In Insurance Sector in India

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INTRODUCTION : Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance. DEFINITION : General definition: In the words of John Magee, “Insurance is a plan by which large number of people associate themselves and transfer to the shoulders of all, risks that attach to individuals.” Fundamental definition: In the words of D.S. Hansell, “Insurance may be defined as a social device providing financial compensation for the effects of misfortune, the payment being made from the accumulated contributions of all parties participating in the scheme.” Contractual definition: In the words of justice Tindall, “ Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.”

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Insurance sector in INDIA is booming up but not to level comparative with the developed economies such as Japan, Singapore etc. Also with the opening of the insurance sector to the private players have provided stiff competition resulting into quality products. Also there is a need to restructure the Indian Government owned “ Life insurance Corporation of India “ so as to maximize revenue and in turn profits. IRDA regulations and norms for the allocation of funds need to have a comprehensive look. In the phase of declining interest rates and rising inflation the funds need to be applied in productive areas so as to generate high returns. Also in terms of clients servicing areas such as premium payments, after sales service, policy dispatch, redressal of grievances has to be amended. In the current scenario, LIC has to provide flexible products suited to the customer’s requirements. Also a proper and systematic risk management strategy needs to be adopted. After the increase in terrorism and destructive events around the global world such as September 11 attack on World Trade Centre, US – Taliban war, US – Iraq war etc.. An alternative to reinsurance such as asset backed securities is emerging out in the developed economies. Catastrophe bonds are one of the alternatives for reinsurance. Finally some policies such as pure term and pension schemes needs to be addressed massively at both the urban and the rural segment so as to generate high premium income which will help in the development and growth of the economy.

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Insurance is an Rs.400 billion business in India, and together with banking services adds about 7% to India’s GDP. Gross premium collection is about 2% of GDP and has been growing by 15-20% per annum. India also has the highest number of life insurance policies in force in the world, and total investible funds with the LIC are almost 8% of GDP. Yet more than three-fourths of India’s insurable population has no life insurance or pension cover. Health insurance of any kind is negligible and other forms of non-life insurance are much below international standards. To tap the vast insurance potential and to mobilize long-term savings we need reforms which include revitalizing and restructuring of the public sector companies, and opening up the sector to private players. A statutory body needs to be made to regulate the market and promote a healthy market structure. Insurance Regulatory Authority (IRA) is one such body, which checks on these tendencies.

The IRDA bill proposes tough solvency margins for private insurance firms, a 26% cap on foreign equity and a minimum capital of Rs.100 crores for life and general insurers and Rs. 200 crores for reinsurance firms. Section 27A of the Insurance Act stipulates that LIC is required to invest 75% of its accretions through a controlled fund in mandated government securities. LIC may invest the remaining 25% in private corporate sector, construction, and acquisition of immovable assets besides sanctioning of loans to policyholders.

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These stipulations imposed on the insurance companies had resulted in lack of flexibility in the optimisation of risk and profit portfolio. If this inflexibility continues, the insurance companies will have very little leverage to earn more on their investments and they might not be able to offer as flexible products as offered abroad.The government might provide more autonomy to insurance companies by allowing them to invest 50 % of their funds as per their own discretions. Recently RBI has issued stiff guidelines, which had dealt a severe blow to the plans of banks and financial institutions to enter the insurance sector. It says that non-performing assets (NPA) levels of the prospective players will have to be 1% point lower than the industry average (presently 7.5%). RBI has also stipulated that all prospective entrants need to have a net worth of Rs. 500 crores. These guidelines have made it virtually impossible for many banks to get into the insurance business. Also banks and FI’s who are planning to enter the business cannot float subsidiaries for insurance. RBI has taken too much caution to make sure that the new sector does not experience the kind of ups and downs that the non-bank financial sector has experienced in the recent past. They had to rethink about these guidelines if India’s strong banks and financial institutions have to enter the new business. The insurance employees’ union is offering stiff resistance to any private entry. Their objections are(a)that there is no major untapped potential in insurance business in India;(b)that there would be massive retrenchment and job losses due to computerization and modernization; and(c)that private and foreign firms would indulge in reckless profiteering and skim the ‘urban cream’ market, and ignore the rural areas.But all these fears are unfounded. The real reason behind the protests is that the dismantling of government monopoly would provide a benchmark to evaluate the government’s insurance services.

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PRIVATISATION:MEANING:In a narrow sense Privatisation implies the induction of private ownership in publicly owned enterprises. But in broader sense it implies besides private ownership, the induction of private management and control in the public sector enterprises.


Effective Utilization of Resources

 Economic Growth  Encourages Capital Formation  Reduce Size of Public Sector  Dispose of Loss-Making Govt. Unit

ADVANTAGES: Reduction In Monopoly of Public Sector units  Effective Management
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 More Funds available With Govt.  Increase in Profitability  High Industrial growth rate  Increase in efficiency of Public Sector  Encouragement to Innovation  Quick Decision making

DISADVANTAGES: Class Struggle  Unemployment & Corruption  Inflation  Non Acceptable by Trade Union  Public monopolies have been turned into private monopolies  Economic Imbalances  Wastage & Misallocation of Resources

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The Narasimha Rao government (1991-96) which unleashed liberal changes

in India's rigid economic structure could not handle this political hot potato. Ironically, it is the coalition government in power today which has declared its intention of opening up insurance to the private sector. Ironical because this government is at the mercy of support from the left groups which have been the most vociferous opponents of any such move.

All segments of the financial sector had been opened to private players with

better product, services & social objective

International players are eyeing the vast potential of the Indian market and

are already making plans to come in.

The first order issue is that of competition policy. When the government hinders competition by blocking entry or FDI, this is deeply damaging. Once competitive conditions are ensured, there are, indeed, benefits from shifting labour and capital to more efficient hands through privatisation, but this is a second order issue.
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The difficulties of governments that run businesses are well-known. PSUs face little "market discipline". There is neither a fear of bankruptcy, nor are there incentives for efficiency and growth. The government is unable to obtain efficiency in utilising labour and capital; hence the GDP of the country is lowered to the extent that PSUs control labour and capital. When an industry has large PSUs, which are able to sell at low prices because capital is free or because losses are reimbursed by periodic bailouts, investment in that entire industry is contaminated. This was the experience of Japan where the "zombie firms" - loss-making firms that were artificially rescued by the government - contaminated investment in their industries by charging low prices and forcing down the profit rate of the entire industry. Further, in many areas, the government faces conflicts of interest between a regulatory function and an ownership function. As an example, the Ministry of Petroleum crafts policies which cater for the needs of government as owner, which often diverge from what is best for India. There is a fundamental loss of credibility when a government regulator faces PSUs in its sector: there is mistrust in the minds of private investors, who demand very high rates of return on equity in return for bearing regulatory risk. These arguments have led many economists to advocate large-scale privatisation, so as to clear the slate, and get on with the task of building a mature market economy. The role model in this regard is Germany. The privatisation of the insurance sector would open up exciting new career options and new jobs would be created. A few insurers estimated a figure of 1lakh, after comparing the work forces in India and the UK. At present, life products
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comprise a big chunk, or 98%, of LIC’s business. Pension comprises a mere 2%. Now with increase in life expectancy rate, people have to start planning their retirements. Hence pension business is expected to grow once the industry opens. The demand for healthcare is growing due to population increase, greater urban migration and alarming levels of pollution. Healthcare insurance is more important for families with smaller savings because they would not be able to absorb the financial impact of adverse events without insurance cover. Foreign insurance companies like Aetna (world’s largest healthcare insurance provider) and Cigna have been providing Managed Care services across the globe. Managed Care integrates the financing and delivery of appropriate health care services to covered individuals.

Indian Company Kotak Mahindra Tata Group Sundram Finance Sanmar Group M A Chidambaram Bombay Dyeing DCM Shriram Dabur Group Godrej ITC S K Modi Group CK Birla Group Ranbaxy lpic Finance 20th Century Finance Vyasa Bank Cholmandalam Foreign Partner Chubb , US AIG , US Winterthur ,SWITZERLAND GIO of Australia MetLife General Accident, UK Royal Sum Alliance , UK Liberty Mutual Fund , USA J. Rothschild , UK Eagle star , UK Legal and General , Australia Zurich Insurance, Switzerland Cigna , USA Allianz GERMANY Canada Life ING Guardian Royal Exchange ,UK
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SBI HDFC ICICI IDBI Max India Alliance Capital Standard Life, UK Prudential , UK Principal New York Life

The decision to allow private companies to sell insurance products in India rests with the lawmakers in Parliament. These are the passage of the Insurance Regulatory Authority (IRA) Bill, which will make IRA a statutory regulatory body, and amending the LIC and GIC Acts, which will end their respective monopolies. In 1994 the government appointed a committee on insurance sector reforms (which is known as the Malhotra Committee) which recommended that insurance business be opened up to private players and laid down several guidelines for orchestrating the transition. In particular, we do not address many other related questions such as whether foreign (and not just private) players should be allowed, what cap should there be on foreign equity ownership, whether banks and other financial institutions should be allowed to operate in the insurance business, whether firms should be allowed to sell both life and -non-life insurance, and so on. The three questions that we address are (a) (b) Why should insurance be opened up to private players? If opened up, what should be the appropriate market structure(many

unregulated players or a few regulated players); and finally, (c) What is the role of the regulator in insurance business?
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Why allow entry to private players?
The choice between public and private might amount to choosing between the lesser of two evils. An insurance contract is a "promise to pay" contingent on a specified event. In the case of insurance and banking, smooth functioning of business depends heavily on the continuation of the trust and confidence that people place on the solvency of these financial institutions. Insurance products are of little value to consumers if they cannot trust the company to keep its promise. Furthermore, banking and insurance sectors are vulnerable to the "bank run" syndrome, wherein even one insolvency can trigger panic among consumers leading to a widespread and complete breakdown. This implies the need for a public regulator, and not public provision of insurance. Indeed in India, insurance was in the private sector for a long time prior to independence. The Life Insurance Corporation of India (LIC) was formed in 1956, when the Government of India brought together over two hundred odd private life insurers and provident societies, under one nationalized monopoly corporation, in the wake of several bankruptcies and malpractice’s'. Another important justification for Nationalisation was to raise the much-needed funds for rapid industrialization and self-reliance in heavy industries, especially since the country had chosen the path of state planning for development. Insurance provided the means to mobilize household savings on a large scale. LIC's stated mission was of mobilizing savings for the development of the country. The non-life insurance business was nationalized in 1972 with the formation of General Insurance Corporation (GIC).Thus the fact that insurance is a state monopoly in India is an artifact of recent history the rationale for which needs to
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be examined in the context of liberalization of the financial sector. If traditional infrastructure and "semi-public goods" industries such as banking, airlines, telecom, power, and even postal services (courier) have significant, private sector presence, continuing a state monopoly in provision of insurance is indefensible. This is not to deny that there are some valid grounds for being cautious about private sector entry. Some of these concerns are:(a) That there would be a tendency of private companies to "skim" the markets; thus private players would concentrate on the lucrative mainly urban segment leaving the unprofitable segment to the incumbent LIC.(b) That without adequate regulation, the funds generated may not be deployed in sectors (which yield long-term social benefits), such as infrastructure and public goods; similar without regulation, private firms may renege on their social sector investment obligations. Meeting these concerns requires a strong regulatory body. Another commonly expressed fear is that there would be massive job losses in the industry as a whole due to computerization. This however does not seem to be corroborated by the countries' experience'.

Individuals buying an insurance contract pay a price (called the "premium") to the insurance company and the insurance company in turn provides compensation if a specified event occurs. By making such contractual arrangements with a large number of individuals and organizations the insurance company can spread the risk. This gives insurance its "social" character in the sense that it entails pooling of individual risks. The price of insurance i.e., the premium is based on average risk. This premium is too high for people who perceive themselves to be in a low risk category. If the insurer cannot accurately determine the risk category of every customer and prices insurance on the basis of average risk, he stands to lose all the
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low risk customers. This in turn increases the average risk, which means premia have to be revised upwards, which in turn drives away even more customers and so on. This is known as the problem of "adverse selection". Adverse selection problem arises when a seller of insurance cannot distinguish between the buyer's type i.e., whether the buyer is a low risk or a high type. In the extreme case, it may lead to the complete breakdown of insurance market. Another phenomenon, the problem of "moral hazard" in selling insurance, arises when the unobservable action of buyer aggravates the risk for which insurance is bought. For example, when an insured car driver exercises less caution in driving, compared to how he would have driven in the absence of insurance, it exemplifies moral hazard.

(a) The protection of consumers’ interest, (b) To ensure financial soundness of the insurance industry and (c) To ensure healthy growth of the insurance market. These objectives must be achieved with minimum government involvement and cost. IRA’s functioning can be financed by levying a small fee on the premium income of the insurers thus putting zero cost on the government and giving itself autonomy.

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Associated Market Quest after a study of some of the international markets, points out the following areas for new product development:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Industry all risk policies Large projects risk cover Risk beyond a floor level Extended public and product liability cover Broking and captivities. Alternative risk financing Disability insurance Antique insurance Mega show insurance Celebrity visits to the country.

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A variable risk transfer mechanism is the capital market. This is because capital market is huge and can take on the risk that insurance companies run. The solution is Asset-backed securities (ABS). A private insurer can bundle off policies with similar maturity and quality and sell them as securities to retail investors. The private insurer can float a Special-Purpose Vehicle(SPV) and sell the policies concerned to this entity. The SPV can bundle the policies and sell them as securities to retail investors at attractive yields. The premium on the policies underlying the ABS can be invested by the SPV in low-risk, highly liquid instruments. The benefits of the SPV are First; the SPV is a separate entity from the insurer. This enables easy rating of the ABS, as the credit rating agency will be able to identify the underlying assets. Second, by selling the policies to the SPV, the insurer removes the assets from its balance sheet. This means that the private insurer frees capital that can be used for further business and lastly, the SPV is not affected by the financial health of the insurer. So when the policyholders (underlying the ABS) lodge the claims with the private insurer, the private insurer simply passes on the claims to the SPVs. The SPV, in turn will liquidate its investments and meet the claims. The SPV will stop paying
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interest on the ABS. The retail investors, therefore, bear a sizable portion of claims of the policyholders. There can of course be many variants to the ABS. The most risky ABS, from the investors’ angle, will be those that stop interest payments and delay principal repayments of claims are honored. Also buying ABS helps retail investors truly diversify their portfolio. This is because probability of claims from, say, a hurricane is largely unrelated to the economic factors or industry-specific factors that drive equity and bond values. Besides, investors get attractive yields for taking the risk. If mutual funds invest in ABS, retail investors need not estimate the risk associated with the investment, the fund manager will do the needful. The problem of adverse selection, on the other hand, can be reduced if the ABS are credit-enhanced by a third party and rated by a credit rating agency.In India, debt market is not deep and liquid enough to receive products such as asset-backed securities. Moreover, regulatory restrictions, such as high stamp duty and a not-soefficient judicial system, may act as deterrents. Finally the alternative risk transfer market will only develop once the need for such risk transfer assumes importance some time in the future.






It has been found out that: * 85 percent of the Indians prefer LIC than any other insurance companies. * 'Prevention of Loss', 'Assured Returns' and 'Long term Investment' are the important factors influencing Indians in opting for Life Insurance

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* Only few of the Indians are aware of private life insurance companies. * Most of the Indians are of the opinion that private insurance companies would be able to perform well in the long run. * Most of the Indians are interested in 'Money back' policies than others * Most of them are interested in insuring for an amount of Rs. 1- 2 lakhs * There is significant relationship existing between monthly household income and amount insured * Based on the monthly household income, Indians prefer to their investment needs like bank deposit, post office schemes, real estate, insurance, gold, chit funds, shares etc. * Agents are mostly responsible for selling insurance products in India

One of the contentious issues raised by foreign companies seeking an entry into the insurance sector in India is the minimum paid up capital requirements. The Malhotra committee (1994) recommended Rs 100 crores as the norm. The multilateral insurance working group (an industry forum representing most of the interested foreign and Indian companies seeking an entry into the insurance sector) has recommended Rs. 50 crore. The IRA is also reported to considering agraded pattern for capitalization of the companies keeping in mind the volume of business likely to be handled by them.
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The main reason why the leading insurance companies in the world and the leading corporate group in India have shown a keen interest in the insurance sector, is the vast potential for future business. Restricted, as the market has been, through the operations of the two monopolies (LIC and GIC), it is generally felt that the sector can grow exponentially if it is opened up. The decade 1987-97 has witnessed a compounded growth rate of marginally more than 10% in life insurance business. LIC predicts for itself that its business has potential to grow by 16.27% p.a. in a decade 1997-2007 (LIC, 1997).If we take a look at insurance coverage index for the age group of 20-59 years a considerable gap between India and other countries in Asia can be observed. In this scenario, naturally insurance companies see a vast potential.

In the insurance sector as of today and in all probabilities for a long time to come, LIC and GIC will form a very significant part. The reasons for these are many. Firstly, they have been in business for a long time and therefore, are in position to know business conditions better than any new entrant. Secondly, the network of branches and agents is large, deep and penetrating, which will take a long time for any other entrant to replicate. Thirdly, (especially the LIC), has a kind of government backing which instills faith in all would-be policy holders, much more than a private company can hope to generate. The envisaged private sector participation in the insurance sector is unlikely to take this advantage away from LIC and GIC. In the short run atleast.
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LIC and GIC will continue to command a very high market presence and in the long run it will take a very good market player to dislodge LIC and GIC from their prime positions. This also means that the reform in insurance sector will necessarily mean the reform of LIC and GIC.


As compared to the Western countries, where they have already reached a stage of saturation, India can exploit some golden opportunities in the following fields.

1. Mass Marketing:
India is a highly populated country and would continue to be so in the near future. New players may tend to favour 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 the dominant market leader the Life Insurance Corporation of India. The lion's share of its new business comes from the rural and semi-rural 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 and gentler" than that in urban areas, which can easily be termed cutthroat. Identifying the right agents to harness
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the full potential of the vibrant and dynamic rural markets will be imperative. Rural insurance should be looked upon as an opportunity and not an obligation. A smaller bundle of innovative products in sync with rural needs and perceptions, and an efficient delivery system are the two aspects that have to be developed in order to penetrate the rural markets.

2. Job Opportunities:
Job opportunities are likely to increase manifold. The liberalization of the insurance sector promises several new job opportunities for those who are equipped with degrees in finance. Finance professionals who had witnessed a slump in the job market would be much relieved. There will be demand for marketing specialists, finance experts and human resource professionals. Apart from this, there will be high demand for professionals in streams like underwriting and claims management, and actuarial sciences.

3. Inflow of Funds:
There could be a huge inflow of funds into the country. Given the industry's huge requirement of start-up capital, the initial years after opening up are bound to see a strong inflow of foreign capital. A rise in the equity share of foreign partners to 49 percent will act as a boost to them.

4. Reinsurance:
Huge capacity is likely to be created in the area of reinsurance. Apart from pure reinsurance activities, which involves providing insurance protection, there will be a revolution in service-related fields like training, seminars, workshops, know-how transfer regarding risk assessment and rating, risk inspections, risk management and devising new policy covers, etc.
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Also, with more players in the market, there will be significant increase in advertising, brand building, and this will benefit whole lot of ancillary industries. A substantial shift is likely to take place in the distribution of insurance in India. Many of these changes will echo international trends. Worldwide, insurance products move along a continuum from pure service products to pure commodity products. Initially, insurance is seen as a complex product with a high advice and service component. Buyers prefer a face-to-face interaction and place a high premium on brand names and reliability. As products become simpler and awareness increases, they become off-the-shelf, commodity products. Sellers move to remote channels such as the telephone or direct mail. Various intermediaries, not necessarily insurance companies, sell insurance. In some countries like Netherlands and Japan, insurance is marketed using the Post Office's distribution channels. At this point, buyers look for low price. Brand loyalty could shift from the insurer to the seller.

6. Bancassurance:
In other markets, notably Europe, this has resulted in bank assurance: banks entering the insurance business. The Netherlands led with financial services firms providing an entire range of products including bank accounts, motor, home and life insurance, and pensions. Other European markets have followed suit. In France, over half of all life insurance sales are made through banks. In the UK, almost 95% of banks and building societies are distributing insurance products today. In India too, banks hope to maximize expensive existing networks by selling a range of products. Many bankers have shown an inclination to enter the insurance market by leveraging their strengths in the areas of brand image, distribution
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network, face to face contact with the clients and telemarketing coupled with advanced information technology systems. Insurers in India should also explore distribution through non-financial organizations. For example, insurance for consumer items such as refrigerators can be offered at the point of sale.

7. Information Technology
Worldwide interest in E-commerce and India's predominant position in Information Technology and software development are also likely to be major factors in the marketing of insurance products in the immediate future. The number of Internet account is increasing and the trend has already been set by some of the leading insurers and insurance brokers worldwide.

If one has opportunities, one has to face challenges; it is like two sides of the same coin. No doubt India has a lot of opportunities coming her way, but there are a few challenges and threats as well. The four main challenges facing the industry are product innovation, distribution, customer service, and investments. Unit-linked personal insurance products might find greater acceptability with rising customer awareness about customized, personalized and flexible products. Flexible products and new technology will play a crucial role in reducing the cost and, therefore, the price of insurance products. Finding niche markets, having the right product mix through add-on benefits and riders, effective branding of products and services and product differentiation will be some of the challenges faced by new companies.

1. Technology:
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In today's highly competitive financial services environment, effective

organizations will employ technology in a strategic way so to achieve a competitive edge. Technology will play an increasing role in aiding design and administering of products, as well in efforts to build life-long customer relationships. At the same time, investment in technology will only help as long as firms find the right people: people with the right attitude, values, and ethics, commitment to excellence, and focus on customer service. The critical success factor is a top-down emphasis on exceeding customer expectations with quality people, excellent products, and legendary service. As has been seen in other financial services, the entry of private players ensures that the customer will be the beneficiary in the long run. It will also result in enlarging the market and extending the reach of insurance across the country.

2. Competition:
Thus, apart from the normal issues facing any new company, many new Indian private insurance players will need to cope with the challenges of working with a joint venture partner. They will be competing with large and well-entrenched government-owned players. They have to overcome regulatory hurdles, change the attitude of new recruits and satisfy some very high customer expectations. Also, the players will have to consider the Indian market as a long-term investment, and maintain clear-cut objectives and constant monitoring at all levels. Major Players In The Insurance Sector Today S.No. Date of Reg. 1 23.10.2000 2 23.10.2000 Name of the Company HDFC Standard Life Insurance Company Ltd. Royal Sundaram Alliance Insurance Company Limited
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3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 23.10.2000 15.11.2000 24.11.2000 04.12.2000 10.01.2001 22.01.2001 31.01.2001 12.02.2001 30.03.2001 02.05.2001 02.08.2001 03.08.2001 03.08.2001 06.08.2001 03.01.2002 14.05.2002 15.07.2002 27.08.2002 27.08.2002 06.02.2004 17.11.2005 Reliance General Insurance Company Limited. Max New York Life Insurance Co. Ltd. ICICI Prudential Life Insurance Company Ltd. IFFCO Tokio General Insurance Co. Ltd Kotak Mahindra Old Mutual Life Insurance Limited TATA AIG General Insurance Company Ltd. Birla Sun Life Insurance Company Ltd. Tata AIG Life Insurance Company Ltd. SBI Life Insurance Company Limited . Bajaj Allianz General Insurance Company Limited ING Vysya Life Insurance Company Private Limited ICICI Lombard General Insurance Company Limited. Bajaj Allianz Life Insurance Company Limited Metlife India Insurance Company Pvt. Ltd. AMP Sanmar Life Insurance Company Limited. Aviva Life Insurance Co. India Pvt. Ltd. Cholamandalam General Insurance Company Ltd. Export Credit Guarantee Corporation Ltd. HDFC-Chubb General Insurance Co. Ltd. Sahara India Insurance Company Ltd. Shriram Life Insurance Company Ltd.

The Way Ahead With the entry of competition, the rules of the game are set to change. The market is already beginning to witness a wide array of products from players whose number is set to grow. In such a scenario, the differentiators among the different
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players are products, pricing, and service. Consumers are increasingly more aware and are actively managing their financial affairs. Today, while boundaries between various financial products are blurring, people are increasingly looking not just at products, but at integrated financial solutions that can offer stability of returns along with total profits. To satisfy these myriad needs of customers, insurance products will need to be customized. Insurance today has emerged as an attractive and stable investment alternative that offers total protection - Life, Health and Wealth Protection. Consumers today also seek products that offering flexible options, preferring products with benefits unbundled and customizable to suit their diverse needs.

The trend in developed economies where people live longer and retire earlier is now emerging in India too. With the breakdown of traditional forms of social security like the joint family system, consumers are now concerned with the need to provide for a comfortable retirement. This trend has been further driven by the long-term decline in interest rates, which makes it all the more necessary to start saving early to ensure long term wealth creation. Today's consumers are increasingly interested in products to help build wealth and provide for retirement income.

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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 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.
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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 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.

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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 competition from the private players in these segments.

* TATA AIG has offered a specialized life insurance package where the insured
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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. * TATA AIG GENERAL INSURANCE, for the first time in the country, has launched a specialized product for Accountants (after tasting the success with specialized products such as Directors and Officers policy in India) in its bid to segment the market for professional indemnity policies. The policy has been designed with the assistance from Bombay Chartered Accountants Society. This policy covers claims pertaining to professional negligence, wrongful acts committed in the performance duties. It also provides for coverage of all legal expenses incurred in defending such claims. * 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 non-smokers 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.

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* 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: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 1. rural. 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
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challenge lies in reaching the critical mass with the redesigned products. And the organizations have been fairly successful 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 channel:
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. Sl.No 01 02 03 04 05 06 07 Bajaj Insurer Alliance Banks / Corporate Agencies (GeneralJammu & Kashmir Bank, Karur Vysya Bank, Punjab & Sind Bank InsuranceAndhra Bank, Indian Bank, South India Bank,

Insurance) United India

Company Ltd. Federal Bank New India Assurance CompanyPunjab National Bank (General Insurance) Vijaya Ltd. SBI Life ICICI Prudential LIC of India Metlife 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
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08 09 10 11 AMP Sanmar Birla SunLife Kerala based Co-operative Banks – Peruntalmanna Bank and Manjeri Bank Citibank, Deutsche bank, IDBI Bank, Catholic

Syrian Bank, Bank of Rajasthan, Bank of Muscat HDFC Standard Life Insurance Indian Bank, Union Bank Lakshmi Vilas Bank, Canara Bank, Amex, ABN Dabur CGU Life Amro Bank

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 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
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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,












- Life insurance coverage for atleast one person in 75% of the households - Acquisition of 100 new policies in a single year

* Iffco-Tokio General Insurance Company is planning to launch a novel insurance policy Sankat Karan for farmers in which for the every purchase of 50kg bag of fertilizers, insurance worth Rs.4000 would be provided to the farmers. The policy will remain in force for a period of 12 months from the date of purchase. * Birla Sun Life Insurance has adopted 332 villages around Renukoot and actively involved in improving the lives of the residents.

VII De-tariffing in General Insurance:
Though the issue of de-tariffing in general insurance has been debated upon at length, the response from the industry is quite mixed. By fixing a tariff for a product, Tariff Advisory Committee (TAC) maintains discipline in the market and makes sure that the insurance companies do not resort to under pricing to gain market share. IRDA is now working on detariffing the general insurance sector
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beginning with commercial vehicle business since it constitutes more than two fifth of the non-life business volume. Both IRDA and TAC are working out the modus operandi of the deregulations of motor premium. Sensing the indifferent attitude of the private general insurers towards motor insurance, the Government is contemplating on coming out with obligations to be met by the private insurers in this segment (like rural business). Once the motor insurance premium is detariffed, the end user is likely to see another cola war like.

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* Allianz Bajaj Life Insurance Company Ltd., * Aviva Life Insurance Co. India Pvt. Ltd., * AMP SANMAR Assurance Company Ltd., * Birla Sun Life Insurance Company Ltd., * HDFC Standard Life Insurance Company Ltd., * ICICI Prudential Life Insurance Company Ltd., * ING Vysya Life Insurance Company Private Ltd., * Max New York Life Insurance Co. Ltd., * MetLife India Insurance Company Pvt. Ltd., * Om Kotak Mahindra Life Insurance Co. Ltd., * SBI Life Insurance Company Ltd., * Sahara India Insurance Company Ltd., * Tata AIG Life Insurance Company Ltd.,

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ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, which is one of India's foremost financial services companies, and Prudential plc, which is a leading international financial services group headquartered in the United Kingdom. ICICI Prudential began the operations in December 2000. Today, this company has over 2100 branches, which include 1,116 micro-offices, over 290,000 advisors and 18 banc assurance partners. ICICI Prudential Life Insurance Company is the first life insurer in India that received a National Insurer Financial Strength rating of AAA (Ind) from Fitch ratings. ICICI Prudential has been voted as India's Most Trusted Private Life Insurer for three consecutive years. ICICI Prudential Life Insurance Company has various insurance plans that have been designed for different individuals, as every individual has different insurance needs. Contact Address ICICI Pru Life Towers 1089 Appasaheb Marathe Marg Prabhadevi, Mumbai - 400025 Website:
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Given below is a list of plans provided by ICICI Prudential Life Insurance Company:
Life Insurance Plans Education Insurance Plans
• • • • •

Premium Guarantee Plans

Retirement Solutions

• •

Diabetes Care Active Diabetes Assure

Life Stage Pension LifeTime Super Pension LifeLink Super Pension

InvestShield Life New
• • • •

Smart Kid New Unit-linked Regular Premium Smart Kid New Unit-linked Single Premium Smart Kid Regular Premium

ICICI Pru Group Solutions Advantage
• • • • •

InvestShield CashBank

Group Super Annuation Group Gratuity Plan Annuity Solutions Group Term Insurance Plan Group Term Insurance in lieu of EDLI

Protection Plans
• • • • •

ForeverLife Plan Immediate Annuity

Pure Protect Life Guard Save 'n' Protect CashBak Home Assure

Health Coverage Plans

Wealth Creation Plans
• • • • •

Health Saver Medi Assure Hospital Care Crisis Cover

Micro Insurance Plans

• • • •

Wealth Advantage LifeStage Assure LifeTime Gold LifeLink Super LifeStage RP

ICICI Pru Sarv Jana Plan

Rural Plans Cancer Care
• •

ICICI Pru Suraksha ICICI Pru Suraksha Kavach

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Bajaj Allianz Life Insurance Co. Ltd. is a joint venture between Allianz SE, one of the world's largest insurance companies, and Bajaj Finserv. Allianz SE is a leading insurance corporation globally and one of the largest asset managers in the world, that manage assets worth over a Trillion. With over 115 years of financial experience, Allianz SE is present in over 70 countries around the world. Bajaj Allianz is into both life insurance and general insurance. Today, Bajaj Allianz is one of India's leading and fastest growing insurance companies. Currently, it has presence in more than 550 locations with over 60,000 Insurance Consultants. In June 2008, Bajaj Allianz entered into partnership with Thomas Cook India to provide travel finance. Bajaj Allianz Life Insurance ensures excellent insurance and investment solutions by offering customized products, supported by the best technology.

Contact Address Bajaj Allianz Life Insurance Co. Ltd. GE Plaza, Airport Road Yerawada, Pune - 411006 Website:

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A comprehensive list of policies and products offered by Bajaj Allianz Life Insurance Co. Ltd. is as follows:
Unit Linked Plans • Regular Premium 1. 2. 3. 4. 5. 6. 7. New UnitGain Super UnitGain Plus Gold New UnitGain Plus New UnitGain YoungCare YoungCare Plus New FamilyGainR • 1. 2. Single Premium • New UnitGain Premier SP New UnitGain Plus SP Pension Plans • 1. Annuity Pension Guarantee • • 1. Retirement • Future Income Generator Working Women House Wives 1. Group Term Life(Employer Employee) Term Plans • • • 5. Protector Term Care New Risk Care • 6. 1. CashGain 3. 4. Money Back 3. 4. 1. 2. InvestGain SaveCare Economy SP Life Time Care Super Saver 1. 2. Credit Shield Group Term Life(Non Employer Employee) Group Suraksha Swayam Shakti Suraksha Group Loan Protector Group Income Protection Employer Employee • • • • Family Assure Fortune Plus Capital Shield CenturyPlus II • Non Employer Employee 9. • Endowment Group Plans Traditional Plans • ChildGain 7. 8. 5. 4. 3. New UnitGain Easy Pension Plus RP New UnitGain Easy Pension Plus SP Future Secure Children Plans 6. • • • Care First Health Care Family CareFirst 4. 5. Health Plans 3. New Group Superannuation Care Group Save Plus Group Term Life in lieu of EDLI Group Leave Encashment Scheme Group Annuity Group Superannuation Gold Group Gratuity Gold Micro Insurance • • • Alp Nivesh Yojana Jana Vikas Yojana Saral Suraksha Yojana Other Plans

Women Insurance Plans

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2. Swarna Vishranti 2. New Group Gratuity Care

Established on 14th August 2000, HDFC Standard Life Insurance Co. Ltd. is a joint venture between Housing Development Finance Corporation Limited (HDFC Limited) - India's leading housing finance institution, and a Group Company of the Standard Life Plc, UK. The Company is one of leading private insurance companies, offering a range of individual and group insurance solutions, in India. Being a joint venture of top financial services groups, HDFC Standard Life has adequate financial expertise to manage long-term investments safely and resourcefully. HDFC Standard Life Insurance offers a range of individual and group solutions, which can be easily personalized to specific needs. Its group solutions have been planned to offer complete flexibility, together with a low charging structure. As of 31 December, 2008, the Company's new business premium income stood at Rs. 1,839.70 Crores; it has covered over 812,811 lives so far. Contact Address HDFC Standard Life Insurance Co. Ltd. 'Trade Star', 2nd floor, 'A' Wing Junction of Kondivita and M.V. Road
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Andheri-Kurla Road Andheri (East), Mumbai - 400059 Website:
Given below is a comprehensive list of policies and products on offer by HDFC Standard Life Insurance:
Protection Plans
• •

Retirement Plans
• •

HDFC Unit Linked Enhanced Life Protection II

• •

HDFC Critical Care Plan HDFC SurgiCare Plan

HDFC Term Assurance Plan HDFC Loan Cover Term Assurance Plan

HDFC Personal Pension Plan HDFC Unit Linked Pension II

HDFC Unit Linked Wealth Maximiser Plus Group Plans
• •

HDFC Home Loan Protection Plan

HDFC Unit Linked Pension Maximiser II

HDFC Unit Linked Endowment Winner

Group Term Insurance Plan Group Variable Term Insurance Plan

HDFC Immediate Annuity

Children's Plans
• •

HDFC Endowment Assurance Plan

Group Unit Linked Plan Gratuity

HDFC Children's Plan HDFC Unit Linked Young Star II

Savings & Investment Plans HDFC Unit Linked Endowment Plus II

• •

HDFC Money Back Plan HDFC Single Premium Whole of Life Insurance Plan

Group Unit Linked Plan Superannuation

HDFC Unit Linked Young Star Plus II

Group Unit Linked Plan Leave Encashment

HDFC SimpliLife

• •

HDFC Assurance Plan HDFC Savings Assurance Plan

HDFC Unit Linked YoungStar Champion

HDFC Unit Linked Endowment II

Health Plans

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Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla Group, an Indian multinational corporation, and Sun Life Financial Inc, a leading global insurance company. Birla Sun Life Insurance is distinguished as the first company in the sector of financial solutions to begin Business Continuity Plan. This insurance company has pioneered the unique Unit Linked Life Insurance Solutions in India. Within 4 years of its launch, BSLI became one of the leading players in the industry of Private Life Insurance Scheme. Birla Sun Life Insurance believes in passion, integrity, speed, commitment and seamlessness. The mission of the company is to help people with risk management. It also helps in managing the financial situation of firms as well as individuals.

Contact Address Birla Sun Life Insurance Company Limited Vaman Centre, 6th Floor Makhwana Road Off Andheri-Kurla Road
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Andheri (East), Mumbai - 400059 Website:

Here is given a comprehensive list of policies and products offered by Birla Sun Life Insurance Co. Ltd.
Protection Plans

Birla Sun Life Insurance PrimeLife Premier

Children Plans

Birla Sun Life Insurance Single Premium Group Term Plan

Birla Sun Life Insurance Term Plan

Birla Sun Life Insurance Children's Dream Plan

Birla Sun Life Insurance PrimeLife

Birla Sun Life Insurance Premium Back Term Plan

NRI Plans

Birla Sun Life Insurance Flexi Cash Flow

Rural Plans

Birla Sun Life Insurance PrimeLife Premier

Saving Plans

Birla Sun Life Insurance Flexi Save Plus

Birla Sun Life Insurance Bima Suraksha Super

Birla Sun Life Insurance PrimeLife

Birla Sun Life Insurance Guaranteed Bachat Plan

Birla Sun Life Insurance Flexi Life Line

Birla Sun Life Insurance Bima Dhan Sanchay

Birla Sun Life Insurance Flexi Life Line Plan

Birla Sun Life Insurance Money Back Plus Plan

Birla Sun Life Insurance Single Premium Bond

Birla Sun Life Insurance Bima Kavach Yojana

Birla Sun Life Insurance Flexi Save Plus

Birla Sun Life Insurance GoldPlus II

Health Solution Plans

Group Plans

Birla Sun Life Insurance Flexi Cash Flow

• •

BSLI Health Plan BSLI Universal Health Plan

Birla Sun Life Insurance Group Unit Linked Plan

Birla Sun Life Insurance Saral Jeevan Plan

Birla Sun Life Insurance ClassicLife Premier

Birla Sun Life Insurance Group Protection Solutions

Birla Sun Life Insurance Supreme-Life

Retirement Plans

Birla Sun Life Insurance Single Premium Bond

Birla Sun Life Insurance Freedom 58

Birla Sun Life Insurance Dream Plan

Birla Sun Life Insurance Group Superannuation

Birla Sun Life Insurance

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Birla Sun Life Insurance ClassicLife Premier Plan SimplyLife

Birla Sun Life Insurance Flexi SecureLife Retirement Plan II

Birla Sun Life Insurance Group Gratuity Plan

B. S. L.Insurance SimplyLife

Birla Sun Life Insurance Credit Guard Plan

The insurance industry has grown by 83 per cent since the opening up of the sector. Remarking on the performance of the insurance industry, C S Rao, chairman, Insurance Regulatory & Development Authority, said public sector players have not suffered with the opening up of the sector. Insurance premium income has risen to Rs 82,415 crore (Rs 824.15 billion) in 2003-04, against Rs 45,000 crore (Rs 450 billion) in 2000-01. Rao expects premium income in the life insurance sector to rise further by 15-16 per cent and non-life insurance premium by 14 per cent in 2005-06. The growth comes on the back of healthy demand from the manufacturing sector. "There has been no reduction in growth rates as seen in the case of the Life Insurance Corporation of India It is able to hold on to its existing share in terms of business growth. Market share is bound to stand reduced as some business goes to the private players," The health and personal line segments are expected to see maximum growth during the current financial year. "The health insurance sector is expected to grow by 10-15 per cent," Rao said at a one-day seminar on 'Growth of Insurance Industry in India' organised by the Indian Merchants' Chamber in Mumbai on Friday.
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If the cap on foreign direct investment is increased to 49 per cent from the current 26 per cent, the industry can expect greater entry of players. But this, said Rao, should not be seen as a threat to public sector players.S

The reforms in the insurance sector leading finally to the opening of the insurance sector for private participation have brought in its wake major changes not only in the design of the products available in the market but also the manner in which they are marketed. We have today a host of products coupled with a large number of intermediaries who market them. The post-liberalized insurance industry panorama in India is witnessing dramatic changes in terms of a slew of latest products and services, new channels of distribution, greater use of I.T. as a service facilitator etc. There is also the phenomenon of noticeable shifts in consumer preferences impacting the product mix being offered by insurers. The market structure dominated by a few stabilized public sector players and the 'new' players in the market (some of whom claim their lineage from established international insurance behemoths) is in a state of flux- in terms of figure out market shares but is full of potential. Added to these are the rising trends of convergence of financial services, especially in the areas like wealth management and evolution of newer risk management tools, particularly in the context of reinsurance management. Greater attention is also being bestowed on the areas like Agricultural Insurance and risk coverage of export-import trade. Then there is impact of visible socio-economic changes like greater urbanization, greater job mobility, growth of the services industry,
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weakening of traditional family structure, impact of globalization etc. All in all, interesting things are happening in the Indian insurance scene. Insurance undergone rapid and massive changes in all aspects of their business: product and services, sectoral structure, market segmentation, competitive environment.It is believed that the information sharing has not taken its expected shape in the insurance industry for the purposes of practices, research and education. However, data is one of the most needed ingredients in the insurance business development as well as for research and consultancy. There have been regular efforts by IRDA for collection and sharing of the data and other information of public interest. The industry is facing problems in terms of data review as parliament need to register this beforehand. We believe that progress of the industry should not be constrained by any extraneous conditions in the interest of research and development in the area. Manpower India today released the Manpower Employment Outlook Survey for the first quarter of 2006 revealing sustained positive hiring intentions of employers in India. India continues to lead all 23 countries surveyed this quarter, with a positive overall Net Employment Outlook of +27%. Even though this figure represents a decrease of 13 percentage points from the fourth quarter of 2005, the employment outlook remains extremely healthy. For the first time since the Survey was launched in India, the Finance, Insurance and Retail industry sector emerged as the most optimistic sector for a quarter with a Net Employment Outlook of +32%, surpassing the Services sector. Privatization of insurance sector has allowed insurance companies to work in the market by depositing 100 crore rupees in the reserve of government. This has encouraged many overseas insurance companies, having a required amount in their reserve, to open their branch in our country. Introduction of the sector has changed
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the employment pattern, but people must know how to make profit from it. To be in the global market and have advantage of it, capital and skill as per the demand and knowledge of market is the requirement. It is necessary that institutions, which form a part of this financial system, have internal management, governance and accountability structures, which measure up to the highest standards.






THE public sector insurance industry recorded another praiseworthy performance for the financial year 2007-08. The remarkable performance of public sector insurance year after year since the opening up of the industry has surprised its critics. These critics had expected the public sector to wilt under the pressure of competition. Today they are silent as the good performance of public sector is not just related to the new premiums under-written but also in terms of innovation skills and setting very high standards of servicing. Therefore, it has truly been an excellent all-round performance. The LIC achieved a moderate growth over the unprecedented growth it had registered in the previous financial year. It secured first premium income of Rs 43,813 crore through the sale of 3.76 crore policies under individual assurances. The LIC has also procured new premium of Rs 9260 crore through its group portfolio. It is expected that the total premium income would touch Rs 1,50,000 crore. With the total assests in excess of Rs 7,00,000 crore, LIC has retained the status of being the biggest financial institution in the country. It is this splendid performance of LIC that has raised the levels of life insurance premium penetration
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to 4.1 per cent of the GDP. This level of penetration is higher than those achieved in many developed countries including the United States. The IRDA has released the unaudited new business statistics for the year 2007-08. As per the IRDA, the LIC has underwritten new premium of Rs 59182.20 crore (on the basis of annualised premium), which translates to a market share of 63.64 per cent. The seventeen private companies together have a market share of 36.36 per cent. The ICICI prudential with a market share of 8.93 per cent is a distant second to LIC. Eleven companies have a market share of less than 2 per cent. In the total premium mobilised in the country, the share of LIC is in excess of 80 per cent. This clearly demonstrated the total domination of LIC in the life insurance industry in India. Today, the opponents of public sector are greatly surprised over the resilience and ability of LIC to innovate and raise its servicing standards. The LIC has been able to offer innovative products, better returns to its policyholders and has created unsurpassable records in claim settlements. The LIC has been settling over one crore claims each of these years. It has maintained a consistent record of settling over 99.86 per cent of the reported claims. It tops in conservation of business with the lowest lapsing ratio in the industry. In contrast, the private companies have settled only around 72 per cent of the reported claims and large number of these companies have more than 25 per cent lapsing ratio as against 4 percent of LIC according to the annual report 2006-07 of the IRDA. The operating expenses of LIC are also the lowest in the industry at 5.54 per cent. It is this sound track record that has earned LIC the trust of the insuring public. Naturally over 230 million policyholders have placed their unflinching faith and trust in this great institution. The performance of the four general insurance companies has been equally good. These companies secured a gross direct premium income of Rs 16899.49 crore in a
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de-tariffed regime. The profitability of all the four companies increased and their underwriting losses have substantially been reduced. For the year ending March 31, 2008, United India has earned a net profit of Rs 631.32 crores, an increase of 19.5 per cent over the previous year. The details of other companies are yet to be released but the story could be no different. We are convinced that the public sector could have performed much better had the government been prudent to accept merger of the four companies. The private companies on the other hand have shown increased underwriting losses. The record of private companies in relation to claim settlement is unsatisfactory and some state governments like Maharashtra who had entrusted their social security mediclaim scheme to the private companies have dragged them to courts on the issues of non-settlement of claims. Despite such good performance, there is wild campaign that the public sector has faltered and its performance is not that satisfactory for the year 2007-08. This motivated campaign is aimed to malign and discredit the public sector. It is true that the public sector could not achieve the rate of growth recorded in the previous year. But it is equally true of the private sector too which witnessed decline in the growth rates. The decline in the growth rate of the private companies is deliberately not discussed showing a clear bias against the public sector. What are the reasons for the slow down in the growth rates in the insurance industry? We have always held that it is the growth of the economy and levels of disposable incomes that enables the growth of the insurance industry. It is now acknowledged that the Indian economy had slowed down in 2007-08. The government itself had lowered the growth projections. The agriculture sector on which 60 per cent of India's population is dependent continued to remain crisis ridden. The manufacturing sector recorded the lowest growth rate for the last three years. The
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services sector that contributes 55 per cent to the GDP did not remain unaffected by the slow down. The RBI confirmed that the household savings declined while corporate savings increased. This shows the shift in the incomes from the household to spend a greater proportion of the incomes on food. The RBI also confirmed decline in the rate of financial savings. Despite all these handicaps and the constant attempts to encourage the private sector through governmental policies and the IRDA interventions, the public sector insurance has performed well and this is really creditable. But many more challenges confront the public sector insurance industry today. The slow down in the economy would impact the entire insurance industry. The threat of further liberalisation of the sector continues unabated. There is aggressive demand to increase the limits of foreign equity beyond 50 per cent. The Economic Survey 2008 has suggested foreign equity beyond 51 per cent in health insurance. The Raghuram Rajan committee on financial sector reforms and the Anwarul Hoda committee on services sector have recommended complete liberalisation of financial sector. These committees have recommended detariffing of all insurance products and reducing of the solvency margin to 100 per cent as the higher solvency margin rates have started affecting the private companies. These committees have also suggested that foreign investors be permitted to a larger share in the insurance companies and review of investment regulations to allow investment in emerging instruments and derivatives. The Anwarul Hoda committee has suggested total removal of FDI restrictions in reinsurance and an enactment of a comprehensive law on insurance. Similarly in the banking industry, the recommendations are for gradual reduction in statutory liquidity ratio and to make priority lending targets to be on market based approach. The committees further recommend the doing away of the branch licensing and reduction of government
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holding in public sector banks to 33 per cent. These recommendations are aimed to integrate the Indian financial sector into the architecture of the global finance capital. These recommendations would be disastrous not just to the financial sector but to the entire national economy. But the government which is committed to liberalise the financial sector would surely make attempts to implement these recommendations. The crisis in the financial markets in the US and Europe would also impact our industry. It is not only the banks but the US insurance companies have also suffered huge losses due to sub-prime lending crisis and swapping of credit derivatives. The Business Standard April 22, 2008 reports that the biggest US insurer AIG has announced losses of over 32 billion dollars in the last one quarter itself compelling the company to announce raising of additional capital amounting to 20 billion dollars. Therefore, the US and its insurance companies would exert greater pressure for full liberalisation of Indian insurance sector. In the circumstances the struggle to defend the public sector insurance industry has become much more challenging. The movement led by AIIEA succeeded in preventing the privatisation of insurance sector for over one decade. This struggle has also helped the public sector to consolidate and gain due to the campaign of the employees among the public. The campaign to educate the public about the dangers inherent in the government policies and the need of a strong public sector to better the lives of the people must be further strengthened. We are confident that LIC and the four general insurance companies would continue to perform well overcoming all obstacles. But let us also understand that this is possible only when we heighten our campaign and struggle. This is the urgent task before the insurance employees. (Editorial, Insurance Worker, June 2008 issue)

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The insurance sector was liberalised and opened to private sector participation to break the monopoly position of public sector companies and provide better insurance coverage, products and services to the citizens and in the process augment flow of long-term resources for financing infrastructure. Be it the evolution of new channels of distribution or innovative product development or the optimal use of the latest state-of-the-art technology, the central theme is the customer’s choice and his/her convenience. Competitive pricing, value for money for the customer, high service levels, upgrading the quality of agents, back office and front office staff, consumer awareness and sensitive and prompt response to the consumers’ grievances are the other features of this market which can easily be discerned.

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The market seems to be expanding and growing but only in depth and not the width of coverage. Such growth rates, however, can be sustained only by reaching out to newer markets. And no concerted effort on development of new markets has been seen so far. LIC has responded well to competition, the decline in its sales figures, post 2002 have been on account of removal of its high selling single premium, guaranteed products. It has shown impressive growth in its traditional product sales. In non-life sector, the challenge seems to be more daunting. Not only the retail market has not been impacted in any perceivable proportion, the levels of awareness and also the standards of customer services, as perceived by the general public, are pretty low. This needs to change.

Product Development:There certainly has been a plethora of new and innovative products offered by both, LIC and new players, in the life sector. LIC has the widest range of products and customised solutions for the customers. Public sector non-life companies are yet to get their act together.

Customer Service:This is an area where new companies are clearly ramping up by bringing in their global best practices, operational efficiency through technology etc. Public sector companies are fast gearing up. However, a lot still needs to be done in this area as is evidenced by the FORTE survey. The real time response and turnaround times in delivery of the services have to be up to the customer expectation levels in areas
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like delivery of first premium receipt, policy document, premium notice, final maturity payment, death claim etc.

Global integration of financial markets resulted from de-regulating measures, technological information explosion and financial innovations. Liberalisation and Globalisation have allowed the entry of foreign players in the Insurance sector. With the entry of private and foreign players in the Insurance business, people have got a lot of options to choose from. Radical changes are taking place in customer profile due to the changing life style and social perception, resulting in erosion of brand loyalty. To survive, the focus of the modern insurers shifted to a

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customer-centric relationship. The paper focuses the current position of insurance industry. 1.) Liberalisation

and Privatisation :-

India's economic development made it a most lucrative Insurance market in the world. Before the year 1999, there was monopoly state run LIC transacting life business and the General Insurance Corporation of India with its four Subsidiaries transacting the rest. In the wake of reform process and passing Insurance Regulatory and Development Authority (IRDA) Act through Indian parliament in 1999, Indian Insurance was opened for private companies. Liberalisation on the Insurance sectors has allowed the foreign players to enter the market with their Indian partners. Most of the foreign Insurers have joined within the local market. India offers immense possibilities to foreign Insurers since it is the world's most populous country having over a billion people. Insurance industry had ten and six entrants in life and non-life sector respectively in the year 2000-2001. The industry again saw two and three entrants in the life and non-life business respectively in the year 2001-2002. One additional entrant was made both in the life and in non-life business in 2004 and 2005 respectively. At present there are fourteen companies each in Life and General Insurance. The Funds earlier generated by the state owned insurers have been diversified with other new insurers.

2.) Competition:-

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Private and Foreign entrants in the Insurance Industry made others difficult to retain their market. Higher customer aspirations lead to new expectations and compel him to move towards the insurer who provides him the best service in time. It becomes less viable for them even to maintain the functional networks or competitive standards and services. To survive in the Industry they analyse, the emerging requirements of the policyholders / insurers and they are in the forefront in providing essential services and introducing novel products. Thereby they become niche specialists, who provide the right service to the right person in right time.

The following table shows the market share of life and non-life insurers
MARKET SHARE (%) LIFE INSURERS 1. LIC 2. ICICI Prudential 3. Bajaj Allianz 4. HDFC Standard 5. Birla Sun life 6. Tata AIG

76.07 6.91 4.75 2.98 1.72 1.66

NON – LIFE INSURERS 1. New India 21.41 2. National 17.11 3. United India 17.11 4. Oriental 17.02 5. ICICI8.04 6. Lombard Bajaj Allianz 6.15
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7. 8. 9. 10. SBI Life Max New York Aviva Kotak Mahindra Old Mutual 1.46 1.28 1.08 0.71 0.54 0.46 0.37 0.03 23.93 76.07 100.00 7. 8. 9. 10. 11. 12. 13. 14. Private total Public total Grand total IFFCO-Tokio Tata-AIG ECGC Royal 4.00 2.89 2.50 2.17

11. ING Vysya 12. AMP Sanmar 13. Met Life 14. Sahara Life Private total Public total Grand total Source :

Sundaram Cholamandala 1.22 m HDFC-Chubb 0.89 Reliance 0.75 General Agriculture Insurance Co. 27.35 72.65 100.00 --

In the above table shows, the private players in the life insurance business have increased their market share to 23.93 per cent. Among them ICICI prudential is ranked first in capturing the market followed by Bajaj Allianz and HDFC Standard. In the General Insurance sector the private players have captured 27.35 per cent. Among them ICICI-Lombard is ranked first, followed by Bajaj Allianz and IFFCO-Tokio. The healthy competition in the sector enabled the State owned insurers of our mother country to reduce its market share to 76.07 per cent and 72.65 percent in life and non-life business respectively. Moreover, private insurers have planned to increase their market share in the next five years. The public insurers have to enrich its approach to withhold its share.

3.) Information Technology:Page 57

Insurers are the earlier adopters of technology. Because of the Information revolution, customers are free to choose from a wide range of new and innovative products. The Insurance companies are utilizing the Information technology applications for better customer service, cost reduction, new product design and development and many more. New technology gives the policyholders / insured better, wider and faster access to products and services. The impact of Information Technology in Insurance business is being felt at an accelerating pace. In the initial years IT was used more to execute back office functions like maintenance of accounts, reconciling broker accounts, client processing etc. With the advent of "database concepts", these functions are better integrated in an administrative efficiency. The real evolution is however emerged out of Internet boom. The Internet has provided brand new distribution channels to the Insurers. The technology has enabled the Insurer to innovate new products, provide better customer service and deeper and wider insurance coverage to them. At present, Insurance companies are giving customers a distinct claim id to track claims on-line, entertaining on-line enrollment, eligibility review, financial reporting, and billing and electronic fund transfer to its benefit clan customers.

4.) Product Innovations:Insurers are continuously innovating new products based on forward-looking models. They have developed new products addressing the new challenges in society and products to address the hazards from new environmental issues. Companies will need to constantly innovate in terms of product development to
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meet ever-changing consumer needs. Understanding the customer better will enable Insurance companies to design appropriate products, determine price correctly and to increase profitability. Since a single policy cannot meet all the Insurance objectives, one should have a portfolio of policies covering all the needs. Product development is made possible by integrating actuarial, rating, claims and illustration systems. At present, the Life Insurers are concentrating on the pension schemes and the Non-Life Insurers on many innovative schemes of various realms and thereby enriching their market share. Moreover, with increased commoditization of insurance products, brand building is going to play a vital role.

5.) Distribution Network:While companies have been successful in product innovation, most of them are still grapping with right mix of Distribution Channels for capturing maximum market share to build brand equity, building strong and effective customer relationships and cost effective customer service. While the traditional channel of tied up advisors or agents would be the chief distribution channel, insurer should innovate and find new methods of delivering the products to customers. Corporate agency, brokerage, Banc assurance, e-insurance, cooperative societies and panchayats are some of the channels, which can be tapped by the insurers to reach the appropriate market segments. Now days, the urban masses are tapped with the new techniques provided by Information Technology through Internet. Rural masses are attracted by the consultative approach adopted by the Insurers. Moreover, they attract the customers through telephone and mobile also.

6.) Customer Education and Services:Page 59

Insurance is a unique service industry. The key industry drivers are related to life style issues in terms of perceiving insurance as a savings instrument rather than for risk cover, need based selling, quality of service and customers awareness. In the present competitive scenario, a key differentiator is the professional customer service in terms of quality of advice on product choice along with policy servicing. Servicing focus is on enhancing the customer's experience and maximizing his convenience. This calls the effective CRM system, which eventually creates sustainable competitive advantage and enables to build long lasting relationship.

BIBLIOGRAPHY (1) Insurance : Ajit Ranade and Rajeev Ahuja; India Development Report 19992000 (2) Insure for life: Navjit Gill : Business World, 28 February 2000. : KitSadgsrove

(3) Complete Guide to Business Risk Management (4) Risk Management Excellence (5) The Insurance Sector India. :

: Economist Int. Unit

ICFAI ( Institute of Charter Financial Analyst of

(6) Impossible guidelines editorials : Business India, February 7-20, 2000
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(7) Economic Times clippings.(8)

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