, (2007)Principal & Consulting Actuary of Milliman while making his presentation on Rate Regulation: An Actuarial Overview emphasized upon that Rates need to be selfsupporting and adequate which implies that adequate revenue to cover Claims costs, Administrative Expenses Commissions, Taxes and Fees etc. Rates should be adequate to avoid insolvency but they should not be excessive, assuring that the rates are not high but are fair. While discussing the topic he considered loss ratios in relation to contract terms, renewability provisions, ability to raise ratio, types of coverage and level of premium. Mr. Snook urged not to regulate the overall rate level as long as the rates are adequate and not excessive in the aggregate rather regulate relationships between rates. To say, rate relationship is what concerns regulators if rates are adequate and fair in the aggregate. He sited examples of countries like Ireland, Brazil, South Africa & USA while discussing about rate relationship regulations. In his presentation he explained how variations of rates are influenced by market size and characteristics such as medical expense insurance typically rated on an annually renewable term basis where as DI, LTC are often rated on a long -term basis. While explaining Rate Documentation he focused on: Actuarial Certification 35

(A statement given by a qualified actuary that the rates comply of being adequate, not excessive and non-discriminatory) Actuarial Memorandum (A more detailed document showing development of the premium rates) Finally, at the end of his presentation he focused on the data reliance part and urged that IRDA should focus on data collection as actuaries need relevant data to work with, he emphasized that inadequate data leads to pricing based on guesswork and not on scientific calculations and also doesnt provide any basis for determining if rates are adequate or excessive and doesnt facilitate in regulating either. Berman(1996) in his book. "Rethinking Health Care Systems: Private Health Care Provision in India entitled Health insurance expenditure in India is roughly 6% of GDP, much higher than most other countries with the same level of economic development. Of that, 4.7% is private and the rest is public. What is even more striking is that 4.5% are out of pocket expenditure . There has been an almost total failure of the public health care system in India. This creates an opportunity for the new insurance companies. Thus, private insurance companies will be able to sell health insurance to a vast number of families who would like to have health care cover but do not have it Ms. A Durga Kumari, (2007) Resident Technical Consultant, Bearing Point made a presentation on Special Considerations for Managed Care Health Insurancedefined Managed care as a philosophy of health care coverage that streamlines health services and creates a health-care system that includes both the financing and 36

delivery of services to the consumer. It provides patient (insured) with appropriate care as efficiently as possible; medically necessary, appropriate treatment; delivered in the most efficient setting. While answering to the question Why Managed Care? She explained that it integrates financing and delivery of health care addressing the basic issues of access, cost, quality of care whereas offering incentives to provide only medically necessary and appropriate care. She stressed upon that managed care offers a way to coordinate care and helping in centralizing administration and working systems, common record system, and effective flow of communication of client information. Ms. Durga Kumari discussed the Utilization Management Review Programme (UR)- a system of reviewing the medical necessity, appropriateness and/or quality of health care services provided, such as but not limited to: Pre admission certification Pre authorization Peer review in the case of adverse determination. While explaining managed care under the Indian legal and regulatory framework, she said that managed care health plans may be offered by insurers by providing pre-determined health care benefits for a fixed and predetermined price (prepaid) through an organized network of providers. She discussed further the constituents of managed care health insurance plan such as the Licensed Insurers, the Licensed TPAs and Intermediaries, and Health Care providers (provider network) e.g. Physicians, Public and Private Hospitals, Nursing Homes, Diagnostic Labs, Pharmacies, others that are part of the in-network organized by the Insurers. Some of the objectives of regulation that she focused upon are:

37

(i) To facilitate providing readily available health insurance products that emphasizes accessibility and quality of health care to the insured (members or enrollees) in a managed health care insurance plan. (ii) To encourage the development of managed care health insurance plans as an efficient alternative system (of financing and delivery) of health insurance. (iii) To set standards for insurers in defining and prescribing policy terms and conditions applicable especially to managed health care insurance plans. She discussed the mandatory and non-mandatory provisions in details while explaining the conditions for provider agreements to a great extent. Agreements can be with an organisation, individual practitioner or group of practitioners that are to be written with all terms specified including the method of payment, capitation and/or rate schedule. Care providers must be: Licensed, desirous of participation and willing to meet agreement terms Qualified and equipped to provide the contracted services in the geographical area served by the MC plan Abhijit Nagendranath , Pallavi Chari (2002) in their article Health Insurance in India -The emerging paradigms The Indian insurance scenario pales into comparison when compared with other countries of the world where most of the developed countries have a large portion of government involvement in this sector. The quality and availability of government-funded healthcare in India is an 38

area of concern. With the advent of newer technologies, the cost of healthcare has become prohibitive for a large segment of the population. The government and the people are using various health financing options to meet rising health care costs. Health insurance recently becoming being an affordable option, the potential and opportunity for insurance companies has immensely brightened. In countries such as Korea, Taiwan, and Sri Lanka, after the insurance sector was opened up, premia grew at thrice the rate of GDP growth. Clearly then, India can benefit from the entry of private players. Even overall, India still has a low insurance penetration of 1.95 per cent, that makes it 51st in the world. Despite the fact that India boasts a saving rate of around 25 per cent, less than 5 percent is spent on insurance.It must be borne in mind that India is a predominantly rural country and will continue to be so in the near future. New players may tend to favor the "creamy" layer of the urban population. But, in doing so, they may well miss a large chunk of the insurable population. A strong case in point is the current business composition of predominant market leader the Life Insurance Corporation of India. The lion's share of its new business comes from the rural and semirural markets. In a country of 1 billion people, mass marketing is always a profitable and cost-effective option for gaining market share. The rural sector is a perfect case for mass marketing. Competition in rural areas tends to be kinder than that in urban areas, which are usually cutthroat and the generally smaller policy amounts in rural areas would be more than offset by the higher volume potential in these areas in contrast with urban areas.Identifying the right agents to harness the full potential of the vibrant and dynamic rural markets will certainly provide results. Rural insurance should be looked upon as an opportunity and not an obligation. Two aspects that need to be

39

developed so as to allow health insurers to penetrate the rural market are: A smaller bundle of innovative products in sync with rural needs and perception An efficient delivery system

In this light, the suggestions of the IRDA bill are extremely useful. We need to set up cooperative societies that will encourage targeting the rural secotr. Also, insurance agents need to be trained to sell health insurance to the rural layman, considering that the bucolic population in India is more susceptible to falling ill, as regard to the health conscious urban one. Shri C S Rao, Chairman, IRDA (2007) in the FICCI conference on Sustainable Health Insurance - Need of the Hour The insurance companies have indeed risen to this challenge and have taken efforts, more than ever before, to grow the health insurance market. The demand for health insurance covers has seen a healthy increase, and today the sector is the fastest growing segment in the non-life insurance industry in India, which grew at over 40% last year. It is also emerging as an increasingly significant line of business for life insurance companies. During the last five years, the premium from health insurance products in non-life companies has grown from 675 crores in 2001-02 to Rs 3200 crores in 2006-07, almost 5 times its level 5 years back.While this rate of growth appears to be very healthy, it is on a low base, and health insurance penetration in the country continues to be low. Only about 25 million persons are presently covered for health through commercial insurance, in a country of over 1.1 billion people. Overall, the Indian health sector is 40

still characterized by the near absence of any significant risk protection against major health-related expenditure, as insurance and other organized forms of payment for health services, including ESIS, CGHS and other such schemes, barely constitute a tenth of all health expenditure in the country. Almost four-fifths of the health spending in the country is private, out-of-pocket expenditure. In the absence of such protection, the financial impact of hospitalization can be very pronounced, and indeed is reported as one of the leading causes of impoverishment in the country.Thus, there can be no doubt that health insurance is a `need', that requires to be addressed. This is where there is a role to develop more products, to address needs of specific target groups, and at the same time, to build awareness regarding health insurance and its potential to protect from such unforeseen health expenditure. Thus, a lot more needs to be done by the trade chambers, the insurance industry, the health providers and also the IRDA to develop the health insurance sector. Some recent estimates by reinsurers and by consulting firms suggest that health insurance is likely to grow rapidly, cover 20% of the population and constitute 12% of the total health market of the country, or over Rs 30,000 crores by 2015, which implies a ten-fold increase over the next 8 years. While the magnitude of such growth in health insurance is a matter of estimation, there is no doubt that there is tremendous potential for development of health insurance. R. Srinivisan in his article HEALTH CARE IN INDIA - VISION 2020- ISSUES AND PROSPECTS entitled that An optimistic scenario will be premised on an average 8% rate of economic growth during this decade and 10% per annum thereafter- If so, what would be the major fall out in terms of results on the health scene? In the first place, longevity estimates can be considered along the following 41

lines. China in 2000 had a life- expectancy at birth of 69 years (M) and 73(F) whereas India had respectively 60 (M) and 63 (F). More importantly, healthy life expectancy at birth in China was estimated in the World Health Report 2001 at 61 (M) and 63.3 (F) whereas in Indian figures were 53 (M) and 51.7 (F). If we look at the percentage of life expectancy years lost as a result of the disease burden and effectiveness of health care systems, Chinese men would have lost 11.6 years against Indian men losing 12.7 years. The corresponding figures are 13.2 for Chinese women and 17.5 for Indian women. Clearly, an integrated approach is necessary to deal with avoidable mortality and morbidity and preventive steps in public health are needed to bridge the gaps, especially in regard to the Indian women. Taking all the factors into consideration, longevity estimates around 20-25 could be around 70 years, perhaps, without any distinction between men and women. Samarendra Mahapatra(2000) examines the constitutional

background of health insurance Article 246 of the constitution of India deals with the subject matter of laws made by the parliament and legislatures of states. The seventh schedule of the constitution contains three lists: List I - Union List deals with the subject matters within the purview of the parliament. List II - State List deals with the subject matters within the purview of the State. List III - Concurrent List deals with the subject matters, which are common, both to the parliament and to the state legislatures. It is to be noted that n Insurance falls under the union list (Item No 47). n Public health and sanitation, hospitals and dispensaries fall under the state list (Item No 6).n Medical professions fall under the concurrent list (Item No 26). n Drugs (pharmaceuticals) fall under the concurrent list (Item 19).Healthcare sector in India is fragmented between the centre and 42

the states and the overall legal framework relating to the regulation of healthcare is not simple. Though the Government of India (GOI) was a party to the 1978 WHO declaration (Alma Ata Declaration) and commitment of Health for all by 2000 AD,precious little was attained by the target date. Sreedevi Bangalore, Lakshmikutty India and Sridharan current Baskar state of Domain insurance

Competency Group (Insurance) Infosys Technologies Limited entitled The distribution in India is still in flux. On one hand, insurers are awaiting regulations to be approved for brokerages and bancassurance to be truly launched. On the other hand they are trying the corporate model of intermediaries in addition to the traditional models in the market. There is no right and wrong in all this. The success of marketing insurance depends on understanding the social and cultural needs of the target population, and matching the market segment with the suitable intermediary segment. In addition a major segment of the Indian population has low disposable income, meaning that every penny won will be obtained after a lot of persuasion and the expected value for money is high. All intermediaries can't sell all lines of business profitably in all markets. There should be clear demarcation in the marketing strategies of the company from this perspective. Clients should also receive price differentials for using different channels. This is not a new concept, as the Public sector Property & Casualty companies are giving discounts in lieu of agency commission. The channel composition should not be homogeneous but should reflect the larger society.

For example:

43

 Agents from different economic, social strata and different age and gender. Bancassurers ranging from multinational banks to micro credit lending agencies. Brokers stretching from corporates to NGOs to milk co-operatives These intermediaries need to be empowered with the right learning, training and sales tools and technology enablers. Coupled with the right product mix, this will help the insurers to survive and flourish in this competitive market. Let us conclude with a story of a retired postal clerk who became a success story for selling postal savings and insurance in his village in Punjab in Northern India. The person is the father of our colleague, who is a retired postal employee and took up agency for postal savings and insurance to supplement his meager retirement earnings. Today -- 10 years later -- he is one of the top agents selling postal savings and insurance in his village, assisted by his illiterate wife and grandson (a seven year old computer literate) doing all the administrative work from home on a small Personal computer using a package (developed by our friend who is a programmer) to handle his client portfolio! The entire village population trusts him with the investment advices that he doles out and has no qualms in handing over small amounts of cash to him for depositing in the post office. He is their trusted customer care or financial consultant. This we feel is the essence of distribution of financial products in India.

44

Chapter-3 Research Objectives:

45

 To study the growth of health insurance sector in India in post-liberalization era, To study the socio-demographic structure of India and strategies of various life insurance players about health products, To study the overall performance of various Life insurers till the first half year of 2007-08 To compare the relative performance of selected health insurance companies in recent years To study the factors affecting pricing & trends of health insurance products in North India-(including Haryana, Punjab, West U.P.),

3.1 Health Insurance in India

The greatest resource India has its human resource and with it come the health issues. Size is a corollary for potential. There is a sea of change occurring and going to occur in the Health Insurance sector, both globally and nationally. Globally, with particular reference to the increasing costs etc, many large insurance companies are planning to buy up hospitals and run on their won. The experiments are going on. At the National level, during the tenure of office of Sri. P.Chidambaram, who with a great vision opened up the Health Insurance sector to privatization?

46

As a result of which many private organizations, corporate sector leaders drafted plans to enter in to Health Insurance field. There is little or no surprise to note that the Mediclaim is certainly not the answer to the health care needs of the one billion people of this country. In a bold and wise move Mr. Chidambaram opened up the Health care sector to foreign Insurance companies by allowing them to develop joint ventures with Indian companies holding major stakes (51%) and many Large corporate, L.I.C and the general Insurance corporation of India are likely to form such joint venture companies. And Apollo Group under the great visionary chairmanship of Dr. Pratap C. Reddy, who also pioneered the idea way back in 1980s, is preparing to make its presence felt substantially. Given the pressure on the Public health care distribution system and the general shortage of resources being experienced by government, private health care and in turn the Private Insurance companies have large business potential. 3.1.1 Growth of Health Insurance in India In the mid 80's, the healthcare sector was recognized as an industry. Hence it became possible to get long term funding from the Financial Institutions. The Government also reduced the import duty on medical equipments and technology. The rise of literacy rate, higher levels of income and increasing awareness through deep penetration of media channels, contributed to greater attention being paid to health. With the rise in the system of nuclear families, it became necessary for regular health check-ups and increase in health expenses. Some pharmaceutical companies like Wockhardt and Max India, have

47

ventured into this sector as it is a direct extension to their line of business. In mid 80s most of the hospitals in India were government owned and treatment was free of cost. With the advent of Private Medical Care the need for Health Insurance was felt and various insurance companies (New India & Assurance, United National Insurance Company, introduced Oriental Mediclaim Insurance Insurance Company)

Insurance as a Product. It was assumed that 10% of Indias population would remain in poverty by 2016. The desirable coverage for health insurance should be 50% of the population, in line with China and Korea. The cost of government insurance is assumed to be INR 400 per year per person for the population below the poverty line. The cost of private insurance is thus estimated at INR 1,200 per year per person for all persons other than those below the poverty line. Based on these assumptions, health insurance expenditure is estimated to be INR 645,320 million per year, of which INR 49,640 million comes from the public sector and INR 595,680 million from the private sector, assuming 40% coverage instead of 50% [Table-3.1(i)]. This will amount to slightly over 1% of GNP in 2015.

Figure-3.1(i)
Particulars Value Unit

Population below poverty line in 2015 (10%)

124.1

million

Desired coverage 50% of population

620.5

-do-

48

Spending for poor @ INR 400/year public

4964

INR crore

40% @1200

59568

-do-

Total GNP for 2015

64 532 5 910468

-do-do-

% of GNP in 2015

1.09

(Source: Prime Ministers Council on Trade and Industry, A Policy Framework

for Reform in Healthcare, Chapter 7, Table 7.8, Commission headed by K. Birla and M. Ambani, 2000, http://indiaimage.nic.in/pmcouncils/reports/health/)

Several studies now exist on the state of health insurance in India (Ellis et al 2000, Gumber2002); here we present an overview of the existing state of coverage under different schemes. Table(3.1<i>) indicates the share of the various forms of heath coverage in India

Schemes The Employees

State

Table 3.1(i) : Health insurance cov Beneficiaries (In million) Insurance 25.3

Scheme (ESIS) Central Government Health Scheme 5.2 (CGHS) Railways Health Scheme Defense employees Ex-servicemen Mining and plantations 8 6.6 7.5 (public 4

sector) Health insurance (Public sector non- 10

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life companies) Health insurance

(Private

sector 0.8

non-life companies) Health segment of Life insurance 0.23 companies (Public and private sector) State sponsored schemes Employer private sector Employer public sector Community health schemes Total <0.5 run 6

facilities/reimbursement schemes of run <8

facilities/reimbursement schemes of 3 ~87

(Source: Report on role of government in health concern -from BS bureau)

Overall, India has a mix of health coverage: employees in the government and public sector undertakings get various kinds of coverage in lieu of employment, e.g. organized sector workers earning less than Rs. 7000 get covered through the Employees State Insurance Scheme (ESIS), private corporate sector offers health coverage either as a perk or through formal insurance coverage taken through insurance companies, and community health insurance is offered in a sporadic fashion in many states to specific sections of the population. There is only one nation-wide scheme that has the three most important features of social health insurance (SHI) compulsory contributions based on earnings, contribution from the employers and a separate autonomous body to manage the funds. Only Employee 50

State Insurance Scheme (ESIS) qualifies as SHI in its classical definition. The three main characteristics of this scheme are that it is mandatory, contributory and there is the Employer State Insurance Corporation (ESIC) that acts as the autonomous body and manages the funds. Next to ESIS, the Central Government Health Scheme (CGHS), including those who are covered under the Medical Attendance Rule (All India Services (Medical Attendance) Rules, 1954), is the most important scheme, covering government employees, working and retired. These are then the two important schemes that cover most of the states of the country under a uniform administrative structure, and together extend coverage to around 20-25 percent (depending on the assumed family size) of the organized sector population, including dependents. Overall, these schemes probably cover less than 3 percent of the population, though in the absence of firm numbers, these are only the best guesses.

It the recent past, SHI has been much discussed in policy circles as an important tool to extend health coverage to a majority of the population (WHO, 2003a 2003b). However, expansion of SHI is critically dependent on the share of the organized sector in employment, which is still quite low in India; in any case the organized sector has other means of health coverage as can be seen from Table. While estimates are not available, even if we assume that all the organized sector employees and their dependents are covered, about 135 million individuals can be covered, assuming an average household size of 5. This implies that at most only 13 percent of the population may be covered by all the existing schemes in the organized sector, including SHI. The rest of the population has recourse to the insurance being offered by public and private sector 51

insurance companies, depending on the ability to pay. Some are covered by community health insurance and the remaining go without any insurance. The number of people covered by health insurance of non-life insurance companies is 10.8 million; health insurance by life insurance companies is 0.23 million. This implies that a very small percentage of the population around 1 percent - is covered by commercial health insurance offered by public sector and private sector insurance companies. Health insurance schemes of different types cover approximately 25% of the population. Government employees at various levels of government are covered systematically by their associated schemes. For example, the Central Government Health Scheme covers 4 million people and the Railways Health Scheme covers 1.2 million people. The single largest scheme is the Employees State Insurance Scheme (ESIS). It covers employees (mainly) in the organised sector. Unlike most other insurance markets, health insurance is classified under general (non-life) insurance in India. Starting in 1986, four subsidiaries of the General Insurance Corporation introduced a plan called Mediclaim for the general population. Under Mediclaim, a person between 5 and 70 years of age can buy a policy. The total sum assured can be up to INR 500,000 against accident and sickness. There are exclusion clauses for pre-existing medical conditions. The pr emium paid is tax-deductible up to a maximum of INR 10,000. Mediclaim covered some 4 million people in 2007. Mediclaim policies sold in 2007 collected over INR 15 billion or 0.05% of GDP. In recent years, some of the nationalised companies have shown a claims ratio above 100% for their health insurance business segment. Private sector non-life companies offer health insurance policies similar to Mediclaim. They offer policies for critical illness where the insurer pays

52

the sum assured on the diagnosis of any of ten critical diseases identified. Further, private sector insurers are selling hospital cash policies where they pay a pre-determined amount of cash regardless of the money spent on treatment. Life insurers have started to provide health-cover riders to their regular life insurance policies. Recently, life insurance companies have also been issuing health insurance coverage in the form of critical illness or dread disease riders to the basic policies. The LIC attempted to adopt this strategy back in the early 1990s with limited success. Apart from Mediclaim and health insurance schemes for government employees, the government also introduced a government-subsidised policy for the poor called Jan Arogya Bima Policy (Healthcare Policy for the People) in 1996. It covers the poor for hospitalisation with a 1%1.5% premium (that is, for annual premiums of INR 1/1.50, it will pay a maximum of INR 100 per year). It has over one million people covered around the country. In July 2003, the central government also introduced a Community-Based Universal Health Insurance Scheme for people below the poverty line.

3.1.2 Some facts about Growth of Health Insurance in India

What the country today lacks is a comprehensive health care policy to improve the infrastructure in the health sector. This will lead to an improvement in the health care segment and will also enable Insurance companies to extend health insurance cover to a larger

53

segment of the population. If there are insufficient numbers of quality hospitals where the policyholders can be treated, then the number of policies issued will have to be limited. The health care infrastructure can also grow to some extent on the performance of the health Insurance sector, both directly and indirectly. The New health Insurance players can look towards a substantial portion of the 200-300 million strong middle class for health insurance business. This will in turn provide a fillip to the growth of the health care delivery system, both qualitatively and quantitatively. The growing demand for private healthcare and the awareness towards the sector has also encouraged insurance companies to push their health insurance policies, covering everything from doctors fees, room charges, diagnostic charges and medicine to pre-and-post hospitalization expenditure. Health insurance premium has touch Rs.3200 crore at the end of 2006-07 as against 675 crore in 2001-02

The number of lives covered under health plans has improved from 4-5 million about six years back to over 12 million today.

Government policy spurs private initiatives e.g. IRDA has increased the FDI limit from 26% to 51%

Of the 400 million insurable population , less than 150 million are insured1.1% of healthcare is financed through health insurance only 2.5 million or .25% of population insured and 315 million people in India can afford insurance

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According

to

recent

news

report

Health

insurance

continues to be the fastest growing segment with annual growth rate of 55%. Health Premium has risen to Rs. 3300 crores in 2006-07. As per the recent reports from various agencies the Health sector has the potential to become a Rs. 25000-crore industry by 2010. On august 15,2007 Prime Minister has announced Rs. 2000 crores for Health Insurance for poor citizens. We foresee that this amount will be partly in form of subsidy to touch figure in the range of Rs.10,000 crores. It is noteworthy that there is an emerging school of thought that health insurers have to be separately categorized as the third stream. Section 3(2AA) of Insurance Act 1938 provides for special treatement for new insurance companies who opt to operate exclusively in health insurance. therefore during calendar year 2008. We can expect Health Insurance premium

Proje cte d ins ure d bas e in India (m n)

16 0

30

2 00 5

2 0 10

55

Projected insurance base: 2005 2010 30 million 160 million

3.1.3 What is in Budget -2008 for Health Insurance: Five year tax holiday for setting up hospitals in tier II and tier III regions for providing healthcare in rural areas from April 1, 2008. 75 lakh people to be covered by health insurance schemes, says FM. Rs 500 crore for corpus fund to subsidise all women Self Helf Groups for LIC cover for permanent disability. 288 public sector bank branches to be opened in districts having minority community concentration. Rashtra Swasthya Beema Yojana to start from April 1, 2008 in Delhi and Haryana. Rs 30,000 for each family belonging to unorganised sector.

56

Allocation for ICDS Integrated Child Development Schemes increased to Rs 6,300 crore.

A national programme for the elderly to be started at a cost of Rs 400 crore.

Health outlay has been raised by 15%. Requirement of PAN to all financial transactions. Allocation for NRHM the National Rural Health Mission increased to Rs 12,050 crore.

3.1.4 How Health Insurance experts takes budget2008: With 5 year tax holiday for hospitals, the private sector will have a strong incentive to invest in the healthcare provider space, particularly in terms of higher hospital capacity in the country The new tax exemption on premium paid for medical insurance of parents to the tune of Rs. 15000 p.a. will provide a further boost to health insurance penetration in the country. Increase in tax from 10% to 15% on short-term capital gain may encourage people to go in for long-term investment options. This increase in Tax structure is bound to give a push to long-term investments.

57

Health insurance segment would benefit from the tax benefits which have been provided to individuals, who pay premium on behalf of their parents.

Requirement of PAN to all financial transactions. If PAN is made compulsory for insurance, it will badly affect the rural business, which currently accounts for more than 40% of the overall insurance industry business.

More bank in rural area will promote to sell health products through bankassurance

3.2 INDIAN SOCIO-DEMOGRAPHIC STRUCTURE

Most of the Asian Countries with the exception of Japan, South Korea,& Taiwan have a low insurance penetration as compare to developed enlightened countries. India is an agriculture country. The earning of many of our people are nt enough for their livelihood. So they are unable to make investments in savings. They give priority to their food, medical, attention and education. They think of savings for the future. The awareness about life insurance is quite high in India. Around 78% households are aware of life insurance products. However, ownership of insurance product is low, only 24% households in the country owned life insurance cover. Urban households(90%) aware than rural (73%). Awareness increases with education, age & income level. On the basis of depth study we get India as:

58

 3rd largest global economy GDP over $4.2 trillion Annual National Income per capita: $820 Rapidly growing economy, but poverty is pervasive Heavily agricultural (18% of GDP) but rapidly industrializing Working age population (age 15-64) expected to jump from 704 million (2005) to 1 billion in 2030 Median age: 23.8 years Life expectancy at birth: 63.5 years

Table 3.2(i)-NAME OF THE PLAYER AND MARKET SHARE (%)

Name of the Player LIFE INSURANCE CORPORATION OF INDIA ICICI PRUDENTIAL BIRLA SUN LIFE BAJAJ ALLIANZ SBI LIFE INSURANCE HDFC STANDARD TATA AIG LIFE MAX NEW YARK AVIVA Market share (%) 82.3 5.63 2.56 2.03 1.80 1.36 1.29 0.90 0.79

59

OM KOTAK MAHINDRA ING VYSYA MET LIFE RELIANCE LIFE BHARTI AXA LIFE SHRI RAM LIFE (source: IRDA, annual report 2006-07)

0.51 0.37 0.21 <0.20 <0.20 <0.20

3.2.1 Strategies adopted by the players in the for Health Insurance Products

Gone were the days when the customers were forced to take up the kind of products whatever coming from LIC's and GIC's stables. But now, the customer has been portrayed as the king and to his delight, the products are redesigned and customized suiting his need taking into account his paying capacity and multiple benefits. To much of his chagrin, he has also got an option of withdrawing his offer within a period of 15 days (free-look period) if he is not satisfied with the policy features. Let us look at the strategies adopted by the players in the market. I Shift in the product portfolio Earlier the entire industry was revolving around investment and savings oriented plans. As the interest rates are moving southwards, all the players are deliberately focusing on selling pure risk covers in 60

an effort to capture the new customers. The premium on such products is low as it covers only the risk aspect and does not factor in investments or savings. Even the market leader LIC has withdrawn some of the products, which are positioned, on the assured returns platform. Though the share of the term plans in the product portfolio is quite negligible, the shift towards the term products is already visible. Typically a term plan does not provide anything by way of maturity, unlike moneyback or endowment policies. Globally, close to a third of the policies fall into this category must be an encouraging news to the players. Unit linked products are also gaining momentum in this country. Om Kotak and Birla Sun Life have launched unit linked schemes focusing on equity, debt and gilt edged stocks. These schemes are expected to yield better returns when compared to normal insurance schemes. As the awareness level about these unique products is much lower, the companies resort to educate the customers about the salient features of the products. II Value For Money (VFM) The sea change since the sector opened up has been on the way the basic products have been packaged innovatively, often tailor made to provide a bundle of benefits to the customers. This is possible through the introduction of riders, which have added value to the risk cover at minimal cost. Riders are nothing but add-ons coming along with the base policies for a slightly additional premium. Riders have become the major instruments for the organizations to lure the customers away from the competitors. The removal of 30% cap on the premium of the base policy for the health riders alone has come as a shot in the arm

61

for many players since this is used as an Unique Selling Proposition by many private players vis a vis the LIC. Later, LIC has also started announcing riders along with the main policies dancing to the tune of the market forces. This could see many non-life players going out of the business as life insurers offer a plethora of personal line products as add-ons. Riders can also be availed by the existing policyholders. III Tapping the Niche Markets Private insurers are concentrating much on designing attractive products by investing heavily on research, studying life expectancy and health statistics across age groups, income levels, professionals and regions on their own instead of relying on data with state insurers. The products are designed with a technical team of actuaries and a product development team working closely together to target the niche market. The innovations for the niche markets are abound and to name a few.. * MetLife India Insurance Company has recently launched a Charitable Trust Policy in Kolkata, which has evoked a lot of interest especially among the Marwaris business community who want to set up a temple in their name after their death. Similarly a Buy & Sell Agreement cover from the same company permits a business enterprise to take out a life plan on each of its partners, to ensure that the company continues. * The other segments, which have attracted almost all the players, are the women and the children segments. Though the State insurer has had a chunk of products sufficiently for a longer time, it faces stiff

62

competition

from

the

private

players

in

these

segments.

* Tata AIG has offered a specialized life insurance package where the insured and the employers of the insured have a say in it. Termed as Worksite Marketing, AIG, which has adopted this practice in different places across the world, is spreading the concept in India too. Worksite Marketing is a distribution method used to offer voluntary insurance products (employee benefits) to employees at their place of work with the sponsorship or backing of their employer, traditionally done on a deduction from the payroll. The policyholder carries the policy with himself throughout his life, even if it happens to change the organizations. * Any other way to promote non-smoking? Or to reward those who give up smoking? Om Kotak Mahindra has taken an initiative by offering a term insurance plan - a pure protection product - to nonsmokers at much cheaper price. As against an annual premium of Rs.2400 on a Rs.10 lacs policy for a 10 year term for a 30 year old under the preferred term plan, the regular term premium works out to Rs.3400 for a similar cover. Though there are apprehensions in the industry circle about the success of the policy, the intention of the company is quite appreciated. * Even the unborn child's future can be safeguarded now. The offspring can be insured against unfortunate congenital defects. State owned General Insurers have started aggressively marketing these kinds of products. IV Thrust to the rural markets

63

Thanks to the norms stipulated by the regulator IRDA, all the players have turned their eyes towards the rural market. Towards ensuring equitable distribution of insurance policies in every nook and cranny of the country, IRDA stipulates the rural obligations to be met by the players over the years. The rural obligation on part of the new private insurance companies is incremental in nature. It goes from 5% to 15% over the period of 5 years for life insurance and from 2% to 5% in case of general insurance. IRDA has also defined what it meant by rural. 1. The place should have a population of less than 5000 2. Secondly, the density of the population should be less than 400 persons per square kilometer 3. 75% of the male population should be engaged in agricultural pursuit Of the 11 private sector life insurers, 10 companies substantially performed in the rural sector with the percentage of policies issued in the rural sector standing higher than 5% level mentioned. Most of the non-life insurers achieved the base level of 2% gross premium from rural sector. Since the penalty for not adhering to the obligation includes Rs.5 lacs penal fee and upto 3 years of imprisonment of the Chief of the organization, all the companies are swarming the rural market. The challenge lies in reaching the critical mass with the redesigned products. And the organizations have been fairly successful

64

in their efforts. For instance, Om Kotak Life Insurance is successful in selling the single premium policy in rural market. Reaching the doorsteps of the villagers through non-conventional channels like Regional Rural Banks (RRBs), Co-operative banks, Self-Help Groups (SHGs), ITCs e-choupal is also being tried by the players. V Tapping unconventional distribution channels Nevertheless all the players depend heavily on their agents force to reach out (LIC has reached a figure of 8,50,000 agents and planned to increase it to 1 million by this year), they are trying out other distribution channels also like banks and corporate agencies in addition to the channels mentioned above. The following table shows the strategic alliances the insurers have entered into to distribute their products. LIC is also exploring ways to rope in Regional Rural Banks (RRBs) across the country. Cross-selling could be another key strategy in selling insurance provided the restrictions on the functioning of corporate agencies are lifted. Once the curbs are removed, the market may see a wave of cross-selling. Royal Sundaram Alliance may offer household insurance with Sundaram Housing Finance and sell customers of Sundaram Finance Mutual Fund a whole range of insurance products. ICICI-Prudential and HDFC Standard will tie up with their parent companies to use their network. Once the much-awaited Insurance Brokers Regulations comes into force, the industry is poised to change the way the insurance products are sold with the entry of brokers. While an insurance agent represents an insurance company and offers only the products of that company, an insurance broker is independent and represents a

65

number of insurers. He can also compare the benefits of different policies and premiums to find the best coverage for the customer. VI Cause Related Marketing (CRM) Cause Related Marketing has become the order of the day in Insurance industry. By creating a goodwill about the organizations, the insurers are making an attempt to change the negative attitude of the people towards insurance products. For instance, * Towards serving the society in a better way, LIC has adopted a novel way through its Bima Grams policy. Accordingly, LIC pays 25% of the premium collected from the villagers or Rs.25000 whichever is lesser for undertaking developmental work in the villages provided,

- The population of the village is between 1000 and 5000 - Life insurance coverage for atleast one person in 75% of the households -Acquisition of 100 new policies in a single year

* Birla Sun Life Insurance has adopted 332 villages around Renukoot and actively involved in improving the lives of the residents.

3.3 Performance of life Insurers till the first half year of 2007-08
66

The life insurers underwrote a premium of Rs. 33159.53 crore during the six months in the current financial year as against Rs. 29664.64 crore in the comparable period of last year recording a growth of 11.78 percent. Of the total premium underwritten, LIC accounted for Rs. 22761.49 crore and the private insurers for Rs. 10398.04 crore. The premium underwritten by the LIC declined by 2.87 percent while that of private players grew by 66.91 percent, over the corresponding period in the previous year.The number of policies written at the industry level increased by 69.09 percent.The number of policies written by LIC increased by 61.61 per cent whereas in the case of private insurers the increase was 99.18 per cent. Of the total premium underwritten, individual premium accounted for Rs. 28470.56 crore. and the remaining. Rs. 4688.97 crore came from the group business. In respect LIC, individual business was Rs. 18889.84 crore and group business was Rs. 3871.65 crore. In the case of private insurers, it was 9580.72 crore and Rs. 817.32 crore respectively. The market share of LIC was 68.64 per cent in premium collection and 76.55 per cent in number of polices underwritten. In the corresponding period of last year these shares were 79.00 per cent and 80.09 per cent respectively. The number of lives covered by life insurers under the group scheme was 131.19 lakhs recording a growth of 50.20 per cent over the previous period. Of the total lives covered under the group scheme, LIC accounted for 102.33 lakhs and private insurers 28.86 lakhs. The life insurers covered 54.82 lakh lives in the social sector with a premium of Rs. 83.21 crore. In the rural sector the insurers underwrote 43.38 lakh policies with a premium of Rs. 4340.81 crore

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The insurance sector in India,which was opened-up for private participation in the year 1999 has completed seven years in a liberalized environment. Since opening up of the insurance sector in 1999, 24 private companies have been granted licenses by 31st March, 2007 to conduct business in life and general insurance. Of the 24, 15 were in the life insurance and nine (including a standalone health insurance company) in general insurance. During the last seven years capital amounting to Rs.9625.28 crore was brought in by the private players, of which the contribution of the foreign partners has been Rs.2174.28 crore. During this period the average annual growth of first year premium in the life segment worked out to 47.06 per cent and in the non-lifesegment it was 16.87 per cent. The industry services the largest number of life insurance policies in the world. Yet Indian insurance industry has scope to further expansion witha large untapped potential. The Authority and the industry have been playing an active role in increasing consumer awareness. Insurance companies in general and private insurance companies in particular, arereaching out to untapped semi-urban and rural areas through advertisement campaigns and by offering products suitable to meet the specific needs of the people in these segments. The insurers are increasingly introducing innovative products to meet the specific needs of the prospective policyholders. Innovative products, imaginative marketing, and aggressive

distribution enabled fledgling private insurance companies tosign up Indian customers faster belying expectations at the time of opening up of the sector. At the time of opening up ofthe sector, life insurance was viewed as a tax saving device. Of late policyholders perspective

68

is slowly changing towards taking insurance cover irrespective of tax incentives. The insurable populace is looking for products which suit theirspecific requirements. As of now a variety of choices areavailable in the market meeting the requirements of different cross-sections of the society and across age groups With the registration of Bharti Axa Life Insurance Co. Ltd., the number of companies operating in the life insurance industry has increased to sixteen. The new entrant commenced underwriting life premium in August, 2006. By end March 2007, there were sixteen life and sixteen non-life insurance companies (including the national re-insurer).Apollo DKV, another standalone health insurance company and Future Generali Insurance Co. Ltd. and Future General Indian Life insurance Co. Ltd. were granted Certificate of Registration in 2007-08.

3.3.1 Expansion of Offices

While there were 2199 offices in the life insurance industry by March 2001, the number has increased to 5373 by the end of 2006-07. During the period, while the number of offices of LIC has increased from 2186 to 2301 the offices of the private sector players increased from a mere 13 in 2001 to 3072 in2006-07. Of the 5373 life insurance offices in India, 549 are located in metro areas, 1347 in urban areas and 2159 are operating in semi-urban areas. Remaining 1318 are in areas other than the above. The above classification is based on the HRA classification of the Ministry of

69

Finance. LIC has 233 offices in the metro cities, 499 in the urban areas and 797 in the semi-urban areas. The total capital of the life insurers at end March 2007 stood at Rs.8124.41 crore. The addition to the capital during 2006-07 was Rs.2232.36 crore and the entire capital was brought in by the private insurers. The domestic and the foreign joint venture partners added Rs.1777.96 crore and Rs.454.40 crore respectively. There has been no infusion of capital in the case of LIC whichstood at Rs.5 crore.

3.3.2 Innovations in Products

Growth in insurance industry has been spurred by product innovation, active sales and distribution channels coupled with targeted advertising and marketing campaigns by the insurers. but also in delivery mechanisms which have outside. All these have taken life insurance closer to the customer as well as making it more relevant. The insurance companies are increasingly tapping the semi-urban and rural areas to take across the message of protection of life through insurance cover. The insurers have also introduced special products aimed at the rural markets. Introduction of unit-linked insurance plans (ULIPs) has been, possibly, the single-largest innovation in the field of life insurance in India. The design of the product addresses and overcomes several concerns that customers have had in the past like liquidity, flexibility and transparency. ULIPs are differently structured products and give choices to the policyholder. The Authority prescribed 70 Innovations

have come not only in the form of benefits attached to the products, emanated from various marketing tie-ups both within the realm of financial services and

guidelines for Unit Linked products, stipulating minimum level of sum assured, minimum period of premium payment and several other requirements including NAV computation methodology. With the ULIP guidelines in place, there has been an enhanced up front transparency on the charges and associated risks. Fundwise Net Asset Values(NAVs) and portfolio allocations are disclosed on a regular basis. One of the most significant outcomes of the enhanced competition has been the reduction in the rates for pure protection plans. Over the last seven years, the rates have been revised downwards, and are significantly lower than those prevailing prior to opening up of the sector. The life insurance market has become competitive to the benefit of the policyholders. Simultaneously, industry has been constantly evolving and improving upon its underwriting and risk management abilities. The reduction of term rates has simultaneously facilitated increase in the level of sum assured for policies. This higher level of protection implies that customers are more conscious of the need for risk mitigation and greater security particularly for their homes and childs future. However, given the level of sum assured in the developed countries and other emerging economies, there is a further scope to tap the need for additional cover even amongst the insured population. Life insurance companies have also been quick to recognize the huge need for structured retirement plans and have leveraged their abilities for long-term fund management towards building this segment. Pension is recognized as a necessity and presents an opportunity for growth in the country, and forms a significant part of portfolio of life insurers. More recently, private life insurers with their expertise in long-term mortality and morbidity introduced annuities. The growth in group insurance business has also been impressive. The superannuation and gratuity business has grown on the strength of

71

professional fund-management and a host of value-added services. Given such scope for innovation, the life insurance sector is expected to maintain the growth momentum of new premium in future. New policies underwritten by the industry were 461.52 lakh as against 354.62 lakh during 2005-06 showing an increase of 30.14 per cent. While the private insurers exhibited a growth of 104.64 per cent, (previous year 73.37 per cent), LIC showed a growth of 21.01 per cent as against 31.75 per cent in 2005-06. The market share of the private insurers and LIC, in terms of policies underwritten, was 17.17 per cent and 82.83 per cent as against 10.92 per cent and 89.08 per cent respectively in 2005-06.

3.3.3 Premium
Life insurance industry recorded a premium income of Rs.156041.59 crore during 2006-07 as against Rs.105875.76 crore in the previous financial year, recording a growth of 47.38 per cent. The regular premium, single premium and renewal premium in 2006-07 and their contribution to total premium were Rs.45358.93 crore (29.07 per cent); Rs.30258.32 crore (19.39 per cent); and Rs.80424.34 crore (51.54 per cent),respectively. In 2000-01, when the industry was opened up forthe private players, the life insurance premium was Rs.34,898.48 crore which comprised of Rs.6966.95 crore (19.96 per cent) of the regular premium, Rs.25191.07 crore(72.18 per cent) of renewal premium and Rs.2740.45 crore (7.86 per cent) of single premium. Life insurance industry underwrote first year premium (comprising of single premium and regular premium) ofRs.75617.25 in 2006-07 as against Rs.38785.54 crore in 2005-06 recording a growth of 94.96 per

72

cent as against 47.94 percent in 2005-06. The growth in first year premium was fuelled by increased sale of unit linked products. This trend is being observed for the last three years. It is observed that LIC is also shifting its marketing strategy in favour of unit linked products. The shift towards unit linked products can also be seen through the increase in single premium policies issued by the insurers. LIC reported growth rates of 166.65 and 9.71 per cent, in single premium individual policies and non-single premium policies respectively. As against these, private insurance companies reported growth rate of 42.96 per cent,105.56 per cent respectively.Due to the unprecedented growth in the first year premium underwritten in 2006-07, the proportions of the first year premium and renewal premium to the total premium has witnessed a shift. The size of life insurance market increased on the strength of growth in the economy and concomitant increase in per capita income. This resulted in favorable growth in total premium for both LIC (40.79 per cent) and private insurers (87.08 per cent) in 2006-07. The private insurers have improved their market share from 14.25 per cent in 2005-06 to 18.08 per cent in 2006-07 in the total premium collected in the year. Segregation of the first year premium underwritten during 2006-07 indicates that Life, Annuity, Pension and Health contributed 67.40; 2.62; 29.94 and 0.04 per cent to the premium underwritten, as against 73.57; 4.30; 22.11 and 0.02 per cent respectively in the previous year. The shift in favour of pension products is visible for the third consecutive year.

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Increase in the renewal premium is a good measure of the quality of the business underwritten by the insurers. It reflects increase in their persistency ratio and enables insurers to bring down overall cost of doing business. The renewal premium underwritten by the life insurance industry, during 2006-07 grew by 19.87 per cent as against 18.46 per cent in 2005-06. The private insurers and LIC reported growths of 83.33 per cent and 14.97 per cent respectively during the Year. Table no. 3.3(i) Market share of Life Insurers in Premium (Per cent) Insurer LIC Private Sector Total LIC Private Sector Total LIC Private Sector Total LIC Private Sector Total 2005-06 Regular Premium 64.59 35.41 100.00 Single Premium 84.35 15.65 100.00 Renewal Premium 73.52 26.48 100.00 Total Premium 92.82 7.18 100.00 89.03 10.97 100.00 74.35 25.65 100.00 87.04 12.96 100.00 65.89 34.11 100.00 2006-07

(Source: Asian Insurance Post, Jan.2008)

Segregation of first year premium revealed consolidation towards linked products, with premium underwritten at Rs.42894.71 crore in 2006-07 as against Rs.16060.67 crore in 2005-06, a growth of 167.08 74

per cent. The non-linked premium was Rs.32464.12. crore as against Rs.19804.33 crore in 2005-06, a growth of 63.92 per cent. Linked and non-linked business accounted for 56.92 and 43.08 per cent of total business in 2006-07 as against 44.78 and 55.22 per cent respectively in 2005-06. The shift in preference for linked products has coincided with the continued positive performance of the stock markets in the country. LIC too showed a tactical shift towards promoting linked products, with 46.31 per cent of the first year premium derived from this segment in 2006-07 while the non-linked premium contributed 53.69 per cent to the first year premium. In the case of private insurers, these proportions were 87.47 and 12.53 per cent respectively in 2006-07 as against 82.48 and 17.52 per cent in 2005-06. Response to unit linked products in the last three years reflects the preference of people to such products. LICs decision to drive its premium growth on the strength of unit linked products in line with the rest of the industry reflects its recognition of the customers choice.

3.3.4 Expenses of the life insurers

Section 40 B of the Insurance Act, 1938 provides that no insurer shall in respect of life insurance business transacted in India, spend as expenses of management in excess of the prescribed limits. Expenses of management include all commission payments and operating expenses. The Insurance Rules, 1939 further lay down the manner of computation of the prescribed limits. A major expense head for the life insurers is commission paid to the intermediaries. As against the industry average of 16.65 per cent (22.59 per cent in 2005-06), LIC incurred an expense of 16.04 per cent (25.26 per cent in 2005-06) towards commission on first year

75

premium; for the private insurers this ratio worked out to 17.84 per cent (17.72 per cent in 2005-06). The commissions paid by LIC towards the single premium were 1.56 per cent as against the average ratio of private insurers at 1.08 per cent. The industry average was 1.50 per cent. The total pay-out by the life insurance industry on account of commissions in 2006-07 stood at Rs.12283.24 crore as against Rs.8643.29 crore in 2005-06. It was observed that the commissions paid by the life insurance companies for procurement of fresh business has increased compared to the previous year, pointing to increasing competition in the sector. Management expenses of private insurers have stabilized in 2006-07, except for new entrant Bharti Axa Life exceeding the limits prescribed under the Act. Thus, all the life insurance companies except Bharti Axa complied with the stipulations on expenses of management. However, in the case of Bharti Axa, the excess was within the norms for the life insurance industry. With the growth in business and stabilization of operations, four private life insurers who exceeded the prescribed limits in 2005-06, were compliant with the prescribed norms in 2006-07. In the case of LIC, the expenses of management continued to be within the allowable limits. The major expense heads for the private insurers were employee expenses at 37.97 per cent (37.44 per cent in 2005-06); training expenses (including agents training and seminars) at 7.01 per cent (5.90 per cent in 2005-06); and advertisement and publicity at 8.89 per cent (10.82 in 2005-06). Employee remuneration and welfare benefits accounted for 57.53 per cent of the operating expenses of LIC in 2006-07 as against 59.57 per cent in the previous year. Compared to LIC, the private sector insurers have leaner organizational

76

structures. The industry average worked out to 48.15 per cent as against 51.35 per cent in 2005-06.Operating expenses as a per cent of gross premium underwritten for the private insurers worked out to 23.11 per cent (23.67 per cent in 2005-06), indicating stabilization of operating costs. In the case of LIC, operating expenses constituted 5.54 per cent of the gross premium underwritten in 2006-07 as against 6.65 per cent in 2005-06. The average for the life insurance companies stood at 8.72 per cent in 2006-07 as against 9.08 per cent in 2005-06. However, given that the industry is in the expansion mode and companies have sought permission to expand their office network, it is expected that the expense limits may be breached in the current year.

3.3.5 Benefits Paid

The life industry paid gross benefits of Rs.55768.68 crore in 2006-07 (Rs.35263.45 crore in 2005-06) constituting 35.74 per cent of the gross premium underwritten (33.31 per cent in 2005-06). The benefits paid by the private insurers showed an increase of 89.05 per cent at Rs.2470.27 crore (Rs.1306.65 crore in 2005-06), constituting 8.75 per cent of the premium underwritten (8.66 per cent in 2005-06). LIC paid benefits of Rs.53298.41 crore in 2006-07, constituting 41.70 per cent of the premium underwritten by them (Rs.33956.80 crore in 2005-06, 37.40 per cent of the total premium underwritten). The benefits paid by the life insurers net of re-insurance was Rs.55715.01 crore (Rs.35209.86 crore in 2005-06). There has been a significant increase in the benefits paid on account of surrenders/withdrawals which stood at Rs.17532.60 crore as against Rs.4622.19 crore in 2005-06. It is expected that with the stipulation of minimum lock-in period of three

77

years for ULIP products, surrender value as a per cent of premium underwritten would come down.

3.3.6 Investment Income

As the operations of the life insurers stabilize, their investment base gets strengthened, resulting in investment income forming a larger proportion of their total income. In the case of LIC, the investment income including capital gains was higher at Rs.46800.52 crore in 2006-07 compared to Rs.40056.35 crore in 2005-06. However as a percentage of total income, it declined to 26.80 per cent in 2006-07 from 30.61 per cent in 2005-06. As against this, the share of investment income to the total income for the private life insurers increased to 8.88 per cent in 2006-07 (7.50 per cent in 2005-06). Companies have also reported an improvement in the yields on their investments. The investment income of the private insurers, inclusive of capital gains, was Rs.2747.32 crore in 2006-07 as against Rs.1222.42 crore in 2005-06. The industry is still in the process of stabilizing and despite additional contributions by way of share capital, would require time to reach the consolidation stage. SBI Life Insurance Company was the first private company to report net profit of Rs.2.03 crore in 2005-06. It reported higher net profit of Rs.3.84 crore in 2006-07. The company has succeeded in achieving an early break-even on account of its lower cost of operations, as it has been able to leverage the network of its Indian partner the State Bank of India. However, the insurer still continues to report a deficit in the Revenue account.

78

Shriram Life, which commenced operations in February, 2006, too reported net profit for the second successive year of operations. It reported net profit of Rs. 10.89 crore in 2006-07as against Rs.2.50 crore in 2005-06. The companys operations have, however still to take off in a significant manner. The new business underwritten by the insurer in 2006-07 was slightly above Rs.180 crore. All the private insurance companies reported deficit in their

Policyholders Account in 2006-07, which needed injection of further capital by the shareholders (except for Sahara Life and Shriram Life). Other than Shriram, all the private insurers transferred funds from the Shareholders Account to the Policyholders Account to bridge the deficit in the Policyholders Account so as to meet the stipulations of the Authority for declaration of bonus in case of deficit in the Policyholders Account. The total losses of the private insurers as on 31st March, 2007 stood at Rs.5585.15 crore as against Rs.3637.41crore on 31st March, 2006, i.e., an increase of 53.56 per cent over the previous year. LIC transferred Rs.757.81 crore to the Government of India (Rs.621.77 crore in 2005-06) complying with the provisions of\ Section 28 of the LIC Act, 1956.

3.3.6 Analysis of Death Claims

While the private life insurers booked 13139 death claims during the year 2006-07, LIC booked 602425 death claims for the same period. The percentage of claims settled by private insurers worked out to 72.69 per cent of the claims booked as against 96.94 per cent settled by LIC.

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The number of claims repudiated by the private insurers as a percentage of claim booked was 13.98 per cent in 2006-07, while the claims repudiated by LIC were 1.43 per cent. Claims pending with private insurers as on 31st March 2007 stood at 13.32 per cent as against 1.63 per cent for LIC. LIC paid Rs.4289.28 crore as death claim benefits as against Rs.155.46 crore paid by the private life insurers.

3.3.7 Life Insurers

All the 16 life insurers who underwrote premiums during 2006-07 have complied with the stipulated requirement of a solvency ratio of 1.5. LIC had improved the solvency ratio to 1.5 from its earlier level of 1.3. Bharti Axa which has started its business in 2006 has reported a solvency ratio of 1.96. Of the 16 life insurers, solvency ratios of 8 insurers in 2006-07 were lower than the solvency ratios reported in 2005-06. Aviva has recorded a solvency ratio of 6.3 in 2006-07, much higher than 2.8 reported in 2005-06.

ING Vysya, LIC, Max Newyork, and Shriram Life had higher solvency ratios in 2006-07 than those of 2005-06.

Met Life and Sahara had the same solvency ratios in 2006-07 to those of 2005-06.

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3.3.8 FUNDWISE PATTERN OF INVESTMENTS

The investments made by the life insurers from different types of funds are given in the following table: Table 3.3(ii)-TOTAL INVESTMENTS: FUND-WISE 2005-06 Life Fund Pension Fund Group Fund Unit Fund Total 397188 37264 26810 25888 487150 2006-07 465555 37063 34511 67050 604179 Growth (%) 17.21 -0.54 28.73 159.00 24.02

(source: asian insurance post January 2007) It may be observed that a significant shift has taken place in favour of investments of Unit Linked Funds since last year.

3.3.9 Growth of investments of Unit Linked and Traditional Business

The percentage increase of ULIP funds on year over year basis of investment over the last 4 years vis a vis traditional funds indicates that the growth in investment pertaining to nit Linked Business started from 2003-04. Till then the total investments were only out of

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premiums towards traditional, group and annuity businesses. The cumulative balances of Unit Linked investments reported Rs.1688.31 crore in 2003-04 went up significantly to s.25888.14 crore in 2005-06 and further to of Rs.67049 crore n 2006-07. The share of investments of Unit Linked business n the cumulative life business therefore had gone steeply from 0.47 per cent in the year 2003-04 to 11.09 per cent in 2006-07. On an incremental basis, while the growth of investments during the last 2 years shows a steady pattern in respect of investments pertaining to traditional products, there is a steep increase in respect of investments pertaining to Unit Linked business.

3.3.10 Obligations of life insurers:

(a) Rural Sector Obligations: All the sixteen life insurers, including the public sector insurer, LIC have fulfilled their obligations towards the rural sector. The number of policies underwritten by them in the rural sector as a per cent of the total policies underwritten in the year 2006-07 was as per the obligations applicable to them. LIC, in compliance with its obligations, underwrote a higher percent of policies in rural sector, than were underwritten in the year 2001-02. (b) Social Sector Obligations: Of the sixteen life insurers, fourteen have fulfilled their social sector obligations during 2006-07. The number of lives covered by them in the social sector was above the stipulated obligations. The LIC, in compliance with its social sector obligations covered a higher number of lives than was covered by it in 2001-02. Two private sector companies did not comply with their social sector obligations. The details are:

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Bharti Axa Life Insurance Co. Ltd. which commenced its operations in August 2006 fell short of meeting its obligations in social sector. Against a proportionate obligation of coverage of 3333 lives in about 8 months of operations, they have covered 3067 lives. The shortfall has been waived as the insurer is in first year of operations and the shortfall is negligible. Shriram Life Insurance Company Limited commenced its operation in February 2006. They are obliged to cover 7500 lives. They covered only 5952 number of lives. As the shortfall was observed for the second year in succession, a penalty of Rs.5 lac has been imposed on the insurer. They have also been advised to cover the shortfall in the current year i.e., 2007-08. This company has submitted revised data and according to that they covered only 5952 number of lives. The company further submitted data for 2005-06 which the Authority is examining.

3.4 Comparative study of Selected Health Insurers market plans in India:

3.4(I) ICICI PRUDENTIAL LIFE

MARKET VIEW:

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I. Market growth sustainable at 60%. II. CAGR in medium term, III. Target to maintain share at 30% in private segment. PRODUCT FOCUS: I. Pension & Health products likely to grow given aging population and increasing life expectancy II. Product awareness is slightly behind LIC despite a significant time disadvantage III. Health could 3-5% of product-mix in 5 years.

DISTRIBUTION STRATEGY: I. Significantly diversified with 40% business from non-agency force, II. Expanding reach to non-metro areas OTHERS: I. II. III. Signified capital requirement for maintaing a Both partners willing to contribute, Increasing popularization between larger and share in a high growth market,

marginal players

3.4(II) HDFC STANDARD LIFE

MARKET VIEW: I. Expect high double-digit market growth over next few years,

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II. Steady state not expected in 5 years, PRODUCT FOCUS: I. Focus on regular premium products and higher persistence level, II. Also group focus given flexibility in equity investments, III. Comparative vs. mutual funds for longer products given lower AMC charges, DISTRIBUTION STRATEGY: I. Prefer own offices vs. franchisees, II. Higher focus on training agents than hard sell, III. Rural focus required but obstacles include lack of bank infrastructure, OTHERS: I. Breakeven not necessarily in next 18 months, II. Would require capital even if FDI were raised to 49%

3.4(III) SBI LIFE INSURANCE

MARKET VIEW: I. Aims to be top 3 player and capture 5% share in next 2 years PRODUCT FOCUS:

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I. Current strategy appears to be refocusing on linked products, II. Earlier focus on pension and group corporate business. DISTRIBUTION STRATEGY: I. Believes mainly in bankassurance model, II. However, linked product focus would require agency force ramp-up, III. Extensive use of SBI groups branch network, IV. Emphasis on cross sell, OTHERS: I. SBI will continue as the majority JV partner, II. Strength is credit insurance, III. First company to show accounting profits,

3.5(IV) BAJAJ ALLIANZ

MARKET VIEW: I. II. PRODUCT FOCUS: I. II. III. Most products homogeneous across players, Not much price differentiation, ULIP sales unlikely to be affected by recent regulations, 86 Current industry growth sustainable for next 7Target 10% market share in next 5 years, 10 years,

IV.

Not much threat from mutual funds,

DISTRIBUTION STRATEGY: I. More focus on smaller towns, II. Greater emphasis on agency force expansion, OTHERS: I. Growth and market share oriented strategy, II. Breakeven could vary between 3-7 years depending on growth rate,

3.6(V) BIRLA SUNLIFE

MARKET VIEW: I. Target to be top 3 in 5 years, PRODUCT FOCUS: I. Currently only linked products sold but group linked product is focus area for development DISTRIBUTION STRATEGY: I. Agent productivity is an issue given their part time nature, II. Target 130 branches vs. 85 currently, III. Also OTHERS: I. Believes some marginal players could be bought out 87 will leverage on groups distribution strengths(e.g. cement distribution points)

3.4(VI) LICs first health insurance product- Health plus

LIC has launched its first Health insurance product, Health Plus. The policy has the unique feature of savings through investment in units. Looking to the huge expenses that a person has to incur on hospitalization, to meet the required amount for complete bill of the hospital for treatment and also for maintenance expenses for his family members during his hospitalization, the LIC Health Plan be the best solution since it takes care of all such eventualities. Eligibility Age: All eligible major person 18-55 till 65, In respect of children upto 25 years of age. Product Designing: The product is designed as a benefit plan covering not only policy holder but also his family including children between 3 months to 25 years. Benefits: Hospital Cash Benefit, Major Surgical Benefit, Domiciliary Treatment Benefit, Death Benefit and Benefit at the end of the policy term, even in the unfortunate death of the policy holder, benefit to the surviving spouse.

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Chapter-4
Research Methodology
Market research is a cost effective way of finding out what people believe, think , want , need or do. It is information that cannot be obtained from any other source. Industry, commerce and governments use research to help them produce goods , services and policies matched to the peoples needs . Scope of the Study: Company Related Scope : My study covers Public and Private Sector Life insurance companies Customer Related Scope : My study comprises all existing and potential customers of the LIC and other Private life insurance companies.

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4.1 Research Design:

The research approach that has been selected for undertaking the assigned project is I. Exploratory II. Descriptive I. Exploratory Research : The objective of exploratory research is to explore or search through a problem or situation to provide insights and understanding. Secondary data were used in form of Magazines, News papers (Financial Express , Business Standard, Economic Times), Books, journals, Internet, Expert opinions. The exploratory research done above, helped in: a) Finding out the information needed. b) Framing the research questions c) Preparing our questionnaire accordingly II. Descriptive Research : It is a type of conclusive research that has its major objective as the description of something, usually market characteristics or functions. The Single Cross - Sectional design will be used for the study i.e. Information will be collected from only one sample of respondents drawn from the target population and that too, only once.

4.2 Sampling Techniques:

The sampling technique used is : I. Judgmental (non probability), II. Sampling method.

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Judgmental Sampling is a form of convenience sampling in which the population elements are purposively selected based on the judgment of the researcher. 4.2.(I) Sample Size: 300 persons of North India

4.2.(II) Sample Elements : Individuals above 18 years of age, Till 65 years of age Individuals of North India-Haryana (150),Punjab(100),West U.P.(50),

4.3 Data Collection Methods:

4.3.(I) Primary Sources : Four data collection the following methods will be adopted : (i) (ii) Questionnaires Personal Interviews

4.3.(II) Secondary Sources : The secondary sources will be collected in the following formats : Internal Sources : Press Releases Brochures Pamphlets

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 External Sources : Books Periodicals Internet

IV.4 Tools for Data Analysis:

Tabulation: Tables are used for the systematic arrangement of statistical data and rows and columns . It is to simplify the presentation and facilitate comparison by bringing related items of information close together . Pie Charts : This type of diagram enables us to show the partitioning of a total into component parts .

Bar Diagrams : They are used when a large number of observations are to be compared .

Comparative Differential Scale : This is a frequently used attitude scaling device in marketing research . The profile is generally 4-8 pairs of bipolar objectives . Any no. of scale positions can be used . Each respondent is asked to rate a brand on the opposing objectives , which eventually gives a graph of the brand profile . The scale presumes that the centre position of the response is somewhat neutral and the intermediate positions are defined by extreme poles .

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Performance Matrix : A crucial stage in the formulation of strategy is the derivation of a ranked list of competitive factors such as quality , flexibility , cost etc . This list is used either to infer an appropriate set of strategic operations decisions or , in conjunction factors . with an independently derive list of the organizations performance to prioritize each of the competitive

Chapter-5
5.1 Analysis & Interpretation of Research:

1. #Awareness about insurance products among people(if your response is not yes, please dont fill it:

Table- 5.1.(i) Awareness No. of persons Yes 234 NO 12 Indifferent 36 None of these 18

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No. of persons

36 12

18

Yes No 234 Indifferent None of these

Finding & Analysis: 78% people on national level are aware about life insurance products, in which share of rural(73%), is less as compare to urban(90%). 2. From what source do you know about insurance: Table- 5.1.(ii) Source No. of persons Advertisement 84 Friends 72 Relatives 66 Others 12

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No. of persons

Others 12 Relatives Friends Advertisement 0 66 72 84 50 100 . no.of persons

Finding & Analysis: 36% people were awared by advertisement as compare to friends(31%), relatives(28%), 3. Which type of insurance is important for you:

Table-5.1.(iii)

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Insurance No. of persons

Life 201

Health 15

Crop 7

motor 11

No. of persons

15

7 11

Life Health Crop 201 motor

Finding and Analysis: At all India level, about 86% of households aware about the insurance considered life insurance as the most important product among all other insurance products such as health(6%), crop(3%),

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4. Occupation vs Life insurance: Table-5.1(iv) Occupation No. of persons Salaried 119 Self employed 77 Agriculturalist Labour 21 17

FInding and Analysis: Regular salaried person occupies (51%) life insurance products, followed by self-employed(33%), agriculturalist(9%), labour household(7%).

5. How many family members are dependent upon you in following format: Table 5.1.(v) Status No . of persons Direct 108 Indirect 120 Dont say 4 None of these 2

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No . of person 150 100 50 0 Direct Indirect 4 Dont say 2 None of these 108 120 No .of persons

Finding and Analysis: 46% of employees, say that one or both of their spouse parents are financially dependent upon them. Among age group of (31-40), 57% say they are financially supporting parents or in laws.

6. why you purchase the insurance policy: Table-5.1.(vi) Purpose No of persons Tax relief 129 Risk cover 33 Investment others 63 9

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No of persons 150 100 50 0

re lie f co ve r en t In ve st m ot he rs

129 33 63 9 No of persons

Ta x

Finding and Analysis: The basic reason behind the policy owning is to enjoy tax-relief. People likes to play defensive.

7. Life insurance subject to marital status: Table-5.1.(vii) Marital status No. of Married 196 Unmarried 25 Others 4

Ri sk

99

persons

N o. of pers ons

25

4 M arried Unm arried 196 others

Finding and Analysis: Life insurance is also subject increase itself with martial status. 87% married, 11% unmarried, 2% divorced, widowed covered by result, 8.*Being an employee, from where you have got the policy: Table-5.1.(viii) Source No. of persons Employer 96 Outside 69 Dont have 23

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No. of person 120 100 80 60 40 20 0 96 69 23 No. of person

id e O ut s

pl oy er

Finding and Analysis: 81% of employees, currently have term life insurance, 23% obtained it from their employer and 58% purchase it from providers outside the work-place. 9 *Are you extremely concerned about having appropriate health insurance coverage: Table-5.1(ix) Concern Yes No Cant say None of these

Do n t

Em

ha ve

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No. of persons

98

11

No. of person 120 100 80 60 40 20 0 Yes No Cant say None of these

No. of person

Finding and Analysis: Other concerned result was, 82% of Indian employees say they are extremely concerned about having appropriate health insurance coverage, and 78% are extremely concerned about being able to afford healthcare in their retirement years. 10.*Do you think that ULIPS plans can fulfill your financial household needs: Table- 5.1(x)

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Decision No of persons

Yes 93

No 5

Cant say 1

None of these 1

No of persons

93 5 Yes No 1 Cant say 1 None of these No of persons

Finding and Analysis:

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93% of the indian employees have taken step in determining their household financial needs with regard to life insurance. 11. Do you think that increasing age is responsible for more and more health policies: Table-5.1(xi) Decision No. of persons Yes 190 No 22 Cant say 7 None of these 5

No. of person 200 150 100 50 0 Yes No Cant say None of these

No. of person

Finding and Analysis Life insurance awareness is function of age, 46-55, 56-65, 65+ more(81% each) than younger age group

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12. On which basis you have taken the Insurance policy: Table-5.1.(xii) Basis Low premium No of persons 80 Quick claim settlement 59 More returns 87 8 others

No of persons 8 80 87 Low premium Quick claim settlement More returns 59 others

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Finding and Analysis: The people choose the policy on the basis of gathered information, they took policy with low premium paid, now people are looking for quality, and early claims settlement

# The respondent mark option other leaving YES were not included in further study of same research * These response were acquired in personal interview

5.1.1 Other Valuable Findings

During checking of awareness level we found that people of urban(90% are more aware about life insurance as compare to rural(73%). The increasing level of awareness is because of increasing education level, nuclear families, and more private jobs. Some companies like LIC and Birla Sun Life, fully moving towards villages. Competition is more in among life insurance companies, so they are stressing more on advertisings, In North India 96% households that have a regular salary as source of income are aware about life insurance compared to 89% households that engaged in non-agricultural self employed work followed by the agricultural households(77%) and labour households(83%). When talks about, ownership 43% large farmers(10-plus acre), 28% medium(4-10 acre of land), 25%(24 acre) have life insurance products. They are aware, not 106

because crop insurance is their, it is why, they are approached by agents, and education level is increasing in rural area, Other fact is, on the basis of a survey, only 14% households with chief earner less than 25 years of age own life insurance products as compare to 22%(26-35), 25%(36-45), 30%(46-55), 25%(65+), Life insurance is also matter of gender, on the basis of my study I found, 865 of males comprise it as compare to 14% females, Those households owing health insurance tend to be more prosperous, more educated , and own more consumer durables than those dont own this policy, It is the salaried class that tends to be the most life insurance, followed by the businessman. Predictably, it is the married who tend to buy such policies more, After bankassurance and agencies now concept of brokerage houses, which deals in many policies are being popular for promotion mix(distribution channel).

5.2 Recommendations:
Rising income levels and an insurable population,Increasing awareness about the need for insurance, Enhanced competition with aggressive

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growth plans of insurers in the interior part of India and the stated focus of policymakers on pension and health insurance are some positive indicator for health insurance. The awareness about health insurance in India is quite high. Around 78% households are aware of insurance products. However ownership is too, low just 24%. It is because of many reasons that were found by various survey & reports. My findings are also based on a survey which enable me to recommend some productive suggestion, like: Insurer need to align their pricing model with their marketing strategy. Insurer should always make sure they are competitive on pricing, but that doesnt mean they need to offer the same price to every customer. Infact, insurers can adjust prices according to the actual risk involved, the value of the customer, and the demand for the product. Those that manage these variables effectively will be far more successful in generating a profit from their policy. To drive growth insurers, should develop innovative products, prevent commoditization of products leading to thinner & thinner profit margin. Woman agents should be appointed because they better know about the needs of the family, they can easily sell the family insurance coverage products to the targeted segment. Ownership of insurance polices is too low among women. Thus woman agents can be able to connivance others. Now customer are more demanding, seeking lower prices, wider coverage, and quicker settlement of claims.

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Indian economy is agriculture based, more people are

depend upon it, people earns only to fulfill their daily needs, but they want to save for future. It is prospectus market for all players. After bankassurance and agencies now concept of brokerage houses, which deals in many policies are being

popular for promotion mix(distribution channel).Companies lacking behind because of time, no history of branches or enjoy of banks branches,less popular among agents but have good health products in their basket, can provide better commission should invite broker houses.

Chapter-6 Conclusion:
Insurance is about numbers. It is the business of collecting from many and paying a few should they need medical help. Thus insurance is a win-win situation and benefit all if the habit of buying insurance spreads. But the scenario doesnt seem to have changed from the time of MAHABHARTA. In that epic, the Yaksha asks Yudhistrha about the strongest thing in the world In spite of seeing the sickness and death of the people around them people fail realize that the same fate await them also, one day was the reply from Dharmraj. This reply brought life to his brothers. A realization of this in our society will bring more life to our health insurance system.

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However, the growth in this sector in the recent years has been significant, and it will be argued here that the potential of making use of this vibrant sector to provide low cost health insurance is enormous. Spearheaded by the LIC, the insurance industry registered a growth 110% in fiscal year 2006-07 ranking in new business premium of Rs.35897 crore. The aim should be to move on all fronts, and extend coverage in whatever form is workable and feasible, keeping in mind the goals of such coverage. If the goal is to ensure that a majority of the population has access to health cover that assures them quality care, then one should be open to any and every innovation and combination of health benefits/insurance/coverage that go towards meeting this objective. The poor who are not in a position to pay the premiums demanded by the private players will have to be looked after by the public health care system till they graduate to the premium paying stage. The Government can help in relieving some burden on the poorer sections of the society. To give a boost to health insurance, the government increased the tax exemption limit to Rs. 15,000. The Rashtriya Swastha Bima Yojna(RSBY) scheme will take Rs. 30,000 of the annual hospitalization expenditure of % members of a BPL family in any part of the country, 60 millions smart card will be issued under the RSBY over the next 5 years. Each year, 1.2 crore BPL family member will be targeted, two features of RSBY are: Rs. 30 per year to get the smart card, 8.5 crore will be pumped in each district,

It is important to note that the private companies should be very cautious in preparing the organization and the executive channels to

110

take care not to allow any possibility of formation or development of a nexus between the doctors and the policyholders. The involvement of experienced and qualified personnel at various levels of organization would be very useful, and much more so if it is a medical doctor. It is also necessary to develop systematic structures to provide preventive health care and also to early detection of disease processes, to the policy holders. This aspect can help the insurer to contain the futuristic expenditure, as well as the risk management. It is to be expected and rightly so, that the to-days customer /client is gradually becoming aware of his rights and expects QUALITY and value added services from his vendor. The Health Insurance sector is no exception. The demands of the policyholders of a health insurance are the same if not more. People may compromise with any service to some extent, but not with his health and his demand for quality is rightly acceptable. Alternate channels of distribution like bancassurance, direct marketing, internet and telemarketing have enabled the insurers to reduce costs. While agency force remained the mainstay of most insurance companies, insurers are making efforts to explore new channels including the bancassurance route both with commercial cooperative banks and rural regional banks. Insurers have also initiated on-line sale of policies. It is pertinent to note that the reduction in marketing costs would enable insurers to provide affordable insurance to low income households. Entry of foreign partners enabled the sector to attract $543 million FDI in last 6 years. The year also saw setting in motion a proposal to have health insurance portability that would allow a policy holder to switch over to anew company without losing bonus and other benefits.

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At last, I should say, that, The best family health insurance policy would be one that is tailor-made to suit your requirements as well as your budget. Considering that its function is to shield against any medical contingency, it would be wise to opt for the best health insurance cover after due comparison with other family health insurance plans which Indias leading health insurance companies have to offer.

Chapter-7 Limitations:

I. Time Constraint : An in-depth project could not be carried out due to the paucity of time, II. Small Sample Size : A sample size of only 300 respondents was a small one to understand the market behavior in North India,

III. Few of the respondents had not interacted with Insurance companies at all and thus, their response was not based first

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hand experience, but what they had heard of or read from sources,

Chapter-8 Annexures:
8.1 INSURANCE COMPANIES OPERATING IN INDIA INSURERS) Public Sector 1. Life Insurance Corporation of India (LIC) 1. Bajaj Allianz Life Insurance Co. 2. Birla Sun Life Insurance Co. Ltd. (BSLI) Private Players (LIFE

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3. HDFC Standard Life Insurance Co. Ltd. (HDFC STD LIFE) 4. ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU) 5. ING Vysya Life Insurance Co. Ltd. (ING VYSYA) 6. Max New York Life Insurance Co. Ltd. (MNYL) 7. MetLife India Insurance Co. Pvt. Ltd. (METLIFE) 8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 9. SBI Life Insurance Co. Ltd. (SBI LIFE) 10. TATA AIG Life Insurance Co. Ltd. (TATA AIG) 11. Reliance Life Insurance

Company Ltd. 12. Aviva Life Insurance Co. Pvt. Ltd. (AVIVA)

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13. Sahara India Life Insurance Co. Ltd. (SAHARA LIFE) 14. Shriram Life Insurance Co. Ltd (SHRIRAM LIFE) 15. Bharti AXA Life Insurance Co. Ltd. (BHARTI AXA) 16. Future Generali India Life

Insurance Co. Ltd. (FUTURE GENERALI INDIA LIFE)

8.2 Some foreign companies entering the Indian insurance sector and their Indian partners are as below:

Indian partner Aditya Birla Group Kotak Mahindra Finance HDFC Reliance ICICI Max India Tata Group

Foreign Insurer Sun Life, Canada Old Mutual, South Africa Standard Life, UK No Foreign Alliance Prudential, UK New York Life, USA AIG, USA

Specialization Life Life Life Non-Life, Health Life, Health Life Life and Non-Life

Present Status Received License Received License Received License Received License for Non-Life Received License Received License Received License

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(source: IRDA, annual report 2006-07)

8.3 EQUITY SHARE CAPITAL OF LIFE INSURANCE COMPANIES IN INDIA

Name of the Life Insurer HDFC Std. Life Insurance Ltd. ICICI Prudential Life Insurance Co. Max New York Life Insurance Kotak Mahindra Old Mutual Birla Sun Life Tata AIG SBI Life Insurance ING Vysa Life Met Life India Insurance Co. Bajaj Allianz Life Insurance Reliance Life Aviva India Life Sahara India Life Insurance Shriram Life Insurance Bharti AXA 125 1.10 125 150 32.50 33.33 92.50 116.67 26 22 331 458.70 157 664 758 157 197.13 664 561.07 157 0 26 0 460 447 425 490 235 150.23 671.50 547 500 690 530 150.37 174.59 142.22 130 179.40 137.80 39.10 496.91 404.78 370 510.60 392.20 111.27 26 26 26 26 26 26 244.58 330.35 85.89 244.46 26 557.43 732.43 190.43 542 26 1185 1312.30 340.57 971.73 25.95 200506 620 200607 801.26 Foreign Promoter 126.78 Indian Promoter 674.48 FDI (%) 15.82

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Total of Private Life insurers LIC Total(including LIC) 5887.0 5 5 8119.4 1 5 0 5 6314.66 22.29 22.28 1809.75 6309.66 -

5892.05 8124.41 1809.75

(source: IRDA Annual report 2006-07)

8.4 Life insurers & their corporate banks

Insurer Bajaj Alliance United India Banks / Corporate Agencies Jammu & Kashmir Bank, Karur Vysya Bank, Punjab & Sind Bank InsuranceAndhra Bank, Indian Bank, South India Bank, Bank (General Insurance)

Company Ltd. Federal Bank New India Assurance CompanyPunjab National Ltd. SBI Life ICICI Prudential LIC of India Met-life AMP Sanmar

Vijaya Bank (Life Insurance) SBI branches and branches of its subsidiaries Allahabad Bank, Bank of India, Citibank, Federal Bank, Lord Krishna Bank, Punjab and Maharashtra Co-operative Banks Corporation Bank, Oriental Bank of Commerce Karnataka Bank, Dhanalakshmi Bank, Jammu& Kashmir Bank Kerala based Co-operative Banks

Peruntalmanna Bank and Manjeri Bank Citibank, Deutsche bank, IDBI Bank, Catholic Syrian Bank, Bank of Rajasthan, Bank of Muscat Indian Bank, Union Bank Lakshmi Vilas Bank, Canara Bank, Amex, ABN Amro Bank

Birla Sun-Life HDFC Standard Life Insurance Dabur CGU Life

(source: asian insurance journal 2006)

8.5 APPOINTED ACTUARIES OF LIFE INSURERS

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(as on 31st March, 2007)

Bajaj Allianz Life Insurance Co. Ltd. Reliance Life Insurance Co. Ltd. Aviva Life Insurance Co. India Pvt. Ltd. Birla Sun Life Insurance Co. Ltd. HDFC Standard Life Insurance Co. Ltd. ICICI Prudential Life Insurance Co. Ltd. ING Vysya Life Insurance Co. Ltd. Life Insurance Corporation of India Max New York Life Insurance Co. Ltd. MetLife India Insurance Co. Pvt. Ltd. Kotak Mahindra Old Mutual Life Insurance Ltd. Sahara India Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. Tata AIG Life Insurance Co. Ltd.

Mr. Andrew Wakeling* Ms. Pournima Gupte Mr. Chandan Khasnobis Mr. Fabien Jeudy Mr. N. D. Taket Mr. Azim Mithani Ms. Hemamalini Ramakrishnan Mr. G. N. Agarwal Mr. John Charles Poole Mr. K. P. Sarma

Mr. A Venkatasubramanian Mr. K. K. Dharni Mr. I. Sambasiva Rao Mr. Heerak Basu 118

Shriram Life Insurance Co. Ltd. Bharti AXA Life Insurance Co. Ltd.

Mr. N S Sastry Mr. G L N Sarma

Mr. Anil Kumar Singh was appointed with effect from 01st July, 2007

8.6 Health Product of various Life insurance Companies declared during 2006-07 by IRDA

BAJAJ ALLIANZ LIFE Bajaj Allianz Samraksha Bajaj Allianz New Unit Gain Super Bajaj Allianz Capital Unit Gain Bajaj Allianz New Unit Gain Easy Pension Plus - SP Bajaj Allianz Unit Gain Guarantee - SP Bajaj Allianz New Unit Gain Premier - SP Bajaj Allianz New Unit Gain Plus - SP Bajaj Allianz New Unit Gain Easy Pension Plus - RP Bajaj Allianz New Family Gain

1. 2. 3. 4. 5. 6. 7. 8. 9.

10. Bajaj Allianz New Unit Gain Plus 11. Bajaj Allianz New Unit Gain 12. Bajaj Allianz New Group Gratuity Care 13. Bajaj Allianz New Group Superannuation Care

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14. Bajaj Allianz New Secure First 15. Bajaj Allianz New Risk Care 16. UL Accidental Death Benefit 17. UL

Accidental

Permanent

Total/Partial

Disability

Benefit
18. UL Critical Illness Benefit 19. UL Hospital Cash Benefit 20. UL Mahila Gain Benefit

RELIANCE LIFE Reliance Connect 2 Life Plan Reliance Group Superannuation Plan Reliance Golden Years Plan Reliance Market Return Plan Reliance Golden Years Plan - Plus Reliance Golden Years Plan - Value Reliance Group Gratuity plan Reliance Money Guarantee Plan Reliance Auto Invest Plan

1. 2. 3. 4. 5. 6. 7. 8. 9.

AVIVA LIFE Home Builder Life Long Unit Linked

1. 2.

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3. 4. 5. 6. 7. 8. 9.

Life Long With Profits Life Bond Unit Linked Life Bond With Profits Life Bond 5 Life Bond Plus Life Saver Unit Linked Life Saver With Profits

10. Freedom Life Plan 11. Group Gratuity Plan 12. Young Achiever Unit Linked 13. Young Achiever With Profits 14. Pension Plus Unit Linked 15. Pension Plus With Profits 16. Treasure Plus Unit Linked 17. Easy Life Plus Unit Linked 18. Easy Life Plus With Profits 19. Save Guard 20. Save Guard Junior 21. Group Superannuation Plan 22. Life Saver Plus 23. Grameen Suraksha 24. Aviva Dhan Vriddhi

BIRLA SUN LIFE

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1. 2. 3. 4. 5. 6. 7. 8. 9.

Classic Life Premier Prime Life Single Premium Bond Prime Life Premier Life Companion Money Back Plan Life Companion Endowment Plan Birla Sun Life Group Gratuity Product Birla Sun Life Group Superannuation Product Birla Sun Life Flexi SecureLife Retirement Plan II

10. Flexi Insurance Solutions 11. Simply Life 12. Supreme Life 13. Birla Sun Life Dream Plan 14. Birla Sun Life Childrens Dream Plan 15. Birla Sun Life Group Gratuity Guaranteed Interest

Credit Product
16. Birla Sun Life Group Leave Encashment Guaranteed

Interest Credit Product

17. Birla

Sun Life Group Superannuation Guaranteed

Interest Credit Product HDFC STANDARD LIFE HDFC Unit Linked Young Star HDFC Unit Linked Young Star Plus

1. 2.

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3. 4. 5. 6. 7. 8. 9.

HDFC Unit Linked Young Star Suvidha HDFC Unit Linked Young Star Suvidha Plus HDFC Unit Linked Endowment HDFC Unit Linked Endowment Plus HDFC Unit Linked Endowment Suvidha HDFC Unit Linked Endowment Suvidha Plus HDFC Unit Linked Pension

10. HDFC Unit Linked Pension plus

ICICI PRUDENTIAL LIFE Cash Plus Diabetes Care (Critical Illness Insurance) Diabetes Care Plus (Critical Illness + Life Insurance) ICICI Pru Group Superannuation ICICI Pru Group Superannuation Platinum ICICI Pru Group Superannuation Plus Smartkid New Unit Linked Single Premium Invest Shield Cash Back Invest Shield Life -New

1. 2. 3. 4. 5. 6. 7. 8. 9.

10. Life Time plus 11. Life Time Super Pension 12. Premier Life Gold 13. Smart Kid New UL RP 14. ICICI Pru Group Gratuity platinum

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15. ICICI Pru Group Gratuity 16. ICICI Pru Group Gratuity Plus 17. Life Link Super Pension 18. LifeTime Super 19. Life Link Super 20. ICICI Pru Credit Assure 21. Hospital Care 22. Cancer Care Plus 23. ICICI Pru New Group Superannuation 24. ICICI Pru New Group Superannuation Plus 25. ICICI Pru New Group Superannuation Platinum 26. Critical Illness Rider 27. Accident Death and Disability Benefit Rider 28. Waiver of Premium Rider 29. Income Benefit Rider 30. Diabetes Enhanced Rider

ING VYSYA LIFE ING Vysya Life Group Decreasing Mortgage Cover Plan High Life High Life Plus ING Vysya Life Group Superannuation Plan - Defined Benefit Scheme
5. 6.

1. 2. 3. 4.

New Freedom plan New Future perfect plan

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7. 8. 9.

New One Life Plan ING Vysya Group Gratuity ING Life Plus

LIFE INSURANCE CORPORATION OF INDIA LICs New Bima Gold LICs Gratuity Plus LICs Market Plus Jeevan Akshay - V LICs Jeevan Madhur LICs Money Plus LICs Child Career Plan LICs Child Future Plan LICs Premium Waiver Benefit Rider (with Auto Cover)

1. 2. 3. 4. 5. 6. 7. 8. 9.

10. LICs Critical Illness Benefit Rider

MAX NEWYORK LIFE Unit Linked Group Gratuity Plan Life Invest Plan Max Amsure Secure Returns Builder Life Maker Pension Plan Life Maker Unit Linked Investment Plan Unit Linked Group Superannuation Plan
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1. 2. 3. 4. 5. 6.

7.

Life Maker Premium Investment Plan

MET LIFE Met Smart Plus Met Smart Premier Met Advantage Plus Non-Par Immediate Annuity Met Smart Plus -Single Pay Met Smart Premier - Single Pay Met Group Gratuity Met Ultimate Premier Met Ultimate Plus

1. 2. 3. 4. 5. 6. 7. 8. 9.

10. Critical Illness Rider (Linked) 11. Accident Death Benefit Rider (Linked)

KOTAK MAHINDRA OLD MUTUAL LIFE Kotak Flexi Plan Kotak Headstart Future Protect (Joint Life Plan) Kotak Headstart Future Protect (Single Life Plan) Kotak Headstart Assure Wealth (Joint Life Plan) Kotak Headstart Assure Wealth (Single Life Plan) Sukhi Jeevan

1. 2. 3. 4. 5. 6.

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7.

Kotak Retirement Income Plan (Unit Linked) -without cover plan Kotak Retirement Income Plan (Unit Linked) - Single Premium plan Kotak Safe Investment Plan II

8.

9.

10. Kotak Privileged Assurance Plan 11. Kotak Easy Growth Plan (with 1.25 times cover) 12. Kotak Easy Growth Plan (With 5 Times Cover) 13. Kotak Retirement Income Plan (Unit Linked) - with

cover plan
14. Kotak Superannuation Group plan 15. Kotak Gratuity Group plan - KGGP 16. Kotak Platinum Advantage Plan

SBI LIFE SBI Life Group Leavencashment cum Life Cover Scheme
2. 3. 4. 5. 6. 7. 8.

1.

SBI Life Horizon II SBI Life Unit Plus II Regular SBI Life Unit Plus II Single SBI Life - Group Superannuation SBI Life Horizon II Pension SBI Life Unit Plus II Pension SBI Life Golden Gratuity

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9.

SBI Life Group Immediate Annuity

TATA AIG LIFE Navakalyan Yojana Ayushman Yojana Invest Assure Plus Sampoorn Bima Yojana Invest Assure II Invest Assure Gold TATA AIG Unit Linked Gratuity Scheme II (ULGS-II) TATA AIG Unit Linked Super Annuation scheme II Defined Contribution (ULSS-II) SAHARA INDIA LIFE Sahara Sahayog (Micro Endowment Insurance without profit plan)
2. 3. 4. 5. 6.

1. 2. 3. 4. 5. 6. 7. 8.

1.

Sahara Ankur Sahara Sanchay - R Sahara Samriddhi Sahara Swabhimaan Sahara Premium Waiver Benefit Rider for Unit Linked Plan

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7.

Sahara Accidental Death Benefit and Accidental Total and Permanent Disability Benefit Rider (for unit linked plans)

8.

SHRIRAM LIFE Shriplus Shri Laab Shri Vivah ShriPlus (SP) Shri Vidya Immediate Annuity Plan Shri Vishram Shri Sahay Accident Shield

1. 2. 3. 4. 5. 6. 7. 8. 9.

10. Accident Benefit Rider (SP) 11. Family Income Benefit Rider (SP)

BHARTI AXA LIFE Wealth Confident Future Confident Bharti AXA FutureConfident II Bharti AXA Secure Confident Bharti AXA Save Confident

1. 2. 3. 4. 5.

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6. 7. 8. 9.

Bharti AXA ServSuraksha Bharti AXA Invest Confident Bharti AXA Group Suraksha Critical Illness Rider

10. Accidental Death and Disability Benefit Rider

8.7 The General Insurance Companies which offer Health or Mediclaim Insurance , are:1. Apollo DKV Insurance Company Ltd. Bajaj Allianz general Insurance Company Ltd. Cholamandalam MS General Insurance Company Ltd. HDFC General Insurance Company Ltd. ICICI Lombard General Insurance Limited National Insurance Company Ltd. NEW India Assurance Company Ltd. Oriental Insurance Company Ltd. Reliance General Insurance company Ltd. Royal Sundram Allied Insurance company Ltd.

2.

3.

4.

5.

6.

7.

8.

9. 10.

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11.

TATA AIG General Insurance company Ltd.(oversease Health Insurance only)

12. United India Insurance Company Ltd.

8.8 Recommendations by Malhotra Committee:

In 1994, the committee submitted the report and some of the key recommendations included:
1) Structure

a. Government stake in the insurance Companies to be brought down to 50%. b. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. c. All the insurance companies should be given greater freedom to operate.
2) Competition

a. Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry. b. No Company should deal in both Life and General Insurance through a single entity. c. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.

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d. Postal Life Insurance should be allowed to operate in the rural market. e. Only One State Level Life Insurance Company should be allowed to operate in each state.
3) Regulatory Body

a. The Insurance Act should be changed. b. An Insurance Regulatory body should be set up. c. Controller of Insurance (Currently a part from the Finance Ministry) should be made independent.
4) Investments

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

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

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confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.

8.9 National Income and Health expenditure of Select Asian Counties (in US Dollars)
Country Per capita GNP 1 2 2,370 1830 810 720 560 490 400 300 290 200 160 150 3 148.37 58.51 32.79 26.18 14.09 10.42 9.18 11.04 12.51 6.41 3.80 2.11 4 3/2 5.1 3.5 3.8 3.8 2.4 2.4 2.3 4.0 4.3 3.2 1.7 1.4 Per capital total health % of Public sector % of T.H.E public Private sector Health per capital 7 130.49 13.53 22.38 2.49 10.33 6.52 3.85 8.91 7.87 4.12 2.68 0.83 % of T.H.E. Private

income expenditure GNP Health per capital 5 17.87 44.97 9.94 23.68 3.76 3.90 5.32 2.13 4.63 2.29 1.12 1.28

expenditure sector Expenditure sector 6 5/3 12 77 30 91 27 37 58 19 37 36 40 61 8 7/3 88. 23. 73. 9. 7.3 63. 42 81 63 64 60 39

Korea Malaysia Thailand Papuang Philippines Indonesia Sri Lanka China India Burma Bangladesh Nepal

(Source : National Seminar on Health Insurance. (Asia Insurance Post)

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8.10 Healthcare Sector in India

A joint study by the Confederation of Indian Industry and McKinsey shows:

At the current pace of growth, medical tourism, currently pegged at US$ 350 million, has the potential to grow into a US$ 2 billion industry by 2012,

Total value of Indian healthcare industry $17billion(Rs.80,000 crore),

Expenditure on healthcare stands 6.1% of GDP (1.1% spends government),

43 doctors for 10,000 people as compared to the 2340 doctors per 10,000 in the USA,

The healthcare industry employs over four million people, making it one of the largest service sectors in the economy,

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Growth rate would continue with 13% annually for the next 6 years

Healthcare spending in the country will double over the next 10 years. Private healthcare will form a large chunk of this spending, rising from Rs 690 billion (US$ 14.8 billion) to Rs 1,560 billion (US$ 33.6 billion) in 2012. This figure could rise by an additional Rs 390 billion (US$ 8.4 billion) if health insurance cover is available to the rich and the middle class.

With the expected increase in the pharmaceutical market, the total healthcare market could rise from Rs 1,030 billion (US$ 22.2 billion) currently (5.2 per cent of GDP) to Rs 2,320 billion (US$ 50 billion)-Rs 3,200 billion (US$ 69 billion) (6.2-8.5 per cent of GDP) by 2012.

However, it is not only the cost advantage that keeps the sector ticking. It has a high success rate and a growing credibility: Indian specialists have performed over 500,000 major surgeries and over a million other surgical procedures including cardiothoracic, neurological and cancer surgeries, with success rates at par with international standards.

The success rate in the 43,000 cardiac surgeries till 2002 was 98.5 per cent.

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 India's success in 110 bone marrow transplants is 80 per cent.

The success rate in 6,000 renal transplants is 95 per cent.

8.11 Healthcare: Market Size & Growth in India

Healthcare emerged as one of the largest service sectors in India In 2007, national healthcare spending equaled 6.1% of GDP, or about US$ 42.9 bn

Healthcare spending in India is expected to rise by 12% per annum through 2005-09 (in value terms) India receives 1.5 lakhs medical tourists every year According to report medical tourism could contribute Rs. 500010000 crore as additional revenue for the tertiary care hospital by 2012. this will account for 3-5% of the total healthcare delivery market Indias medical tourism industry to be around $450 million. It could yield as much as $2.2 billion a year by 2012

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 Expected to scale up to about 8.1% of GDP, or US$ 60.9 billion, by 2009

Other estimates suggest that by 2012, healthcare spending could contribute 8% of GDP and employ around 9 million people For instance, a middle-level manager with a family of four spends between Rs. 8000-12000 a year on healthcare compared to Rs. 2000 in late 1980s.

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Chapter-9 References & Bibliography

9.1- Books , Articles & Journals
Annual Report 2006-07 by IRDA THE HINDU, SURVEY OF INDIAN INDUSTRY 2008 Gumber A., Kulkarni V. 2000. Health Insurance for Informal Sector: Case Study of Gujarat. Economic and Political Weekly, Sep. 30. Dholakia R.Economic reforms: Implications for Health Insurance. Presentation at One day workshop on 'Health Insurance in India'. Indian Institute of Management, Ahmedabad. Oct. 30, 1999. Ellis RP., Alam M, Gupta I. 1996 Health Insurance in India: Prognosis and Prospectus. Boston University: Boston and Institute of Economic Growth: Delhi. December 18. IIMA 1999. Indian Institute of Management, Ahmedabad. Report of the one day workshop on 'Health Insurance in India'. Oct. 30, 1999. IIMA 2000. Indian Institute of Management, Ahmedabad. Report on Conference on Health Insurance, March 18-19,2000 and three Technical Workshops on March 15-17,2000. Malaysia, 1999. Report of the "Presentation From Malaysia: Health Financing System in Malaysia - The Country's Experience" in the Seminar "Health Insurance Development" held at Berlin, Germany supported by DSE. Nov. 9-19, 1999

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 Naylor CD, Jha P, Woods J, and Shariff A, 1999. A Fine Balance: Some Options for Private and Public Health Care in Urban India. The World Bank: Washington DC. May, 1999. Ranson MK. 1999 The Consequences of Health Insurance for the Informal Sector: Two Non- Governmental, Non-Profit Schemes in Gujarat. London School of Hygiene and Tropical Medicine; Dept. of Public Health and Policy, Health Policy Unit. May 13, 1999. (Unpublished). Philippines 1999. Report of the Department of Health on "Health Sector Reform Agenda." 1999. Phillipines, Manila. Report presented at the seminar on "Health Insurance Development" held at Berlin, Germany, supported by PSE, Nov.9-19, 1999. Satia J, Mavalankar D, Bhat R, Progress and Challenges of Health Sector: A Balance Sheet, Indian Institute of Management, Ahmedabad October 1999 Working Paper 99-10-08 Shah M. 1999. Consumer perspective on health insurance. Presentation at One day workshop on 'Health Insurance in India'. Indian Institute of Management, Ahmedabad. Oct. 30, 1999. Srivastava DC 1999. Details of Various Medical Insurance Schemes Being Marketed by the Insurance Industry in India. New Delhi. Stierle F. Striving for equity in financing health care; Social Health Insurance in Germany. Presentation at Conference on Health Insurance, Indian Institute of Management, Ahmedabad. March 19-19, 2000. Reinhardt UE. 1993. The German Health System: Providing Equitable, Universal Access to Health Care and Controlling its Costs. July 29-31. Vora N. 1999. Employee State Insurance Scheme in Gujarat

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State. Presentation at One day workshop on Health Insurance in India. Indian Institute of Management, Ahmedabad. Oct. 30 Bhat, R. and E. B. Reuben (2002). Management of Claims and Reimbursements: The Case of Mediclaim Insurance Policy, Vikalpa, Vol. 27, No. 4, October- December.

Chollet, D. and M. Lewis (1997). Private Insurance: Principles and Practice, in George J. Schieber edited Innovations in Health Care Financing: Proceedings World Bank Conference, March 10-11, 1997, World Bank Discussion Paper No. 365, The World Bank, Washington D.C. Ferreiro, A. Private Health Insurance in India: Would its Implementation Affect the Poor? Private Health Insurance and Public Health Goals in India, Report on a National Seminar, the World Bank, May 2000.

Garg, C. Implications of Current Experiences of Health Insurance in India, Private Health Insurance and Public Health Goals in India, Report on a National Seminar, the World Bank, May 2000. Government of India (2002). Health InsuranceIssues and Challenges, Report of the Sub-Group, Ministry of Finance, Delhi.

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 Gumber, A. (1997). Burden of Disease and Cost of Ill Health in India: Setting Priorities for Health Interventions During Ninth Plan, Margin, Vol. 29(2), pp. 133-172. Gumber, A. and V. Kulkarni. (2001). Paper presented in the National Consultation on Health Security in India Organised by Institute for Human Development and UNDP with support from Ministry of Health and Family Welfare, Government of India, July 26-27, 2001. Mahal, A. Private Entry into Health Insurance in India: An Assessment, Private Health Misra, R. et al. (2003). Changing the Indian Health System: Current Issues, Future Directions, Oxford University Press, New Delhi, forthcoming. Naylor, D. C. et al. (1999). A Fine Balance: Some Options for Private and Public Health Care in Urban India, The World Bank, Washington, D.C.

Peters, D. et al. [a] Introduction, Private Health Insurance and Public Health Goals in India, Report on a National Seminar, the World Bank, May 2000. Peters, D. et al. [b] Conclusions, Private Health Insurance and Public Health Goals in India, Report on a National Seminar, the World Bank, May 2000.

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 Peters, D. et al. (2002). Better Health Systems for Indias Poor: Findings, Analysis, and Options, The World Bank, Washington D.C. Rangachary, N. (2001). The Concept of Health Insurance, Health and Population Perspectives and Issues, 24(2), p. 73-79.

Ranson, K. and M. Jowett. (2003). Developing Health Insurance in India: Background Paper to the Government of India Workshop on Health

Insurance, January 3-4, 2003, Delhi.

Ranson, K. (2002). A Review of Community-Based Health Insurance Schemes in India, Sankar, D and V. Kathuria. (2003). Health Sector in 2003-04 Budget, Economic & Political Weekly, Vol. 38, No. 15, April 12, 2003.

Srinivasan, R. (2001). Health Insurance in India, Health and PopulationPerspectives and Issues, 24(2), p. 65-72. Visaria, P and A. Gumber. (1994). Utilisation of and Expenditure on Health Care in India, 1986-87, Gujarat Institute of Development Research, Ahmedabad.

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 Ellis, Randall, Moneer Alam and Indrani Gutpta. 2000. "Health Insurance in India: Prognosis and Prospectus". Economic and Political Weekly, Vol xxxxv, No. 4, January 22-28, 2000. Gupta and Trivedi India 2004a; Country Social Health Insurance WHO

Development: (forthcoming)

Assessment

Report.

Gupta Indrani 2004. Inequities in Health and Health Care in India : Can the Poor Hope for a Respite? Mimeo. Gupta, Indrani and Mayur Trivedi 2004. Social Health Insurance Redefined: Health for All through Coverage for All, Discussion paper no. 90/2004, Institute Of Economic Growth, November. Gupta, Indrani, Abhijit Roy, Mayur Trivedi. 2004. Third Party Administrators: Theory and Practice. Vol xxxix No 28, July 10. Kalyani, K. Nitya. 2004. The Plan to Work To: Taking Stock of Five Years of a Liberalised Insurance Market. IRDA Journal. December.

Planning Commission Ranson,Kent 2002.

2004. Tenth Five Year Plan. Reduction of catastrophic health care

expenditures by a community-based health insurance scheme in

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Gujarat, India: current experiences and challenges, Bulletin of the World Health Organization 2002;80:613-621. Segal, Misha. 2004. Prescribed: Growth Tonics. Private

Insurance in Dire Need of Fillip. IRDA Journal. October. WHO 2003a; Social Health Insurance Report of a regional expert group meeting, New Delhi, India 13-15 March 2003, WHO Regional Office for South East Asia, June 2003 WHO 2003b; Social Health Insurance Report of a Regional Consultation, Bangkok, Thailand, 7-9 July 2003, WHO Regional Office for South East Asia, November 2003 World Bank 2001. India - Raising the Sights: Better Health Systems for Indias Poor,

IAI

Health

Insurance

Committee

Workshop

On

Health

Insurance / Care Regulatory Issues 27th 28th January 2007, Venue: National Insurance Academy Pune, India Summarization of the Proceedings of IAI HIB Workshop at National Insurance Academy, Pune Insurance Industry in India: Structure, Performance, and Future Challenges S Krishnamurthy, S V Mony, Nani Jhaveri, Sandeep Bakhshi, Ramesh Bhat and M R Dixit, and JULY - SEPTEMBER 2005 Sunil Maheshwari Ramesh Bhat (Coordinator)- VIKALPA VOLUME 30 NO 3

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 Conference on Sustainable Health Insurance - Need of the Hour November 29, 2007, New Delhi ,Speech by Shri C S Rao, Chairman, IRDA in the FICCI conference on Sustainable Health Insurance - Need of the Hour

Insurance Distribution in India - A Perspective- By Sreedevi Lakshmikutty and Sridharan Baskar Domain Competency Group (Insurance) Infosys Technologies LimitedBangalore, India

Various Articles from BS bureau, Financial express, Economic times

9.2- Important Websites helpful in research:-

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www.aig.com www.daveramsey.com www.intelliquote.com www.comfortplan.de www.endsleigh.co.uk www.amica.com www.westpac.com.au www.massmutual.com www.lfg.com www.national.com.au www.norwichunion.com www.insurance.ca.gov www.swissre.com www.legalandgeneral.com www.aflac.com www.selectquote.com www.loma.org www.moneynet.co.uk www.mutualofomaha.com www.stgeorge.com.au www.nmfn.com www.insurance-canada.ca www.matrixdirect.com www.thehartford.com www.safeco.com www.articlesrich.com www.indianmba.com www.freearticles.com

www.insurance.com www.netquote.com www.cna.com www.libertymutual.com www.allstate.com www.thisismoney.co.uk www.opm.gov www.metlife.com www.geld.de www.nationwide.com www.2insure4less.com www.prudential.com www.farmers.com www.principal.com www.aetna.com www.iii.org www.insweb.com www.directline.com www.cigna.com www.pueblo.gsa.gov www.manulife.com www.insurancewide.com www.zurich.com www.irda.gov.in www.freearicles.com www.asian-insurancepost.com www.google.co.in

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