What is Life Insurance

Published on May 2016 | Categories: Documents | Downloads: 65 | Comments: 0 | Views: 374
of 28
Download PDF   Embed   Report

Comments

Content

Life Insurance

A Project Report on Life Insurance

Submitted to: Prof Rupali More Subject: Insurance Oriental Institute of Management MMS IInd Year

Group Members y y y y y Prathamesh Morde Ajit Pimple Neelam Darji Antila Cheda Kunal Khandagale 9133 9142 9112 9111 9126

1

Life Insurance

Index
Sr.No.
1 2 3 4

Topic
Executive Summary What is Life Insurance History of Life Insurance in India Indian Insurance and Life Insurance Industry in India

Page No.
3 4 8 10

5

Porter's 5 Forces Analysis for Life Insurance Industry in India

13

6 7 8 9 10

Market Share of Major Life Insurers Legal Facets of Life Insurance Types of Life Insurance A comparative analysis of Three Life Insurance companies Conclusion

14 15 16 20-26 27

2

Life Insurance

Executive Summary
The performance of the insurance sector in financial year 2008-09 was largely influenced by the sub-prime crisis. The sub-prime crisis started in the United States in late 2007, evolved as a financial crisis in US and later engulfed Europe and UK. By late 2008 it seeped into Asia. As a result, the financial crisis deepened among many countries of the world, thus forcing the respective governments to take necessary steps to come out of the crisis. Besides increased unemployment in various countries, economic growth was also hampered and the IMF and World Bank lowered the world economic contraction for 2008-09 to 1.1 per cent lower than what was projected earlier. Fall of financial institutions and lack of confidence in the banking system impacted the financial markets. Money and capital markets tumbled down to their lowest levels across the world. As a result, many investors lost their wealth. Internationally, except for a few large companies, insurance companies were fairly insulated, though for the first time since 1980, insurance premiums declined in real terms with non-life premiums falling by 0.8 per cent and life premiums falling at a much higher rate of 3.5 per cent. Further, because of higher volatility in the financial markets, insurance companies, lost heavily on investment income. As such, the profitability of the insurance companies deteriorated in 2008 not only due to low investment yields but also because of high cost of guarantees and lower revenues from management fees. As a consequence of the impairment of the value of their investments both banks and insurance companies were forced to recapitalize to meet regulatory requirements. This has thrown a big challenge, as investors lost substantial wealth and were reluctant and unable to make further investments and there was scarcity of capital. The governments across the world have started infusing capital into the financial system so as to bring back stability into the system. Though well insulated, India, could not totally escape the tide of the financial crisis. Due to its higher levels of income growth during the past five years as also because of prudent financial management underpinned by sound and solid banking system supporting the payment and settlement procedures, India had limited the contagion effect. However, the stock values declined sharply effecting capital availability. India also had to lose some of its policies and adopted both conventional and unconventional methods to contain the contagion effect. The Indian economy which had grown at an average of 8.8 per cent before 2008-09 could grow only at 6.7 per cent. This project report looks at the scenario of how the life insurance sector is performing amongst the entire global crisis.

3

Life Insurance

What is Life Insurance?
Introduction
Life Insurance is insurance for you and your family's peace of mind. Life insurance is a policy that people buy from a life insurance company, which can be the basis of protection and financial stability after one's death. Its function is to help beneficiaries financially after the owner of the policy dies. It can also be a form of savings in the long run if you purchase a plan, which offers the option of contributing regularly. Additionally, a little known function of life insurance is that it can be tied in with a person's pension plan. A person can make contributions to a pension that is funded by a life insurance company. These are considered private pension arrangements. Life insurance offers a way to replace the loss of income that occurs when someone dies (usually the person who produces the majority of income in a family situation). It is a contract between you as the insured person and the company or "carrier" that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money free of income tax ² "cash benefits" ² to the person or persons you name as beneficiaries. In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a large, possibly devastating loss. The insured receives a contract called the insurance policy which details the conditions and circumstances under which the insured will be compensated. In addition, you should also make a list of what you feel needs to be protected in your family's way of life. With a life insurance policy in place, you can:
y y y y

provide security for your family protect your home mortgage take care of your estate planning needs look at other retirement savings/income vehicles

Did you know that a life insurance policy can:
y y y y y y

Provide continuous flow of funds for the living spouse. Allocate income funds for the children's education. Provide a retirement income throughout old age. Provide a reliable savings plan for the future. Supplement income when earning power is destroyed by illness of accidents, such as covering medical expenses. Furnish surplus earnings for the investors should disaster strike.

4

Life Insurance
Do You Really Need Life Insurance? If there is someone who would suffer economic hardship if you died, then the answer is yes... you need life insurance! Families with young children have a clear need for life insurance. If both spouses work, the loss of one income will cause the family immediate economic hardship and make it harder for them to realize future goals, such as paying for the children's' education. But even if one spouse works "inside the home" and doesn't bring in a formal income, his or her death will require the surviving spouse to hire child care, housekeepers and other professionals to help run the household - and that can be a significant new expense. If you are married without children or single, then you may need life insurance to protect your partner or surviving family members against the costs associated with your death. Funeral expenses, probate and administrative fees, outstanding debts, special obligations to charities, and federal and state taxes are costs that all of us must consider. And, they can add up quickly. Unless you already have sufficient financial resources, your survivors will probably need life insurance to cover these expenses. What Happens To Your Family If You Don't Have Enough Coverage? Under any circumstances, the loss of a loved one is a traumatic experience. But, if your family is also left without sufficient money to meet basic living needs or prepare for future goals, they will have to cope with a financial crisis at the same time. Depending upon their current financial resources and ability to "get back on their feet" emotionally and financially, your family might be forced to move to a less desirable home or community, abandon education and career plans, reorder family priorities (such as the amount of time spent with the children) and, in general, cut back on the quality of life you have worked hard to achieve. A good life insurance program does more than just replace the loss of income that occurs if you die. It should also provide money to cover the new costs that arise after your death ² funeral expenses, taxes, probate costs, the need for housekeepers and child care, and so on. And these cash benefits should provide for your family's future needs as well, including college education for your children and part or all of your spouse's retirement needs. In almost all cases, your beneficiary can use the cash benefits in the way he or she sees fit, without restriction. Your family might even be forced to go into debt simply to pay the expenses, like funeral costs, taxes, and medical bills that result from your death. A moment's reflection will tell you that the lack of sufficient life insurance coverage when a loved one dies can have devastating consequences for a family...consequences that can last for years. The bottom line is this: While Life Insurance is not always the insurance product at the forefront of your thoughts; Life insurance is always a friend in time of need. Following are some important basic terms that will help you in understanding Life Insurance better: 1) Beneficiary: People who have been named in the policy to be eligible for getting the earnings of your policy, after your death. 2) Cash or Surrender Value: The cash amount against which you can get a loan and which is available for withdrawal in case of urgency. If you choose to use this value, your death benefit goes down and increases the likelihood of policy lapsing.

5

Life Insurance
3) Sum assured: It is the smallest amount assured to the policy owner. It plays an important part in deciding the amount paid as premium. In case of your death, the policy holder gets minimum of this amount. 4) Premium: The amount you have to pay to the insurer so as to avail life insurance protection. It depends on your age, kind of insurance policy selected and your health status. 5) Endowment policy: A policy which is a combination of life insurance protection as well as investment. It invests money in debt instruments. The life cover is in vogue till the policy matures. 6) Policy term: Period during which you have to pay premiums to enjoy life insurance protection. 7) Term policy: A policy providing just the life covers without any investment aspect. There are no returns on this policy, making it the cheapest policy. 8) Whole life policy: A policy providing life insurance protection till your death, as well as returns on the premiums paid. The premiums are invested in different debt instruments. 9) Unit link insurance policy: A policy with life insurance protection and returns on the premiums paid. Here you invest in debt, equity or a mixture of both. Policy holder has the option of deciding where his premiums are invested. This is one of the most expensive insurance plans in the market. 10) Policy holder: The person named on the policy bought. It may be the person paying the premiums or a person who receives an insurance policy as gift. 11) Paid-up policy: A policy that is in vogue but there are no more premiums paid. 12) With profits policy: A policy where the insurance company awards the policy holder a part of its profits as bonus. Bonuses can be either yearly or on the expiry of the policy. 13) Policy loan: A loan given by the insurer to the policy holder from its general funds. It uses the policy¶s cash value as collateral for the loan.

6

Life Insurance
Primary functions of insurance y Providing protection ± The elementary purpose of insurance is to allow security against future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others. Collective risk bearing ± Insurance is an instrument to share the financial loss. It is a medium through which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid. Evaluating risk ± Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk. Risk is the basis for ascertaining the premium rate as well. Provide Certainty ± Insurance is a device, which assists in changing uncertainty to certainty. Is a savings and investment tool ± Insurance is the best savings and investment option, restricting unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up insurance as a good investment option.

y

y y y

Is Life Insurance A Good Choice? Experts agree that the primary reason to buy life insurance is to protect your dependents if you die. Though Whole Life Insurance and Universal Life Insurance policies do build cash values, much of your premium is used to fund the insurance element of your policy (the "mortality charge"). Thus, by comparison with stocks, bonds or mutual funds ² where all your money, minus expenses, is invested ² life insurance is an inefficient investment. However, if you are looking for an efficient way to fund your life insurance, Whole Life Insurance or Universal Life Insurance can be a smart way to build value. Here's how: Your policy's cash value can be accessed as cash (through a loan or by canceling your policy) or used within the policy to replace your premiums. Since the cash value grows on a tax-free basis, using your cash value to replace your premiums allows you to use tax-free dollars to maintain your insurance. You get to keep the money you would otherwise have to pay in taxes.For example, suppose your premium was $1000 and you had to earn $1300 before taxes to pay that premium. You would pay $300 in income taxes plus the $1000 to buy your insurance. However, if you paid the $1000 premium from your policy's tax-free cash value, you would pocket the $300 you would otherwise have to pay in taxes. Your life insurance policy would, in effect, have earned you an extra $300. However, this example assumes that your chief goal is to fund your life insurance, not earn money through an investment.

7

Life Insurance

History of Insurance in India
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers¶ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular. 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies²245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated

8

Life Insurance
that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders¶ interests. In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002. Today there are 14 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 14 life insurance companies operating in the country. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country¶s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country. Yet, nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. This itself is an indicator that growth potential for the insurance sector is immense. A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability. It is estimated that over the next ten years India would require investments of the order of one trillion US dollar. The Insurance sector, to some extent, can enable investments in infrastructure development to sustain economic growth of the country. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.

9

Life Insurance

Indian Insurance and Life Insurance Industry in India
With the uptick in the economy, the Indian life insurance market has regained the positive growth in terms of new business premium (NBP) this year. While India remains the most promising market due to its inherent advantages over China, it is not without challenges. The industry size in terms of premium touched Rs 2 lakh crore last year clocking a robust 27% between 2004-05 and 2008-09. Despite the down turn in the economy, private life insurers continued to gain market share (59%) in terms of weighted collected premium. The fiscal 2008-09 witnessed global financial meltdown. Despite it, the Indian insurance industry, which has big opportunity to expand, given the large population and untapped potential, grew satisfactorily. While life insurance business registered a growth of 10.15 per cent, general insurance business recorded a growth of 9.09 per cent in 2008-09. With this, Insurance penetration (premium volume as a ratio of GDP) in rupee terms for the year 2008-09 stood at 4.74 per cent; 4.17 per cent for life insurance and 0.57 per cent for non-life insurance. The level of penetration, particularly in life insurance, tends to rise as income levels increase. India, with its huge middle class households, has exhibited growth potential for the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance market in India has witnessed dynamic changes including entry of a number of global insurers. Most of the private insurance companies are joint ventures with recognized foreign institutions across the globe. Life Insurance The total capital of the life insurers at end March 2009 stood at `18253.04 crore, with additional infusion of capital to the extent of `5956.62 crore. There had been no infusion of capital in the case of LIC, which continued to be `5 crore. The infusion of additional capital of Rs. 5956.62 crore comprised of Rs. 987.05 crore from new companies and remaining Rs. 4969.57 crore from existing private insurers. Table 1: Paid Up Capital of Life Insurers Insurer March 31,2008 LIC Private Sector Total 5.00 12291 12296 (RS. Crore) March 31, 2009 5.00 18248 18253

Additions During 2008-09 0.00 5956 5956

New policies underwritten by the life insurers were 509.23 lakh in 2008-09 as against 508.74 lakh during 2007-08 showing a marginal increase of 0.10 per cent. The private insurers exhibited a growth of 13.19 percent, which is much lower than 67.40 per cent recorded in the previous year. LIC, showed a negative growth for the second consecutive year at 4.52 percent as against its previous year negative growth of 1.61 per cent. In terms of number of policies underwritten, private insurers have increased their market share from 26.07 per cent in 2007-08 to 29.48 per cent in 2008-09. To that extent, LIC has lost its market share.

10

Life Insurance
All life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA). Therefore there is no risk in going in for private insurance players. In terms of being rated for financial strength like international players, only ICICI Prudential is rated by Fitch India at National Insurer Financial Strength Rating of AAA(Ind) with stable outlook indicating the highest claims paying ability rating. Life Insurance Corporation of India (LIC), the state owned behemoth, remains by far the largest player in the market. Among the private sector players, ICICI Prudential Life Insurance(JV between ICICI Bank and Prudential PLC) is the largest followed by Bajaj Allianz Life Insurance Company Limited (JV between Bajaj Group and Allianz).Among others, Kotak Life Insurance emerging as a one of the best product provider in the current market. It has been estimated that customer growth of Kotak Life Insurance is better than any private insurance company in India. The private companies are coming out with better products which are more beneficial to the customer. Among such products are the ULIPs or the Unit Linked Investment Plans which offer both life cover as well as scope for savings or investment options as the customer desires. Further, these type of plans are subject to a minimum lock-in period of three years to prevent misuse of the significant tax benefits offered to such plans under the Income Tax Act. Hence, comparison of such products with mutual funds would be erroneous. As per the current (Mar 06) FDI norms, foreign participation in an Indian insurance company is restricted to 26.0% of its equity / ordinary share capital. The Union Budget for fiscal 2005 had recommended that the ceiling on foreign holding be increased to 49.0%.The government approved the much-awaited comprehensive Insurance Bill that seeks to raise foreign direct investment (FDI) cap in private sector to 49 per cent from 26 per cent. Innovative products, smart marketing and aggressive distribution. That's the triple whammy combination that has enabled fledgling private insurance companies to sign up Indian customers faster than anyone ever expected. Indians, who have always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer. The growing popularity of the private insurers shows in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the private insurers have already wrested over 33 percent of the market. And in the popular unit-linked insurance schemes they have a virtual monopoly, with over 90 percent of the customers. The private insurers also seem to be scoring big in other ways- they are persuading people to take out bigger policies. For instance, the average size of a life insurance policy before privatization was around Rs 50,000. That has risen to about Rs 80,000. But the private insurers are ahead in this game and the average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh- way bigger than the industry average. Buoyed by their quicker than expected success, nearly all private insurers are fast- forwarding the second phase of their expansion plans. No doubt the aggressive stance of private insurers is already paying rich dividends. But a rejuvenated LIC is also trying to fight back to woo new customers Quoting Mckinsey report, he said the market is forecast to grow by 17% per annum and reach a size of Rs 3,435 Billion- Rs 4 122 Billion by 2012. The private players¶ growth is driven by significant capital infusion to build distribution scale. Since 2000, the level playing field has

11

Life Insurance
allowed them to compete effectively against the public sector LIC. While these players have opportunities to increase share, key challenges facing them are retention of talent ( high churn of employees), no benchmarks available for costing and outdated risk tables ( more than a decade old). Like at the global level, there are other challenges like climate change, terrorism, regulatory intervention, inflation, legal risks etc., Insurance is every body¶s need. But, nobody¶s want. That is why life insurance is never bought but sold. Everyone thinks, he or she is safe and has no risks in life. This poses challenges in selling products with cover well as promising high return on the investment. Luckily, India scores high over China when it comes to demographic profile (young population), premium growth rate, penetration level ( 4% of GDP) and as an investment destination. India is among the fastest growing markets and its share has been growing rapidly over the years except the marginal decline in 2008. Rising affluence is expected to increase the insurable population significantly by 2015. By then, 100 million people are estimated to be added to the working population.

12

Life Insurance

Porter's 5 Forces Analysis for Life Insurance Industry in India
Threat of New Entrants. The average entrepreneur can't come along and start a large insurance company. The threat of new entrants lies within the insurance industry itself. Some companies have carved out niche areas in which they underwrite insurance. These insurance companies are fearful of being squeezed out by the big players. Another threat for many insurance companies is other financial services companies entering the market. What would it take for a bank or investment bank to start offering insurance products? In some countries, only regulations that prevent banks and other financial firms from entering the industry. If those barriers were ever broken down, like they were in the U.S. with the Gramm-Leach-Bliley Act of 1999 or the FDI regulations for foreign players in India which is now about to break, you can be sure that the floodgates will open. Power of Suppliers. The suppliers of capital might not pose a big threat, but the threat of suppliers luring away human capital does. If a talented insurance underwriter is working for a smaller insurance company (or one in a niche industry), there is the chance that person will be enticed away by larger companies looking to move into a particular market. Power of Buyers. The individual doesn't pose much of a threat to the insurance industry. Large corporate clients have a lot more bargaining power with insurance companies. Large corporate clients like airlines and pharmaceutical companies pay millions of dollars a year in premiums. Insurance companies try extremely hard to get high-margin corporate clients. Availability of Substitutes. This one is pretty straight forward, for there are plenty of substitutes in the insurance industry. Most large insurance companies offer similar suites of services. Chances are there are competitors that can offer similar services. In some areas of insurance, however, the availability of substitutes are few and far between. Companies focusing on niche areas usually have a competitive advantage, but this advantage depends entirely on the size of the niche and on whether there are any barriers preventing other firms from entering. Competitive Rivalry. The insurance industry is becoming highly competitive. The difference between one insurance company and another is usually not that great. As a result, insurance has become more like a commodity - an area in which the insurance company with the low cost structure, greater efficiency and better customer service will beat out competitors. Insurance companies also use higher investment returns and a variety of insurance investment products to try to lure in customers. In the long run, we're likely to see more consolidation in the insurance industry. Larger companies prefer to take over or merge with other companies rather than spend the money to market and advertise to people.

13

Life Insurance

Market Share of Major Life Insurers
LIC (Life Insurance Corporation of India) still remains the largest life insurance company accounting for 64% market share. Its share, however, has dropped from 74% a year before, mainly owing to entry of private players with innovative products and better sales force. ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company in India. It experienced growth of 58% in new business premium, accounting for increase in market share to 8.93% in 2007-08 from 6.97% in 2006-07. Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market share went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (after LIC) in number of policies sold in 2007-08, with total market share of 7.36%. SBI Life Insurance Co Ltd in terms of new number of policies sold, the company ranked 6th in 2007-08. New premium collection for the company was Rs 4,792.66 crore in 2007-08, an increase of 87% over last year. Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its market share went up to 2.96% from 1.23% a year back. It now ranks 5th in new business premium and 4th in number of new policies sold in 2007-08. HDFC Standard Life Insurance Co Ltd with an income of Rs 2,680 crore in FY2007-08, registering a year-on-year growth of 64%. Its market share is 2.88% and it ranks 6 th among the insurance companies and 5th amongst the private players. Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to 2.11% in 2007-08. The company moved to the 7th position in 2007-08 from 8the a year before, pushing down Max New York Life insurance company. Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-08. Total new business generated was Rs 641.83 crore as against Rs 387.51 crore. The company was pushed down to the 8th position from 7th in 2007-08. Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the company reported growth of 80%, moving from the 11th position to 9th. It captured a market share of 1.19% in 2007-08. Last year the company doubled its branch network to 150 from 74. Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08 from 9th last year. It has presence in more than 3,000 locations across India via 221 branches and close to 40 bancassurance partnerships. Aviva Life Insurance plans to increase its capital base by Rs 344 crore. With the fresh investment, total paid-up capital of the insurer would go up to Rs 1,348.8 crore.

14

Life Insurance

Legal Facets of Life Insurance
Life insurance is a contract between the insurer and the policy owner whereby a benefit is paid to the designated beneficiaries if an insured event occurs which is covered by the policy. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide, fraud, war, riot and civil commotion. When a company insures an individual entity, there are basic legal requirements. Several commonly cited legal principles of insurance include: 1. Indemnity ± the insurance company indemnifies, or compensates the insured in the case of certain losses only up to the insured's interest 2. Insurable interest ± the insured typically must directly suffer from the loss. Insurable interest must exist insurance on a person is involved. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. 3. Utmost good faith ± the insured and the insurer are bound by a good faith bond of honesty and fairness 4. Contribution ± insurers which have similar obligations to the insured contribute in the indemnification, according to some method 5. Subrogation ± the insurance company acquires legal rights to pursue recoveries on behalf of the insured; for example, the insurer may sue those liable for insured's loss 6. Causa Proxima or Proximate Cause ± the cause of loss (the "peril") must be covered under the insuring agreement of the policy, and dominant cause must not be excluded. Parties to contract There is a difference between the insured and the policy owner (policy holder), although the owner and the insured are often the same person. For example, if Ajay buys a policy on his own life, he is both the owner and the insured. But if Smita, his wife, buys a policy on Ajay's life, she is the owner and he is the insured. The policy owner is the guarantee and he or she will be the person who will pay for the policy. The insured is a participant in the contract, but not necessarily a party to it. However, "insurable interest" is required to limit an unrelated party from taking life insurance on, for example, Smita or Ajay. The beneficiary receives policy proceeds upon the insured's death. The owner designates the beneficiary, but the beneficiary is not a party to the policy. The owner can change the beneficiary unless the policy has an irrevocable beneficiary designation. With an irrevocable beneficiary, that beneficiary must agree to any beneficiary changes, policy assignments, or cash value borrowing.

15

Life Insurance

Types of Life Insurance
Life Insurance

Term Insurance

Permanent Insurance

Annual Renewable Renewable Level premium Decreasing 5. Convertible

1. 2. 3. 4.

1. 2. 3. 4.

Whole Life Insurance Universal Life Insurance Variable Life Variable Universal Life

Why It's Called "Term´. Term life insurance is called "term" because it provides coverage for a specific period or term (most often 1, 5, 10, 15 or 20 years). For this reason, it is also called "temporary" insurance. If death occurs during the term, the policy pays cash benefits to the beneficiary. However, once the term is over, and if the policy is not renewed, the coverage ceases. If death occurs after the coverage ceases, no cash benefits are paid out. Term insurance is the most straightforward type of life insurance and the easiest to understand. Sometimes it is called "pure" insurance, since the policy has no financial investment value and most of your premium goes to pay for coverage, with only a small amount used to pay the insurance company's costs. If you are looking for the maximum amount of coverage for your dollar, term life insurance will give you the most "bang for your buck". Different Terms for Different Needs All term life insurance policies cover you for a specific amount of time - the term. The term that's right for you depends on how old your children are, how many years before you retire, and other factors. Many people like to know they're insured until they're ready to retire, usually at age 65. Many just want to have insurance until their youngest child graduates from college, and so they make sure their life insurance coverage includes money to pay for all of the college tuition. Most experts agree that you should carry insurance at least until your youngest child is 18. So if your child is 3 now, you would want to carry your insurance for at least 15 years. But that doesn't mean you have to lock into a 15-year term - you could instead buy an annual renewable policy and renew it for 14 years in a row. You should compare the total 15-year cost of the annual renewable policy and the 15-year term policy, making adjustments for the time and value of money, to determine what the best value is for you.

16

Life Insurance

Advantages of Term Life Insurance: WHAT IT DOES
y y y y y y

It pays a death benefit to the beneficiary you name. It will cover your final expenses and provide a lump sum for your dependents. It covers you for the full amount of life insurance you choose. It can be convertible and renewable depending on the policy. It gradually increases annual premium as you get older. It traditionally works well to meet temporary insurance needs.

Disadvantages of Term Life Insurance: WHAT IT DOESN'T DO:
y y

It doesn't provide a cash value account for some later point such as retirement. It doesn't provide you permanent life insurance protection.

Here's an overview of the different types of term policies available and, most importantly, a look at what happens when the term is over. Annual renewable term insurance. With annual renewable term insurance, your policy is automatically renewable each year up to a specific age limit, often 65, but sometimes older. Since the chances of your dying increase statistically the older you get, your premiums go up each year as you renew. However, if you buy your policy when you are young and unlikely to die, you can obtain substantial coverage for an inexpensive premium. Renewable term insurance. With renewable term insurance, the insurance company automatically allows you to renew your coverage after the term of the policy is over (generally 5 to 20 years), even if your health has deteriorated. This is the same way annual renewable works, but for a longer period of time. Since a lot can happen to your health in 5 or 20 years, renew ability can be a valuable feature. But since it involves a greater financial risk for the insurance company, renewable term coverage generally costs a bit more than annual renewable policies. The conditions associated with renewable term may differ from company to company. For example, though you are guaranteed the right to renew at the end of your term, you may or may not be able to renew for the same amount of coverage or for the same term. Moreover, your premiums will almost definitely go up upon renewal. Level premium term insurance. Level premium term insurance guarantees your premium will stay the same each year for the term of your policy, generally 5 to 20 years. Insurance companies keep your premiums the same by charging you an average of the premiums they would ordinarily charge you with an annual renewable policy. As a result, you will probably pay more in the early years and less in the later years than you would if you had an annual renewable policy. You will probably also encounter a big increase in premiums at the end of your term when you apply for a new insurance policy.

17

Life Insurance
The big advantage of level premium term insurance is that your premiums stay the same throughout your policy, even as you get older. However, if for some reason you change policies in the early years - when your level term policy is most expensive - you will end up paying more than you need to for coverage. Decreasing term insurance. With decreasing term insurance, your cash benefits decrease each year while your premiums remain level for the duration of the term. Decreasing term is typically used to cover an item whose costs decrease over time, such as your home's mortgage. It isn't a wise choice for your general life insurance needs which, due to the effects of inflation, tend to increase over time. Convertible term insurance. Convertible term insurance enables you to convert your term insurance into any of the other types of insurance policies offered by the issuing insurance company. Convertibility can be an advantage if your insurance needs change over time, as they are likely to do. And, since it involves greater risk for the insurance company, it generally costs more than annual renewable term. What's "Permanent" About This Insurance? As its name implies, permanent life insurance is insurance you keep for life, (also known as whole life). It doesn't expire unless you stop paying premiums. While you buy term insurance to cover you for a specified period of time ² to pay benefits if you die before your children graduate from college, for example or before your spouse is eligible for retirement benefits ² you buy permanent coverage to keep permanently. Permanent life policies, most commonly Whole Life and Universal Life, pay cash benefits whenever you die, as long as the policy is in force. Benefits are not limited to a specific term. Additionally, permanent policies accumulate cash value, so you can borrow against or "cash in" the current value of the policy while you're still alive ² to fund your retirement or pay for your children's education, for example. Of course, these benefits come at a price. Permanent life insurance coverage typically costs significantly more in the early years of the policy than term life for the same amount of coverage, and becomes more economical later. What Is Whole Life Insurance? Whole Life Insurance remains in force your entire life and pays out a cash benefit to your beneficiary on your death whenever it occurs. Thus, it is well-suited to cover needs that do not diminish during your lifetime, and may even grow, such as estate settlement costs and taxes. Generally, Whole Life Insurance premiums don't change. In a typical term life policy (except for level term), the premiums are lower in the early years, when you're less likely to die and the insurance company is less likely to have to pay a claim. The premiums - and your risk of death and the insurance company's risk of having to pay out - go up as you get older. But with Whole Life Insurance, the variable costs of insuring your life are averaged out over time. Whole Life Insurance policies develop a cash value that grows on a tax-free basis over the life of the policy. You can access this cash value either by canceling your policy or by borrowing

18

Life Insurance
against its current value. Your cash value's rate of growth depends on a number of factors, including the investment success of the issuing insurance company. What Is Universal Life Insurance? Universal Life Insurance gives you the control over the key elements of your policy: the premium, the life insurance protection, and where the insurance company invests your policy's cash value. Your financial resources and need for either growth or insurance protection will change over your life. Universal Life insurance gives you the flexibility to tailor these elements of your policy to your current needs. For example, if finances are tight, you can change the amount you pay in premiums and, in some cases, stop paying premiums altogether. Conversely, if you're in a good financial period, you can increase your premiums, which will help you to increase the cash value of your policy. If your need for life insurance protection is greater than your need for growth, you can increase your insurance protection and decrease your policy's cash value. Similarly, if your children are grown and your need for insurance protection has diminished, you can direct more of your premium toward building your policy's cash value. With variable universal life insurance, you can control how your money is invested by selecting the financial vehicle ² stocks, bonds, mutual funds, etc. ² used to build your policy's cash value from among the insurance company's offerings. Variable Life Variable life insurance is designed to combine the traditional protection and savings features of whole life insurance with the growth potential of investment funds. This type of policy is comprised of two distinct components: the general account and the separate account. The general account is the reserve or liability account of the insurance provider, and is not allocated to the individual policy. The separate account is comprised of various investment funds within the insurance company's portfolio, such as an equity fund, a money market fund, a bond fund, or some combination of these. Because of this underlying investment feature, the value of the cash and death benefit may fluctuate, thus the name "variable life". Variable Universal Life Variable universal life insurance combines the features of universal life with variable life and gives the consumer the flexibility of adjusting premiums, death benefits and the selection of investment choices. Unfortunately, all the investment risk lies with the policy owner; as a result, the death benefit value may rise or fall depending on the success of the policy's underlying investments. However, policies may provide some type of guarantee that at least a minimum death benefit will be paid to beneficiaries.

19

Life Insurance

A Comparative Analysis of Top Three Life Insurers
1. Company Profile 2. Key Highlights 3. Overall Comparative Numbers

20

Life Insurance Company Profile Life Insurance Corporation of India
LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate office in the year 1956. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services need was felt in the later years to expand the operations and place a branch office at each district headquarter. Re-organization of LIC took place and large numbers of new branch offices were opened. As a result of re-organization servicing functions were transferred to the branches, and branches were made accounting units. It worked wonders with the performance of the corporation. It may be seen that from about 200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00 crore mark of new business. But with re-organization happening in the early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on new policies. Today LIC functions with 2048 fully computerized branch offices, 109 divisional offices, 8 zonal offices, 992 satellite offices and the Corporate office. LIC¶s Wide Area Network covers 109 divisional offices and connects all the branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to offer on-line premium collection facility in selected cities. LIC¶s ECS and ATM premium payment facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, Info Centers have been commissioned at Mumbai, Ahmadabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policyholders, LIC has launched its SATELLITE SAMPARK offices. The satellite offices are smaller, leaner and closer to the customer. The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. LIC has issued over one crore policies during the current year. It has crossed the milestone of issuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthy growth rate of 16.67% over the corresponding period of the previous year. From then to now, LIC has crossed many milestones and has set unprecedented performance records in various aspects of life insurance business. The same motives which inspired our forefathers to bring insurance into existence in this country inspire us at LIC to take this message of protection to light the lamps of security in as many homes as possible and to help the people in providing security to their families. Mission "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." Vision "A trans-nationally competitive financial conglomerate of significance to societies and Pride of India."

21

Life Insurance
Objectives of the company
y

Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. Maximize mobilization of people's savings by making insurance-linked savings adequately attractive. Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders. Act as trustees of the insured public in their individual and collective capacities. Meet the various life insurance needs of the community that would arise in the changing social and economic environment. Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy. Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

y

y

y

y y

y

y

Key Highlights of the Company¶s Performance  During the first quarter of the current financial year life insurers underwrote a premium of Rs.14456.34 crore, marginally higher than Rs.14320.20 crore in the comparable period of last year.  LIC accounted for Rs.9028.68 crore and the private insurers accounted for Rs.5427.66 crore.  Premium underwritten by LIC increased by 19.99 per cent  The number of policies written by life insurers grew by 12.06 per cent. While the number of policies written by LIC increased by 22.59%

22

Life Insurance

 Of the total premium underwritten, individual premium accounted for Rs.10308.40 crore and the remaining Rs.4147.93 crore came from the group business. In respect of LIC, individual business was Rs.5963.64 crore and group business was Rs.3065.04 crore. The corresponding figures for private insurers were Rs.4344.75 crore and Rs.1082.90 crore respectively.  The numbers of lives covered by life insurers under the group scheme were 89.90 lakh recording a growth of 60.16 per cent over the previous period.  Of the total lives covered under the group scheme, LIC accounted for 33.18 lakh and private insurers 56.72 lakh. The life insurers covered 37.86 lakh lives in the social sector with a premium of Rs.34.13 crore. In the rural sector, the insurers underwrote 21.89 lakh policies with a premium of Rs.1455.71 crore.

ICICI Prudential
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. 47.80 billion, with ICICI Bank holding a stake of 74% and Prudential plc holding 26%. We began our operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). Today, our nation-wide reach includes over 1,900 branches (inclusive of 1,074 micro-offices), over 210,000 advisors; and 7 bancassurance partners. 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'. As we grow our distribution, product range and customer base, we continue to tirelessly uphold our commitment to deliver world-class financial solutions to customers all over India. Vision: To be the dominant Life, Health and Pensions player built on trust by world-class people and service. This we hope to achieve by:
y y y y y

Understanding the needs of customers and offering them superior products and service Leveraging technology to service customers quickly, efficiently and conveniently Developing and implementing superior risk management and investment strategies to offer sustainable and stable returns to our policyholders Providing an enabling environment to foster growth and learning for our employees And above all, building transparency in all our dealings

23

Life Insurance
The success of the company will be founded in its unflinching commitment to 5 core values -Integrity, Customer First, Boundary less, Ownership and Passion. Each of the values describes what the company stands for, the qualities of our people and the way we work. We do believe that we are on the threshold of an exciting new opportunity, where we can play a significant role in redefining and reshaping the sector. Given the quality of our parentage and the commitment of our team, there are no limits to our growth. Values: Every member of the ICICI Prudential team is committed to 5 core values: Integrity, Customer First, Boundary less, Ownership, and Passion. These values shine forth in all we do, and have become the keystones of our success. ICICI Bank Limited (NYSE:IBN) About ICICI Bank: ICICI Bank Ltd (NYSE:IBN) is India's largest private sector bank and the second largest bank in the country with consolidated total assets of over US$ 100 billion as of March 31, 2010. ICICI Bank¶s subsidiaries include India¶s leading private sector insurance companies and among its largest securities brokerage firms, mutual funds and private equity firms. ICICI Bank¶s presence currently spans 19 countries, including India. Prudential Plc Established in London in 1848, Prudential plc is an international retail financial services group with significant operations in Asia, the US and the UK serving around 25 million customers, policyholder and unit holders worldwide. The company has £290 billion of assets under management and it is one of the best capitalized insurers in the world with an Insurance Groups Directive (IGD) capital surplus estimated at £3.4 billion (at 31 December 2009). Prudential is a leading life insurer in Asia with a presence in 12 markets and have the top three positions in seven key locations of Hong Kong, India, Indonesia, Malaysia, Singapore, the Philippines and Vietnam.

Key Highlights of the Company¶s Performance ‡ The company is at the second position among the life insurers when it comes to market share It registered a loss of `377 crore in the FY 2008-09 The EPS of the company was negative at `5.50 in FY 2008-09. Company has just posted their maiden profits of `258 crore in the current quarter which was triggered by low costs.

‡ ‡ ‡

24

Life Insurance

Bajaj Allianz
Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest Insurance Company and Bajaj Finserv. Allianz SE is a leading insurance conglomerate globally and one of the largest asset managers in the world, managing assets worth over a Trillion (Over INR. 55, 00,000 Crores). Allianz SE has over 119 years of financial experience and is present in over 70 countries around the world. At Bajaj Allianz Life Insurance, customer delight is our guiding principle. Our business philosophy is to ensure excellent insurance and investment solutions by offering customized products, supported by the best technology. Vision
y y y

To be the first choice insurer for customers To be the preferred employer for staff in the insurance industry. To be the number one insurer for creating shareholder value

Mission As a responsible, customer focused market leader, we will strive to understand the insurance needs of the consumers and translate it into affordable products that deliver value for money.

Key Highlights of the Company
The Company was at the third position among the private life insurers on New Business (NB) premium basis for the financial year 2008-09 compared to the second position in the previous year. It wrote NB of Rs. 44.9 Bn compared to Rs. 66.7 Bn in the previous year registering a negative growth rate of 32.7%. Market share of the Company dropped to 5.2% compared to 7.0% in the previous year. The Company is at second position among the private life insurers on the basis of number of new policies issued; with 2.59 million policies issued in the year 2008-09 compared to 3.74 million policies issued in the previous year. The gross premium written for the financial year 2008-09 was Rs. 106.2 Bn, compared to Rs. 97.2 Bn in the previous year, registering a growth of 9.2%. The growth in the gross written premium was due to the increase in renewal collections from Rs. 30.5 Bn in the previous year to Rs. 61.3 Bn in the current year, an increase of 101%. The annualized new business premium (considering single premium @ 10% and first year premium @ 100%) registered a negative growth of 32% from Rs 59.9 Bn in the previous year to Rs 40.6 Bn in the current year. The Company's market share on an annualized new business premium basis reduced from 10.3% to 7.7% in the year 2008-09. The Company earned a profit of Rs. 448 million during 2008-09, as compared to a loss of Rs. 159 million in the previous year. In the current financial year, the Company is focusing on improving employee productivity, policy persistency, operational processes and service levels.

25

Life Insurance

Comparative Numbers

EQUITY SHARE CAPITAL OF LIFE INSURANCE COMPANIES

Insurer LIC ICICI Prudential Bajaj Allianz

2009 5.00 1427.26 150.7

2008 5.00 1401.11 150.7

TOTAL LIFE INSURANCE PREMIUM

Insurer LIC ICICI Prudential Bajaj Allianz

2009-08 157288.04 15356.22 10624.52

2008-07 149789.9867 13561.06 9725.311

FIRST YEAR (INCLUDING SINGLE PREMIUM) LIFE INSURANCE PREMIUM

Insurer LIC ICICI Prudential Bajaj Allianz

2009-08 53179.08 6483.92 4491.43

2008-07 59996.57 8034.75 6674.48

SOLVENCY RATIO OF LIFE INSURERS IN INDIA

Insurer LIC ICICI Prudential Bajaj Allianz

2009-08 1.54 2.31 2.62

2008-07 1.52 1.74 2.34

26

Life Insurance Conclusion
1. Insurance is an integral part of any personal financial plan. The type of insurance and the amount of coverage you obtain all depends on your unique financial and family circumstances, and must be evaluated carefully. 2. When considering purchasing coverage, you should review all the potential risks and the financial impact of these risks on your financial health. This will help you determine what options to look for and what questions to ask. 3. What you need to keep in mind is that you do not want to be underinsured or over insured, which means you have to do your homework before you buy. And as with any type of financial product, you must read the fine print and consult with a competent advisor. 4. The above analysis of the three companies merely suggests the growth and how these companies are competing in an ever changing and dynamic environment. 5. The overall market is still very underdeveloped and the scope for a developing market is very good. Hence the proposed hike in FDI in the insurance sector will only make the competition intense and the opportunity for growth is very good. 6. The growth centre would revolve around the rural markets now. Investor education, superior customer service and value for money will remain a primary difference between the products offered by the insurers. 7. The developing economic condition will only fuel the life insurance growth in India. But the challenges to develop a competent mechanism for delivering value adding products will haunt the companies in the near future.

27

Life Insurance

Bibliography

Web 1. 2. 3. 4. 5. 6. 7. 8. Text 1. Annual reports of IRDA, LIC, Bajaj Allianz and ICICI Prudential 2. Report on credit rating agencies. www.businessmapsofindia.com www. finmin.nic.in www.irda.org www.licindia.com www.iciciprulife.com www.bajajallianz.com www.lifeinscouncil.org www.businessstats.com

28

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close