An Overview of Indian Insurance Market

CONTENTS 1. INTRODUCTION
1.1. Introduction 1.2. Definition 1.3. History of Insurance 1.4. Objective of the Study

2. AN OVERVIEW OF INSURANCE
2.1 Introduction 2.2 Principles of Insurance 2.2.1 Principle of Indemnity 2.2.2 Principle of Insurable interest 2.2.3 Principle of Subrogation 2.2.4 Principle of Utmost 2.3 Insurance Contracts 2.4 Classification of Insurance 2.4.1 Life Insurance 2.4.2 Health Insurance 2.4.3 General Insurance

2.5 Benefits of Insurance 2.5.1 To society 2.5.2 To Business 2.5.3 To Individual

3. GROWTH OF INSURANCE BUSINESS IN INDIA
3.1. Introduction 3.2. Pre-Liberalisation Era of Indian Insurance Industry 3.3. Post-Liberalisation Era of Indian Insurance Industry 3.3.1. Malhotra Committee 3.3.2. Establishment of IRDA 3.3.3. Insurance Players 3.3.4. Current scenario
3.3.4.1.

Customer Service

3.3.4.2. Distribution Channel 3.3.4.3. Product Innovation 3.3.4.4. Rural marketing 3.3.4.5. Insurance market and Insurance 3.3.4.6. Mergers and Acquisitions

4. INSURANCE PLAYERS IN THE INDUSTRY
4.1.

LIFE INSURANCE INDUSTRY PLAYERS IN INDIAN MARKET
4.1.1. Life insurance corporation of India 4.1.2. Bajaj Allaianz Life Insurance
4.1.3. Birla Sun Life Insurance

4.1.4. HDFC standard Life Insurance 4.1.5. ICICI Prudential Life Insurance 4.1.6. ING Vysya Life Insurance 4.1.7. Max New York Life Insurance 4.1.8. Met New York Life Insurance 4.1.9. Kotak Mahindra Old Mutual Life Insurance 4.1.10 SBI Life Insurance 4.1.11 Tata AIG Life Insurance 4.1.12 Reliance Life Insurance 4.1.13 Aviva Life Insurance 4.1.14 Sahara India Life Insurance 4.1.15 Shriram Life Insurance 4.1.16 Bharti AXA Life Insurance

4.2 General Insurance Industry Players of Indian Market
4.2.1 General Insurance Corporation of India 4.2.2 National Insurance Company Ltd 4.2.3 Oriental Insurance Company Ltd 4.2.4 New India Assurance Company Ltd 4.2.5 United India Insurance Ltd 4.2.6

5. OVERVIEW OF INDIAN INSURANCE MARKET
5.1. Indian Market vs. Global Market 5.2. Market Share of Indian Insurance Players 5.3. Investment Allocation and Norms 5.4. Growth in Premium 5.4.1. Life Insurance Premium
5.4.2. Non- Life Insurance premium

6. CONCLUSION

CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION
Insurance- what is it? Man has always been in search of security and protection from the beginning of civilization. This urge in him to lead to the concept of insurance. The basis of insurance was the sharing of the losses of a few amongst many. Insurance provides financial stability and strength to the individuals and organization by the distribution of loss of a few among many by many by building up over a period of time. Even if we try to control to avoid, control and prevent risk will still exist. Therefore, insurance is the most practical method for handling a major risk. Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. Insurer, in economics, is the company that sells the insurance.

Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. Insurance may be described as a social device to ensure protection of economic value of life and other assets. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance. Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. The term "risk" is used to describe the possibility of adverse results flowing from any occurrence or the accidental happenings, which produce a monetary loss.

Insurance is a pool in which a large number of people exposed to a similar risk make contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. The sharing of risk among large groups of people is the basis of insurance. The losses of an individual are distributed over a group of individuals.

1.1.2 DEFINITION

The legal definition of insurance is that, “it is a contract between the insurer and insured whereby, in consideration of payment of premium by the insured the insurer agrees to make good any financial loss the insured may suffer due to consideration of an insurance peril.”

The financial definition of insurance is that insurance is a social device in which a group of individual (insured) transfer risk to another party (insurer) in order to combine loss experience, which permits statistical prediction of losses and provides for payments of losses from funds contributed (premiums) by all members who transfer risk.

1.3 HISTORY OF INSURANCE
In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union).

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen. Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony.

When a gift was worth more than 10,000 Derrik (Achaemenian gold coin weighing 8.35-8.42) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices. The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "Whenever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much." A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies. Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed. Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance.

In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance. Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes. The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732.

Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks. In the state of New York, which has unique laws in keeping with its stature as a global business centre, former New York Attorney General Eliot Spitzer was in a unique position to grapple with major national insurance

brokerages. Spitzer alleged that Marsh & McLennan steered business to insurance carriers based on the amount of contingent commissions that could be extracted from carriers, rather than basing decisions on whether carriers had the best deals for clients. Several of the largest commercial insurance brokerages have since stopped accepting contingent commissions and have adopted new business models.

1.4 OBJECTIVE OF THE STUDY

CHAPTER 2

AN OVERVIEW OF INSURANCE

2.1 INTRODUCTION
Insurance in India used to be tightly regulated and monopolized by state-run insurers. Following the move towards economic reform in the early 1990s, various plans to revamp the sector finally resulted in the passage of the Insurance Regulatory and Development Authority (IRDA) Act of 1999. Significantly, the insurance business was opened on two fronts. Firstly, domestic private-sector companies were permitted to enter both life and nonlife insurance business. Secondly, foreign companies were allowed to participate, albeit with a cap on shareholding at 26%. With the introduction of the 1999 IRDA Act, the insurance sector joined a set of other economic sectors on the growth march. During the 2003 financial year1, life insurance premiums increased by an estimated 12.3% in real terms to INR 650 billion (USD 14 billion) while non-life insurance premiums rose 12.2% to INR 178 billion (USD 3.8 billion). The strong growth in 2003 did not come in isolation. Growth in Insurance premiums have been averaging at 11.3% in real terms over the last decade.

2.2 PRINCIPLE OF INSURANCE 2.2.1 PRINCIPLE OF INDEMNITY
It is one of the most important legal principal in insurance. The principle of indemnity states that the insurer agrees to pay no more than the actual amount of loss. A contract of indemnity doesn’t mean that all covered losses are always paid in full. Most property and liability insurance contract are contracts of indemnity.The principle of indemnity hence to fundamental purpose . the first purpose is to prevent the insured from profiting from a loss .Second purpose is to reduce moral hazard if a dishonest insured could profit from a loss, they might deliberately cause losses with the intention of collecting the insurance.

2.2.2 PRINCIPLE OF INSURABLE INTEREST.
The principle of insurable interest states that the insured must be in a position to lose financially, if a loss occurs. First, an insurable interest is necessary to prevent gambling. If an insurable interest is not required, the contract would be a gambling contract and would be against the public interest.

Secondly, an insurable interest reduces moral hazard. If an insurable interest is not required, a dishonest person can purchase property insurance on someone else’s property and deliberately cause a loss to receive the amount of insurance. In life insurance, an insurable interest requirement reduces the incentive to murder the insured for the purpose of collecting the sum assured .

2.2.3 PRINCIPLE OF SUBROGATION
Subrogation means substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third person for a loss covered by insurance. The insurer is therefore entitled to recover from a negligent third party. Subrogation has three basic purposes. First, subrogation prevents the insured from collecting twice for the same loss is in the absence of subrogation ‘ the insured could collect from the insurer and from the person who causes the loss. Second subrogation is used to hold the quality person responsible for the loss by exercising it subrogation rights; the insurer can hold the negligent person responsible for the loss and collect for the loss from him. Third subrogation is helps to hold down insurance rates. Subrogation recoveries can be reflected in the rate making process.

2.2.4 PRINCIPLE OF UTMOST GOOD FAITH
An insurance contract is based on the principle of utmost good faith- that is a higher degree of honesty is imposed on both parties to an insurance contract. This principle is supported by three important legal doctrines. 1. Representation: - statements made by the applicants for insurance. The insurance contract is voidable at the insurers opinion if the representation is a) Material means that if the insurer knew the true fact, the policy would

not have been issued or it would have been issued on different terms. b) False means that the statement isn’t true or is misleading c) Reliance means that the insurer relies on the misrepresentation in issuing the policy at a specified premium 2. Concealment: - is intentional failure of the applicant for the insurance to reveal a material fact to the insurer. This is something as non-disclosure. That is the applicant for insurance deliberately withholds material information from the insurer. The contract is voidable at insurers opinion. 3. Warranty: - is a statement of fact or ca promise made by the insured, which is part of the insurance contract and must be true, if the insurer is to be liable under the contract.

2.3 INSURANCE CONTRACT
This is a legally binding agreement creating rights and duties for those who are parties to it. If one party to the contact fails to perform its duties without a legal excuse, then the contract is said to be breached. If the contract is breached or if disputes arise between the parties about the interpretation of the contract, the issues may be settled in court.

2.3.1 OFFER AND ACCEPTANCE: The first requirement of a binding insurance Contract is that there must be an offer and acceptance of its terms. The offer for entering into the contract may generally come from the insured. Insurance contract begins with when one person makes a proposal to exchange something of value with another person. The offer and acceptance can be oral or written. The applicants for insurance fill out the application and pay the first premium. This step constitutes the offer. The agent then accepts the offer on behalf of insurance company

2.3.2 CONSIDERATION:
The next requirement of valid insurance contract is consideration. When a party to an agreement promises to do something, he must get something in return. This is called consideration. The insured’s consideration is the payment of premium plus an agreement to abide by the condition specified in the policy. Premium being the valuable consideration must be given for starting the insurance contract.

2.3.3 COMPETENT PARTIES: The next requirement is that each party must be legally competent. This means that both insurer and insured must have legal capacity to enter into a binding contract

2.3.4 FREE CONSENT: Two or more parties are said to be consent when they agree upon something in the same manner. Consent is said to be free when it is not caused by compulsion, undue influence, fraud, misrepresentation, and mistake. As such not only is the consent required but it must also be a free consent. When there is no free consent, except fraud, the contract becomes voidable at the opinion of the party whose consent was so caused.

2.3.5 LAWFUL OBJECT: The contract must be for a legal purpose. An insurance contract that encourages or promotes something illegal or immoral is contrary to the public interest and can’t be enforced. An unlawful object of any contract shall make it enforceable at law.

2.4 CLASSIFICATION OF INSURANCE 2.4.1LIFE INSURANCE
Life insurance, usually refer to as “LIFE ASSUARNCE” insures the insured against the happening of certain events such as death. The life insurance contract can be described as “contingent contract” because the loss of life cannot be compensated and only a specific sum of money is paid, if the insured dies. According to section 2 of Indian insurance act, 1938, the life insurance has been defined as “the business of effecting contract upon human life.” A life insurance contract is a contract where by insurer, in consideration of a premium paid either in lump sum or in periodic payments, undertakes to pay an annuity or a certain sum of money either on the death on the insured or on the expiry of a certain number of years, that is on maturity. J.H. MAGEE defines life insurance as the “life insurance contract embodies an agreement in which broadly stated, the insurer undertakes to pay a stipulated sum upon the death of the insured or at some designated time to a designated beneficiary.”

2.4.2HEALTH INSURANCE
A health insurance policy is a safeguard against rising medical costs. A health insurance is a contract between an insurer and an individual or group, in which the insurer agrees to provide specified health insurance at an agreed upon price (premium). It is also known as disability insurance or medical expense insurance. The cost of health case is increasing day by day. The costs will still go up in case of a serious accident or major illness. It is difficult for a typical individual to find financial resources to meet such expenses that some of which may arise suddenly. The demand for health insurances also viewed from other perspectives like:• To ensure that no one is deprived of at least the standard former health care. • To protect the patient and his family from financial disaster.

• To simplify mode of payments. For example instead of making
separate payments, say for the doctors, surgon ,nurse,etc,.the insured will pay premium to the insurer who in turn will take care of all expenses . • To eliminate sickness as a cause of poverty.

2.4.3GENERAL INSURANCE 2.4.3.1 MARINE INSURANCE CONTRACT
A contract of marine insurance is defined by the Marine Insurance Act, 1963 as “an agreement where by the insurer under takes to indemnify the assured the manner and to the extent thereby agreed, against losses incidental to marine adventure.” It may cover loss or damage to vessels, cargo or freight. The Insurance Act, 1938 defines marine insurance as follows:“Marine insurance business” means the business of effecting contracts of insurance upon vessels of any description, including cargos, freights, and other interests which may be legally insured in or in relation to such vessels, cargos etc. Similar risks in addition or as incidental to such transit and includes any other risks customarily included among the risks insured against in marine insurance policies.

2.4.3.2 FIRE INSURANCE
A contract of fire insurance is a contract by which the insurer undertakes, for a consideration in the form of a payment of money in lump sum (rarely in installment), to indemnify the insured against the consequences of a fire, or the loss or injury as arising therefore during an agreed period and up to a certain amount. The term ‘fire’ in a contract of fire insurance means the production of light l and heat by combustion. Combustion occurs only at the actual ignition point. Loss or damage which occurs as a result of putting out the fire would also be covered by fire risks. When there is one fire in respect of the same subject matter insured, the insurer is not bound to pay more than the sum assured. During the policy life, payment of each loss automatically reduces the amount if the policy by the amount so paid. However if the insured is willing to get payment of full loss, he can reinstate the insured sum to the original amount by paying a fresh premium which will be determined after the loss amount paid earlier.

2.5 BENEFITS OF INSURANCE 2.5.1 TO SOCIETY Insurance is beneficial to society in the following way-: • IT ACCELERATES THE PRODUCTION CYCLE
Adequate capital from the insurance companies accelerates the production cycle in the country. Moreover, insurance cover almost all the risk relating to agriculture, commerce and industry.

• SOURCE OF FOREIGN EXCHANGE
Insurance is a good source of earning foreign exchange as it covers export, import, shipping and banking services. So risk in foreign trade can be minimized through insurance.

• REDUCTION IN FOREIGN EXCHANGE
Insurance reduces the inflationary pressure in two ways. First by extracting money in supply to the of premium collected. Secondly, by providing sufficient funds for production narrow down the inflationary gap.

2.5.2TO BUSINESS
Insurance is beneficial to business in the following ways -:

• ENHANCEMENT OF CREDIT
The business can obtain loan by pledging the policy as collateral for the loan. The insured person are getting more loan due to certainty of payment at their death the amount of loan that can be obtained with such pledging of policy, with the interest thereon will not exceeds the cash value of the policy.

• BUSINESS CONTINUATION
In any business particularly partnership business may discontinue at the death of any partner although the surviving partner can restart the business, but in both the cases the business and the partner will suffer economically.

• BUSINESS EFFICENCY IS INCREASED WITH INSURANCE

When the owner of a business is free from the botheration of losses, he will certainly devote much time to the business. The carefree owner can work better for maximization of the profits.

2.5.3TO INDIVIDUAL • INSURANCE PROVIDES SECURITY AND SAFETY
The insurance provides safety and security against the loss on a particular event. In case of life insurance payment is made when death occurs or the term of insurance is expired. The loss to the family at a premature death and payment in old age are adequately provided by insurance.

• INSURANCE AFFORDS PEACE OF MIND
The security wish is the prime motivating factor. This is the wish which tends to stimulate to more work, if this wish is unsatisfied, it will create a tension which manifests itself to the individual in the form of an unpleasant reaction causing reduction in work.

• INSURANCE ELEMINATES DEPENDENCY
At the death of the husband or father, the destruction of family needs no elaboration. Similarly, at destruction of property and goods,

the family would suffer a lot. it brings reduced standard of living and the suffering may go to any extent of begging from the relatives , neighbors or friend’s .

Chapter 3

GROWTH OF INSURANCE BUSINESS IN INDIA

3.1 INTRODUCTION
In 2003, the Indian insurance market ranked 19th globally and was the fifth largest in Asia. Although it accounts for only 2.5% of premiums in Asia, it has the potential to become one of the biggest insurance markets in the region. A combination of factors underpins further strong growth in the market, including sound economic fundamentals, rising household wealth and a further improvement in the regulatory framework. The insurance industry in India has come a long way since the time when businesses were tightly regulated and concentrated in the hands of a few public sector insurers. Following the passage of the Insurance Regulatory and Development Authority Act in 1999, India abandoned public sector exclusivity in the insurance industry in favour of market-driven competition. This shift has brought about major changes to the industry. The inauguration of a new era of insurance development has

Seen the entry of international insurers, the proliferation of innovative products and distribution channels, and the raising of supervisory standards. By mid-2004, the number of insurers in India had been augmented by the entry of new private sector players to a total of 28, up from five before

liberalization. A range of new products had been launched to cater to different segments of the market, while other channels including the Internet and bank branches supplemented traditional agents. These developments were instrumental in propelling business growth, in real terms, of 19% in life premiums and 11.1% in non-life premiums Between 1999 and 2003.There are good reasons to expect that the growth momentum can be sustained. In particular, there is huge untapped potential in various segments of the market. While the nation is heavily Exposed to natural catastrophes, insurance to mitigate the negative financial consequences of these adverse events is underdeveloped. The same is true for both pension and health insurance, Where insurers can play a critical role in bridging demand and supply gaps. Major changes in both national economic policies and insurance regulations will highlight the prospects of these Segments going forward.

3.2 Pre-Liberalization Era of Indian Insurance Industry
Insurance in India started without any regulation in the Nineteenth Century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centres. After the independence, it took a dramatic turn. Insurance was nationalized. First, the life insurance companies were nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 Private insurance companies have been allowed back into the business of insurance with maximum of 26% of foreign holding. In what follows, we describe how and why of regulation and deregulation. The entry of the State Bank of India with its proposal banc assurance brings a new dynamics in the game. We study the collective experience of the other countries in Asia already deregulated their markets and have allowed foreign companies to participate. If the experience of the other countries is any guide, the

Dominance of the Life Insurance Corporation and the General Insurance Corporation is not going to disappear any time soon.

INSURANCE UNDER THE BRITISH RAJ Life insurance in the modern form was first set up in India through a British Company called the Oriental Life Insurance Company in 1818 followed by the Bombay Assurance Company in 1823 and the Madras Equitable Life Insurance Society in 1829.All of these companies operated in India but did not insure the lives of Indians. They were there insuring the lives of Europeans living in India. Some of the companies that started later did provide insurance for Indians. But, they were treated as "substandard” and therefore had to pay an extra premium of 20% or more. The first company that had policies that could be bought by Indians with "fair value" was the Bombay Mutual Life Assurance Society starting in 1871.The first general insurance company, Triton Insurance Company Ltd., was established in 1850. It was owned and operated by the British. The first indigenous general

insurance company was the Indian Mercantile Insurance Company Limited set up in Bombay in 1907.life and non-life).

3.3 POST-LIBERALIZATION ERA OF INDIAN INSURANCE INDUSTRY 3.3.1 MALHOTRA COMMITTEE
In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian Insurance industry and recommended its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the over all financial system where it was necessary to address the need for similar reforms...".

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

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

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

3.3.1.3 REGULATORY BODY
The Insurance Act should be changed An Insurance Regulatory Body should be set up. Controller of Insurance (Currently a part from the Finance Ministry) should be made independent

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

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

confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs. 100 crores.

3.4 ESTABLISHMENT OF IRDA
The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad. It was formed by an act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto." Expectations The law of India has following expectations from IRDA 1. To protect the interest of and secure fair treatment to policyholders; 2. To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy;

3. To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates;

4. To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard; 5. To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery; 6. To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players; 7. To take action where such standards are inadequate or ineffectively enforced; 8. To bring about optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulation.

Insurance is a federal subject in India. The primary legislation that deals with insurance business in India is: Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999. Insurance Industry has ombudsmen in 12 cities. Each ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where the insured amount is less than Rs. 20 lakhs, in accordance with the Ombudsmen Scheme. Insurance Regulatory & Development Authority (IRDA) duties and powers of IRDA IRDA was constituted by an act of parliament. The Authority is a ten member team consisting of: (a) a Chairman (b) five whole-time members (c) four part-time members (1) Subject to the provisions of Section 14 of IRDA Act, 1999 and any other

law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and reinsurance business.

(2) Without prejudice to the generality of the provisions contained in subsection (1), the powers and functions of the Authority shall include, -

(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;

(b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; (c) Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; (d) specifying the code of conduct for surveyors and loss assessors; (e) promoting efficiency in the conduct of insurance business; (f) promoting and regulating professional organizations connected with the

insurance and re-insurance business; (g) levying fees and other charges for carrying out the purposes of this Act;

3.5 INSURANCE PLAYERS OF INDIA
3.5.1 LIFE INSURANCE PLAYERS • Life insurance Corporation of India • Bajaj Allaianz Life Insurance • Birla Sun Life Insurance • HDFC standard Life Insurance • ICICI Prudential Life Insurance • ING Vysya Life Insurance • Max New York Life Insurance • Met New York Life Insurance • Kotak Mahindra Old Mutual Life Insurance • SBI Life Insurance • Tata AIG Life Insurance • Reliance Life Insurance • Aviva Life Insurance

• • •

Sahara India Life Insurance Shriram Life Insurance Bharti AXA Life Insurance

3.5.2 General Insurance Industry Players of Indian Market
General Insurance Corporation of India National Insurance Company Ltd Oriental Insurance Company Ltd New India Assurance Company Ltd United India Insurance Ltd

3.3.4 CURRENT SCENARIO OF THE INDUSTRY INSURANCE MARKET IN INDIA
India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. Life insurance industry is waiting for a big growth as many Indian and foreign companies are waiting in the line for the green signal to start their operations. The Indian consumer should be ready now because the market is going to give them an array of products, different in price, features and benefits.

3.3.4.1 Customer Service
Consumers remain the most important centre of the insurance sector. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. Computerization of operations and updating of technology has become

imperative in the current scenario. Foreign players are bringing in international best practices in service through use of latest technologies.

3.3.4.2 DISTRIBUTION CHANNELS
Till date insurance agents still remain the main source through which insurance products are sold. The concept is very well established in the country like India but still the increasing use of other sources is imperative. It therefore makes sense to look at well-balanced, alternative channels of distribution. LIC has already well established and have an extensive distribution channel and Presence. New players may find it expensive and time consuming to bring up a distribution network to such standards. Therefore they are looking to the diverse areas of distribution channel to have an advantage. At present the distribution channels that are available in the market are:  Direct selling  Corporate agents  Group selling  Brokers and cooperative societies  Bancassurance

3.3.4.3 PRODUCT INNOVATION
There has been a plethora of new and innovative products offered by the new players. Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. More customers are buying products and services based on their true needs and not just traditional money-back policies, which is not considered very appropriate for long-term protection and savings.

3.3.4.4 RURAL MARKETING
Rural India seems to have an appetite for mobile phones, computers, and cars and to add to it we have insurance. In India with the private players having entered into the insurance industry, the expected explosion in job opportunities may not actually happen but for them the catchments area is the opportunities in the rural India. In India the insurance business can be

said to be "a marathon, not a sprint". This is because of the nature of the business being long term. With merely two years of the industry being

Opened, not surprisingly, the new comers are making losses. The public sector companies, notably the LIC, have gained in strength, thanks to the deepening of the market consequent to the awareness created by the new companies.

3.3.4.5 INFORMATION TECHNOLOGY AND INSURANCE
In the insurance industry today, there is a clear trend away from selling a broad range of products to a large volume of customers in a one –size-fits-all manners. Instead of focusing on their different products lines as silos (i.e., life, property and casualty etc) insurers are looking for ways to offer highly targeted insurance products that are tailored to the individuals customers with the highest propensity to buy them. There is a evolutionary change in the technology that has revolutionized the entire insurance sector. Insurance industry is a data-rich industry, and thus, there is dire need to use the data for trend analysis and personalization.

With increased competition among insurers, service has become a key issue. Moreover, customers are getting increasingly sophisticated and tech-savvy. People today don’t want to accept the current value propositions, they want personalized interactions and they look for more and more features and add ones and better service

3.3.4.6 MERGERS AND ACQUISITIONS
This is an era of mergers and acquisitions. Private companies including MNC’s are amalgamating the world over to get more competitive edge. Currently, the general insurance industry has been opened up. The question here is that for over two years, eight private companies have operated and has the size of the cake expanded. The insurers are doing enough to raise the level of risk awareness or are they merely content to compete in the markets organized and established. However sooner or later the private sector players will have to put in place strategies aimed not at winning the existing accounts of the public players but at diversifying markets penetration as a whole. The private players in the future would have to turn their attention to working in the unorganized and under served markets. What is likely to happen is that the private players would continue to skim the profitable segments of the already organized business in the urban areas?

The time has already come for the government of India to evaluate the performance of private companies’ vis-à-vis their declared objective of opening up the industry.

CHAPTER 4

INSURANCE PLAYERS OF INDIA

4.1 LIFE INSURANCE PLAYERS IF INDIAN INSURANCE MARKET 4.1.1 LIFE INSURANCE CORPRATION OF INDIA (LIC)
The Life Insurance Corporation of India (LIC), a public sector enterprise, is the largest insurance company in India, selling insurance products and related services. In March 2001, LIC had a total asset base of Rs.1936.2 billion and a total premium income of Rs.342.07 billion. By April 2002, the total sum assured fewer than 23.2 million policies stood at Rs.1925.7 billion. LIC had a variety of insurance plans to cater to various categories of people and their diverse needs. The company offered life insurance and group insurance. LIC has its mission to “Explore and enhance the quality of life of people through financial security by providing products and services of

aspired attributes with competitive returns, and by rendering resources for economic development."

4.1.2 BAJAJ ALLIANZ LIFE INSURANCE COMPANY LTD.
Bajaj Allianz Life Insurance Co. Ltd. is a joint venture between two leading conglomerates- Allianz AG, one of the world's largest insurance companies, and Bajaj Auto, one of the biggest 2 and 3 wheeler manufacturers in the world. The company is growing at a breakneck pace with a strong pan Indian presence Bajaj Allianz Life Insurance has emerged as a strong player in India It is Characterized by global presence with a local focus and driven by customer orientation to establish high earnings potential and financial strength, Bajaj Allianz Life Insurance Co. Ltd. was incorporated on 12th March 2001. The company received the Insurance Regulatory and Development Authority (IRDA) certificate of Registration (R3) No 116 on 3rd August 2001 to conduct Life Insurance business in India. They have a decentralised organisation for faster responses. They have a well networked Customer Care Centres (CCCs) with state of art IT systems and also specialised departments for Bancassurance, Corporate Agency and Group Business

4.1.3 BIRLA SUN LIFE INSURANCE COMPANY LTD.
Birla Sun Life Insurance is the coming together of the Aditya Birla group and Sun Life Financial of Canada to enter the Indian insurance sector. The Aditya Birla Group, a multinational conglomerate has over 75 business units in India and overseas with operations in Canada, USA, UK, Thailand, Indonesia, Philippines, Malaysia and Egypt to name a few. The Aditya Birla Group has a turnover close to Rs. 33000 crores with a market capitalisation of Rs. 30500 crores (as on 31st March 2005). It has over 72000 employees across all its units worldwide. It is led by its Chairman - Mr. Kumar Mangalam Birla. Some of the key organisations within the group are Hindalco, Grasim, Indian Rayon.

4.1.4 HDFC STANDRAD LIFE INSURANCE COMPANY LTD.

HDFC i.e HOUSING DEVELOPMENT AND FINANCIAL CORPORATION. HDFC Standard Life is a joint venture between HDFC of India and Standard Life of UK. The new company, HDFC Standard Life, was one of the first to be awarded a license in the recently deregulated Indian market and one of the first to open its doors for business and issue policies.

HDFC Standard Life Insurance Company Ltd. is one of India's leading private insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.), India's leading housing finance institution and a Group Company of the Standard Life, UK. HDFC as on March 31, 2007 holds 81.9 per cent of equity in the joint venture.

4.1.5 ICICI PRUDENCIAL LIFE INSURANCE COMPANY LTD.
ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank - one of India's foremost financial services companies-and Prudential plc - a leading international financial services group headquartered in the United Kingdom. Total capital infusion stands at Rs. 29.32 billion, with ICICI Bank holding a stake of 74% and Prudential plc holding 26%.

ICICI began its operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). Today, our nationwide team comprises of over 735 offices, over 243,000 advisors; and 22 Bancassurance partners.

ICICI Prudential was the first life insurer in India to receive a National Insurer Financial Strength rating of AAA (Ind) from Fitch ratings. For three years in a row, ICICI Prudential has been voted as India's Most Trusted Private Life Insurer, by The Economic Times - AC Nielsen ORG Marg Survey of 'Most Trusted Brands'.

4.1.6 ING VYSYA LIFE INSURANCE COMPANY LTD.
ING Vysya Life Insurance Company Limited (the Company) entered the private life insurance industry in India in September 2001, and in a span of 5 years has established itself as a distinctive life insurance brand with an innovative, attractive and customer friendly product portfolio and a professional advisor sales force. It has a dedicated and committed advisor sales force of over 21,000 people, working from 140 branches located in 74 major cities across the country and over 3,000 employees. It also distributes products in close cooperation with the ING Vysya Bank network. The

Company has a customer base of over 4, 50,000 & is headquartered at Bangalore. In 2005, ING Vysya Life earned a total income in excess of Rs. 400 crore and also has a share capital of Rs. 440 crore.

4.1.7 MAX NEW YORK LIFE INSURANCE COMPANY

LTD.
Max New York Life Insurance Company Ltd. is a joint venture between New York Life, a Fortune 100 company and Max India Limited, one of India's leading multi-business corporations. The company has positioned itself on the quality platform. In line with its vision to be the most admired life insurance company in India, it has developed a strong corporate governance model based on the core values of excellence, honesty, knowledge, caring, integrity and teamwork. The strategy is to establish itself as a trusted life insurance specialist through a quality approach to business. In line with its values of financial responsibility, Max New York Life has adopted prudent financial practices to ensure safety of policyholder's funds. The

Company's paid up capital is Rs. 807 crore, which is more than the norm laid down by IRDA.

4.1.8 MET NEW YORK LIFE INSURANCE COMPANY LTD.
MetLife, Inc. is a leading provider of insurance and financial services with operations throughout the Americas, Asia Pacific and Europe. Through its affiliates, MetLife, Inc. is the largest life insurer in the United States 1 with over 139 years of experience. The MetLife companies offer life insurance, annuities, automobile and home insurance, retail banking and other financial services to individuals, as well as group insurance, reinsurance and retirement and savings products and services to corporations and other institutions, reaching more than 70 million customers around the world.. A leader in group benefits, the MetLife companies serve 88 of the top 100 FORTUNE 500® companies2 and are ranked #1 in group life 3 and #1 in commercial dental in the U.S.4 More than 61,000 employers now offer

MetLife products to their employees, enabling those employees to provide protection and security for themselves and their families.

4.1.9 KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD.
Kotak Mahindra Old Mutual Life Insurance Ltd. is a joint venture between Kotak Mahindra Bank Ltd.(KMBL), and Old Mutual plc. At Kotak Life Insurance, It aims at help customers take important financial decisions at every stage in life by offering them a wide range of innovative life insurance products, to make them financially independent

4.1.10. SBI LIFE INSURANCE COMPANY LTD.
SBI Life Insurance is a joint venture between the State Bank of India and Cardif SA of France. SBI Life Insurance is registered with an authorized capital of Rs

1000 crore and a paid up capital of Rs 500 crores. SBI owns 74% of the total capital and Cardif the remaining 26%. State Bank of India enjoys the largest banking franchise in India. Along with its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,500 branches across the country, arguably the largest in the world. Cardif is a wholly owned subsidiary of BNP Paribas, which is the Euro Zone’s leading Bank. BNP Paribas is one of the oldest foreign banks with a presence in India dating back to 1860

4.1.11 TATA AIG LIFE INSURANCE COMPANY LTD.
Tata AIG Life Insurance Company Limited (Tata AIG Life) is a joint venture company, formed by the Tata Group and American International Group, Inc. (AIG). Tata AIG Life combines the Tata Group’s pre-eminent leadership position in India and AIG’s global presence as the world’s leading international insurance and financial services organization. The Tata Group holds 74 per cent stake in the insurance venture with AIG holding the balance 26 percent. Tata AIG Life provides insurance solutions to individuals and corporates. Tata AIG Life Insurance Company was licensed to operate in India on February 12, 2001 and started operations on April 1, 2001.

4.1.12RELIANCE LIFE INSURANCE COMPANY LTD.
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd. of the Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of India’s leading private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital has interests in asset management and mutual funds, stock

Broking, life and general insurance, proprietary investments, private equity and other activities in financial services. Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934.Reliance Capital sees immense potential in the rapidly growing financial services sector in India and aims to become a dominant player in this industry and offer fully integrated financial services. Reliance Life Insurance is another step forward for Reliance Capital Limited to offer need based Life Insurance solutions to individuals and Corporate.

4.1.13 AVIVA LIFE INSURANCE COMPANY LTD.

Aviva is UK’s largest and the world’s fifth largest insurance Group. It is one of the leading providers of life and pensions products to Europe and has substantial businesses elsewhere around the world. With a history dating back to 1696, Aviva has a 40 million-customer base worldwide. It has more than £377 billion of assets under management. In accordance with the government regulations Aviva holds a 26 per cent stake in the joint venture and the Dabur group holds the balance 74 per cent share.

4.1.14 SAHARA INDIA LIFE INSURANCE COMPANY LTD.
The Sahara Pariwar’s latest foray is in the field of Life Insurance. The Pariwar’s life insurance company – Sahara India Life Insurance Company Ltd.- has been granted licence by the insurance regulator – the IRDA on 6th February 2004. With this approval Sahara India Life Insurance Company Ltd. becomes the first wholly and purely Indian company, without any foreign collaboration to enter the Indian Life insurance market. The launch is with an initial paid up capital of 157 crores. The Chairman of the company is Shri Subrata Roy Sahara who is also the Chairman of Sahara Pariwar’s

4.1.15 SHRIRAM LIFE INSURANCE COMPANY LTD.

Shriram Life Insurance Company Ltd is a joint venture between the Chennai-based Shriram Group and the South African insurance major Sanlam. The company launched its operations in India in December 2005. Shriram Life has set a target of achieving a premium income of Rs 110 crore during the first year of operations. While focussing largely on the strong network of over 65,000 agents and distribution network of more than 550 branches.

4.1.16. BHARTI AXA LIFE INSURANCE COMPANY LTD.
Bharti AXA Life Insurance is a joint venture between Bharti, one of India’s leading business groups with interests in telecom, agri business and retail, and AXA, world leader in financial protection and wealth management. The joint venture company has a 74% stake from Bharti and 26% stake of AXA Asia Pacific Holdings Ltd (APH). The company launched national operations in December 2006. Today, we have over 3000 employees across over 12 states in the country. Our business philosophy is built around the promise of making people "Life Confident". As we expand our presence across the country to cater to your insurance and

wealth management needs with our product and service offerings, we continue to bring 'life confidence' to customers spread across India. Whatever your plans in life, you can be confident that Bharti AXA Life will offer the right financial solutions to help you achieve them.

4.2 GENERAL INSURANCE PLAYERS OF INDIAN INSURANCE MARKET 4.2.1 GENERAL INSURANCE CORPORATION OF INDIA
The entire general insurance business in India was nationalised by General Insurance Business (Nationalisation) Act, 1972 (GIBNA). The Government of India (GOI), through Nationalisation took over the shares of 55 Indian insurance companies and the undertakings of 52 insurers carrying on general insurance business.General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of GIBNA. It was incorporated on 22 November 1972 under the Companies Act, 1956 as a private company limited by shares. GIC was formed for the purpose of superintending,

controlling and carrying on the business of general insurance . After a process of mergers among Indian insurance companies, four companies were left as fully owned subsidiary companies of GIC (1) National Insurance Company Limited, (2) The New India Assurance Company Limited, (3) The Oriental Insurance Company Limited, and (4) United India Insurance Company Limited.

4.2.2 NATIONAL INSUARANCE COMPANY LTD.
National Insurance Company Limited was incorporated in 1906 with its Registered office in Kolkata. Consequent to passing of the General Insurance Business Nationalisation Act in 1972, 21 Foreign and 11 Indian Companies were amalgamated with it and National became a subsidiary of General Insurance Corporation of India (GIC) which is fully owned by the Government of IndiaNational Insurance Company Ltd (NIC) is one of the leading public sector insurance companies of India, carrying out non life insurance business. Headquartered in Kolkata, NIC's network of about 1000 offices, manned by more than 16,000 skilled personnel, is spread over the length and breadth of the country covering remote rural areas, townships and metropolitan cities. NIC's foreign operations are carried out from its branch offices in Nepal and Hong Kong.

4.2.3 THE ORIENTAL INSURANCE COMPANY LTD.

The Oriental Insurance Company Ltd. " earlier known as " The Oriental Fire & General Insurance Co. Ltd" was incorporated at Bombay on 12th September, 1947. The Company was a wholly owned subsidiary of the Oriental Government Security Life Assurance Company limited and was

Formed to carry out General Insurance business. The Company was promoted by Sir Purushothamdas Thakurdas, Chairman of Oriental Government Security Life Assurance Company Ltd., which was transacting life insurance business for nearly 75 years. The Oriental Insurance Company Ltd. " earlier known as " The Oriental Fire & General Insurance Co. Ltd" was incorporated at Bombay on 12th September, 1947. The Company was a wholly owned subsidiary of the Oriental Government Security Life Assurance Company limited and was formed to carry out General Insurance business.

4.2.4 THE NEW INDIA ASSURANCE COMPANY LTD.
Incorporated on July 23rd, 1919 Founded by the House of Tata Founder member - Sir Dorab Tata. Nationalised in 1973 with merger of Indian

companies. Established by Sir Dorab Tata in 1919, New India is the first fully Indian owned insurance company in India. New India is a pioneer among the Indian Companies on various fronts, right from insuring the first domestic airlines in 1946 to satellite insurance in 1990. The latest addition to the list of firsts is the insurance of the INSAT2E.

CHAPTER 5

AN OVERVIEW OF INSURANCE MARKET IN INDIA

INDIAN INSURANCE MARKET IN COMPARISION WITH GLOBAL
The Indian insurance market is the 19th largest globally and ranks 5th in Asia, after Japan, South Korea, China and Taiwan.6 In 2003, total gross premiums collected amount to USD 17.3 billion, representing just under 0.6% of world premiums. Similar to the pattern observed in other regional markets, and reflecting the country’s high savings rate, life insurance business accounted for 78.5% of total gross premiums collected in the year, against 21.5% for non-life insurance business.

Life insurance business
When the life insurance business was nationalised in 1956, there were 154 Indian life insurance companies. In addition, there were 16 non-Indian insurance companies and 75 provident societies also issuing life insurance policies. Most of these policies were centred in the metropolitan areas like Bombay, Calcutta, Delhi and Madras. The life insurance business was nationalised in 1956 with the Life Insurance Corporation of India (LIC) designated the sole provider – its monopolistic status was revoked in 1999

p-21 table

Investment portfolio of the LIC
The investment portfolio of LIC over time is summarised in Table 4.3. Broadly, the first item of “Loans to state and central government and their corporations and boards” has steadily fallen from 42% to around 18% in twenty years. In their place, the share of the second item “Central government, state government, and local government securities” has gone up steadily from 55% in 1980 to 80% in 2000. As such, the LIC (along with the State Bank of India) has become one of the two largest owners of government bonds in India. Whether it is in government loans or bonds, GIC

has steadfastly made available over 95% of its investment to Indian government liabilities. It can be seen that the companies have so far refrained from investing in equities or overseas. Recently, however, the LIC has taken a more aggressive stance in boosting its equity investment, both through private placements and secondary market purchases in the stock exchanges. In financial year 2003-2004, it recorded equity investment profit of INR 2,400 crore.

p-22 table

RECENT PRIVATISATION AND FOREIGN PARTNER
Recent privatisation has brought in new players in the market – almost all of them with foreign partners. Table 4.5 below lists the equity share capital of insurance companies in the financial years 2001-02 and 2002-03. There was a substantial injection of equity capital in the private sector in life insurance. In non-life business, the change was marginal. Notice that the equity share capital for LIC was relatively small.

p-25 table

MARKET SHARE OF INDIAN INSURANCE PLAYERS

NAME OF THE COMPANY LIC ICICI PRUDENTIAL BIRLA SUN LIFE BAJA ALLIANZ SBI LIFE HDFC STANDARD TATA AIG MAX NEW YORK AVIVA OM KOTAK MAHINDRA ING VYASA AMP SANMAR METLIFE

MARKET SHARE (in %) 82.3 5.63 2.56 2.03 1.80 1.36 1.29 0.90 0.79 0.51 0.37 0.26 0.21

INVESTMENT ALLOCATION AND NORMS
The Insurance Act of 1938 required life insurance companies to hold 55% of their assets in government securities or other approved securities (Section 27A of the Insurance Act). In the 1940s, many life insurance companies were part of financial conglomerates. With a 45% balance To play with, some life insurance companies used these funds for other enterprises or even for speculation. The government (both at the federal and state levels) has used the insurance business as a way of raising capital. The actual investment patterns are shown in Tables 5.4a and 5.4b below.

Tables both

GROWTH IN PREMIUM LIFE INSURANCE PREMIUM
Along with strong economic growth, the life insurance market has also expanded rapidly – direct life insurance premiums grew by an annual real rate of 13.1% between 1993 and 2003 (Figure 6.1). However, life insurance penetration remains modest at slightly over 2%. Considering that life insurance accounts for more than three-quarters of total insurance business, reaching these untapped markets thus holds the key to realising the growth potential of the insurance industry.

Table 6.1

NON-LIFE INSURANCE PREMIUM
India’s non-life insurance industry received gross premiums of INR 161 billion in 2003, which represented a five-fold increase from INR 28 billion in 1990 and an average 6% growth in real terms over the period (Figure 7.1). Nonetheless, non-life insurance penetration, measured as premiums as a share of GDP, remained at a stable low level of 0.6%. In comparison, penetration has increased at afar brisker pace in China, from 0.4% in 1998 to 0.7% in 2002. It is estimated that 90% of the Indian population are not covered by non-life insurance, which points to significant untapped growth potential.

Fig 7.1

CHAPTER 6

CONCLUSION

CONCLUSION Insurance in India started without any regulations in the nineteenth century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centers. After the independence, the Life Insurance Company was nationalized in 1956, and then the general insurance business was nationalized in 1972. Only in 1999 private insurance companies were allowed back into the business of insurance with a maximum of 26 per cent of foreign holding (World Bank Economic Review 2000). The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and Development Authority bill was passed to protect the interest of the policyholders from private and foreign players. The following companies are entitled to do insurance business in India. The private insurance joint ventures have collected the premium of Rs.1019.09 crore with the investment of just Rs.3,000 crore in three years of liberalization. The private insurance players have significantly improving their market share when compared to 50 years Old Corporation (i.e.LIC). As per the figures compiled by IRDA, the Life Insurance Industry recorded a total premium underwritten of Rs. 10,707.96 crore for the period under

review. Of this, private players contributed to Rs.1, 019.09 crore, accounting for 10 percent.

Life Insurance Corporation of India (LIC), the public sector giant, continued to lead with a premium collection of Rs.9,688.87 crore, translating into a market share of 90 per cent. In terms of number of policies and schemes sold, private sector accounted for only 3.77per cent as compared to 96.23 per cent share of LIC (The Economic Times, 21 March, 2004). The ICICI Prudential topped among the private players in terms of premium collection. It recorded a premium of Rs. 364.9 crore and a market share of 25 per cent, followed by Birla Sun Life with a premium under- written Rs.170 crore and a market share of 15 percent, HDFC Standard with 132.7 crore and Max New York Life with Rs.76.8 crore with a market share of approximately 15 per cent each. Unlike their counterpart in the life insurance business, private non-life insurance companies have not yet started addressing the retail market. All is set to change in the coming years. Like in the banking sector, non-life insurance companies will soon have no choice but to focus on individual buyers. In case of private non-life insurance players, that their market share rose to 14.13 per cent, recording a growth of 70.75 per cent on an annual basis, while the market share of public sector stood at 85.87 per cent, registering a

marginal growth of 6.34 per cent. The overall market has recorded a growth of 12.32 per cent by the end of January 2004.

Among the private non-life insurance players, ICICI Lombard topped the list with a premium collection of Rs.403.62 crore in one year period with a market share of 3.05 per cent and with an annual 131.6 per cent, followed by Bajaj Allianz with a premium of Rs.385.02 crore and 2.91 per cent market share and Tata AIG with 300.49 crore premium and 2.27 per cent market share with an annual growth rate of 62.60 per cent. Among the public sector players, New India garnered a market share of 24.38 per cent, Rs.3, 229.49 crore premium and an annual growth rate of 0.38 per cent, followed by National with a market share of 21.43 per cent, Rs.2, 839.11 crore premium and an annual growth rate of 19.88 per cent, United India with a market share of 19.47 per cent (Rs.2, 578.83 crore premium) and Oriental with a market share of 18.25 per cent, Rs.2, 417.17 crore premium and an annual growth rate of 1.86 per cent. It is significant to note that HDFC Chubb and Cholamandalam have registered annual growth rates of 4030.26 per cent and 1101.20 per cent respectively, whereas New India has registered it as 0.38 per cent. If this trend continues, private insurer would dominate the public sector like New India Insurance Corporation. It is obviously reflect the insurance sector has facing the challenges with foreign

counter parties as well as private counter parties and lot more opportunities are prevailing to penetrate the insurance business among the uncovered people and area of India. .