DISSERTATION PROJECT REPORT

ON
A COMPARATIVE ANALYSIS OF LIFE INSURANCE
CORPORATION AND PRIVATE INSURANCE COMPANIES
Report submitted in partial fulfillment of the requirements for
Post Graduate in Management
PROJECT GUIDE:
SUBMITTED BY:
Prof. Usha Kiran Rai
Shashank Tripathi
FMS BHU
MBA IV Sem (Finance)
FMS BHU

CONTENTS
ÿ
Acknowledgement
ÿ
Introduction
ß
Concept of Insurance
ß
Global Insurance Industry
ß
Performance of Indian Industry
ß
Insurance sector reforms in India
ß
New avenues for growth of the Insurance industry
ÿ
Research Methodology
ß
Research Objectives
ß
Research Design
ß
Research Process
ß
Limitations of the Study
ß
Significance of the study
ÿ
Analysis and Interpretation
ÿ
Findings & Conclusions
ÿ
References
2

ACKNOWLEDGEMENT
I must acknowledge my indebtedness to various personalities, but for whom, this
project
could not have seen the light of the day.
I am profoundly grateful to Prof. Usha Kiran Rai, Faculty of Management Studies,
BHU
who agreed to become my mentor and guide for the project and gave me the
opportunity to
work on this project. I am also grateful, for her support and guidance throughout
this
project with valuable information and giving me a better insight of the things,
without
which the successful culmination of this project would not have been possible. Not
only did
she inspired me throughout the progress of the project, but, also motivated me to
get an
insight into the field of my work.
I would also like to extent my immense gratitude to Prof. A. K. Agrawal, and
respected
Dean Prof. Deepak Barman, Faculty of Management Studies, BHU who allowed me to
choose the topic for my Dissertation.
Shashank Tripathi
3

CHAPTER 1
INTRODUCTION
4

1. CONCEPT OF INSURANCE :
Life has alwa ys been an uncertain thing. To be secure against unpleasant
possibilities,
alwa ys requires the utmost resourcefulness and foresight on the part of man. To
pra y
or to pay for protection is the spirit of the humanity. Man has bee n accustomed
to
pray God for protection and security from time immemorial. In modern days
Insurance Companies want him to pay for protection and security. The insurance man
says "God helps those who help themselves"; probably he is correct.
Too many people in this countr y are not in employme nt; and work for too many no
longer gua ra ntees income security. Several millions are part-time, self employed
and
low-earning workers living under pitiable circumstances where there is no security
cover against risk. Further the inherent changing employment risks, the prospect
of
continual change in the work place with its attendant threats of unemployment and
low pa y especially after the ad option of New Economic Polic y and the imminent
life
cyc le r isks - a new source of insecurity which inc ludes the cha nging demands
of
family life, sepa ration, divorce and elderly dependents ± are tormenting the
society.
Risk has become central to one's life. It is within this background life insurance
polic y
has been introduced by the insurance companies covering risks at various levels.
Life
insurance coverage is aga inst disableme nt or in the event of death of the
insured,
economic support for the dependents. It is a measure of social security to
livelihood
for the insured or dependents. This is to make the right to life meaningful, worth
living and right to livelihood a me ans for sustenance. Therefore, it goes without
saying that an appropriate life insurance policy within the paying capacity and
means
of the insured to pay premium is one of the social security measures envisaged
under
the India n Constitution. Hence, right to social security, protection of the
family,
economic empowerment to the poor and disadvantaged are integral part of the right
to
life and dignity of the person gua ranteed in the constitu tion.
Man finds his security in income (money) which enables him to buy food, clothing,
shelter and other necessities of life. A person has to earn income not only for
him self
but also for his dependents, viz., wife and children. He has to provide le gally
for his
family needs, and so he has to keep aside something regularly for a rainy day and
for
his old age. This fundamental need for security for self and depende nts proved to
be
the mother of invention of the institution of life insurance.
5

What is Insurance
:
The business of insurance is related to the protection of the economic values of
assets. Every
asset has a value. T he asset would have been created through the efforts of the
owner. The
asset is valuable to the owner, because he expects to get some benefit from it.
The benefit
ma y be an income or some thing else. It is a benefit be cause it meets some of
his needs. In the
case of a factory or a cow, the product generated by is sold and income
generated. In the case
of a motor car, it provides comfort and convenienc e in transportation. There is
no direct
income.
Every a sset is expec ted to last for a certain period of time during which it
will perform. After
that, the benefit may not be available. There is a life-time for a machine in a
factory or a cow
or a motor car. None of them will la st for ever. The owner is aware of this and
he can so
manage his affairs that by the end of that period or life-time, a substitute is ma
de ava ilable.
Thus, he makes sure that the value or income is not lost. However, the asset ma y
get lost
earlier. An accident or some other unfortunate event may destroy it or make it
non-functional.
In that case, the owner and those deriving benefits from there, would be deprived
of the
benefit and the planned substitute would not have been ready. There is an adverse
or
unpleasant situation. Insurance is a mechanism that helps to reduce the effect of
such adverse
situations.
Insurance, in law and economics, is a form of risk management primarily use d to
hedge
against the risk of a contingent loss. Insurance is de fined as the equitable
transfer of the risk
of a potential loss, fro m one entity to another, in exc hange for a premium.
Insurer, in
economics, is the company that sells the insuranc e. Insurance rate is a factor
used to
determine the amou nt, called the premium, to be charged for a certain amount of
insurance
coverage. Risk management, the practice of appraising and controlling risk, has
evolved as a
discrete field of study and practice.
Origin of Insurance
PRACTICE OF INSURANCE IN INDIA: 1818-1956
It is claimed that insurance was practiced in India even in Vedic times in one
form or the
other. The Sanskrit term "Yogakshema " in the Rigveda me ant some kind of
insurance, which
was practiced by the Aryans in India nearly 3000 years ago. During the Mughal
period
insuranc e took firm roots. There are eve n references to the cover a gainst war
risks. Losses
due to the passage of ro ya l troops through farms were compensated b y the Sta te
as a gesture
of goodwill.
The ye ar 1818 is an epoch -making year in the histo ry of our country. The first
Life Insurance
Company on India soil appe ars to have been started in this ye ar. A group of
Europeans
pioneered the establishment of the Oriental Life Insurance Society to afford
relief to the
distressed relatives of European. The venture was not quite successful but the
company was
reformed in 1829.The renewed Company also got into trouble in 1833 when Agency Hou
se
of Calcutta, partners of the same, fell.
6

Prince Dwarkanath Tagore was the only solvent partner & the sole responsibility
for carrying
on the institution developed on him. Meanwhile, e arly in Janury1834, the
Government made
up its mind to establish a Public Insurance Company & a Committee was set up for
this
purpose .A number of foreign Insurance Companies then operating in the country
viewed this
move with alarm. The y set up Committees of the ir own enquire into their
individual affairs.
Dwarkanath Tagore, too, had a Committee appointed to look into the affairs of the
Oriental.
As a result, another company was born out of the previous one in the name of "New
Oriental
Company"
In the reorganization of the "Oriental" in the year 1834, two other gentlemen were
associated.
One was Ramta nu Lahiri and the other Rustamjee Cowasjee. The latter was another
prominent figure of the business world. Rustamjee entered insurance business in
1828, he
was already known to the community and the Government as a we althy Parsi merc
hant.
Rustamjee's connection with insurance also started with "Laudable Societies", but
he was
later on associated with Companies like "Sun Life Office (1834) ", New Orienta l
(1835),Universal Life (1835) , New Laudable (1840) , and Indian Laud able (1841) .
He was
also on the Committee of the Union Insurance Company which was formed b y a group
of
five persons. This Company was issuing policies covering river-risks only. He was
intimately
connected with the Committee of Insurance Offices in Ca lcutta. Rusta mjee
Cowasjee &
Dwarkanath Tagore was probably the first Indians to join in partnership business
with the
Europeans & in the field of insurance the y were pioneers on this side of the
country.
Apart from Calcutta, several enterprising people in Bombay started in 1823 the
"Bombay
Life" Assurance Company. The company went into liquidation soon and could not
revive. In
1829, the "Madras Equitable "was formed. It fina lly ceased to function in 1921
due to
financial difficulties after the First World War.
The effort to set up a public insurance company at the government level also went
in vain,
mainly from objection of private operators. Majority of the early attempts to form
insurance
offices were in the province of Bengal. This was due to its political & economic
importance
at that time.
The contribution of Raja Ram Mohan Roy, one of the greatest social reformers of
India, to
the development of life insurance is very great. He was deeply concerned about the
sad plight
of de sperate widows and helple ss orphans.
OVERSEAS INSURERS
Initially, when Life Offices were established in large numbers in Britain, some of
them
ventured to issue sterling policies to the British residents in India. Premiums
collected here
were credited to England largely for British beneficiaries. Business seems to
have been brisk
and profitable and was usually under short term policie s. Insurance mortality
tables and
insufficient mortality data of Englishmen in India made the premiums heavy-hea
vier than at
home. Insurance was denied to the "natives" even if they wa nted it- for their
lives were
always considered risky and sometimes valueless. When Indian lives were accepted
as a very
special case, the extras charged were still hea vier.
Promine nt amongst the companies which came to India around this period was the
"Med ical
Inva lid and General" incorporated in London in 1841. As more areas were annexed
and the
7

ruling power, with vested interests in developing trade, took charge , the
"Medical" extended
its area of operation, established large connections, absorbed the" Agra Life" and
in 1835,
took over the "New Oriental". P.M. Tate, the then manager of the "Medical", was a
keen
businessman, widely liked, influential a nd shrewd. With W.F. Ferguson, who was
the
manager of the "New Oriental" before amalgamation, he commenced very active
operations
which were temporarily affected by the 1857 "Mutiny".
The Universal Life Insurance Company established in England in 1836 opened its
Indian
Branch in 1840 and enjoyed a long period of successful operations until it was
taken over b y
the "North British" in May 1901. Insurance exceeding Rs. 10 crores were issued in
India
during this period. Another English Company ope rating in India at that time was
the Colonia l
Life Assurance Company. It was established in 1846 under the auspices of the
Standard Life
Assurance Company. The original prospectus of this company declared its purpose as
"extending to the Colonies of Great Britain and to Indian the full benefit of Life
Assurance".
It appointed agents with local boards whic h were first established on Calcutta,
Bombay,
Madras and Colombo. Later on this company was taken over by the "Standard Life"
and
made valuable contribution to investigations into the mortality experience of
assured lives in
India. Eventually it ceased its operations in India in 1938.
It is difficult to say which was the oldest Life Policy in India, but the oldest
known appears to
be one sold by the Royal Insurance (which commenced business in India in 1845) on
the life
was to Cursetjee Furdonjee on 6th January 1848, no reference to any earlier polic
y being
available. In the year 1853, the Liver pool and London and Globe Insurance Compa
ny
established in England in 1836, commenced business in India. Sir Charles Forbes
was its first
agent, succeeded by M/s. Forbes, Forbes and Campbell. It a ccepted only European
live s and
commenced insuring Indian lives only after 1929.This too, was mainly to oblige
good agents
of the Company for classes other than life business. The North British and
Mercantile was the
next company to appear on the Indian scene.
It started fire insurance business in the year 1861 and life business 1864. The
London
Assurance started life business in 1864, limited principally to European lives and
closed
down its life department when the Life Assurance Companies Act 1912 made
submission of
returns compulsory.
On 3rd December, 1870, seven earnest men of Bomba y with just se ven rupees for
initia l
expenses gave shape to a plan of offering insurance to the public without the
risk of ruin and
the "Bombay Mutual Life Assurance Society" came into existence. This was followed
by the
Orie ntal Life Assurance Company in1874, the Bharat in 1896 and the Empire of
India in
1897.
THE BIRTH OF INDIAN INSURERS
With the advent of the 20th century, the glorious renaissanc e of swadeshi days
dawned. At
the same time, well- to do Indians realized the potentiality of Indian Insurance
business. The
Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United
India
in Madras, National Indian and Nationa l Insurance in Calcutta and the Co-
operative
Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative
Insurance
Company took its birth in one of the rooms of the Jorasanko House of the great
poet
Rabindranath Tagore, in Calcutta. The Indian Mercantile (1907) was started in
Bombay,
8

General Assurance (1908) at Ajmer and the Swadeshi Life (Later Bombay Life) in
Bombay
in 1908.
The end of the First World War (1914-18) witnessed a n influx of insurance
companies in
India. Famous Indian business houses started new insurance companies. Industrial
and
Prudential Bombay, Western India, Satara, were floated before the war, but by
1919,
companies like Jupiter General, New India, Vulcan Insurance Company etc. came
into being.
Pandit K.Santhanam with blessing of Lala Lajpat Rai and Pa ndit Motilal Nehru
started Laxmi
Insurance Co. Similarly, Andhra Insurance was started in M asulipatnam, with the
initiative of
stalwarts like Dr. Pattabhi Sitaramaiah. From political platforms also, national
leaders
supported this cause. It is duty to every Indian to support only Indian
Insurance. The keynote
of our Swaraj is in placing a ll our insurance with our Indian companies", said
Mahatma
Gandhi in his m essage. "I hope Indians will realize the importance of patriotism
only through
Indian insurance institution", stated Pandit Jawaharlal Nehru. Thus, the cause of
Indian
insuranc e became a national issue. The pursuit to boost Indian insurance
represented a
crusade to extricate the Indian economy from foreign domination.
PROGRESS IN INSURANCE BUSINESS
The growth of Life Insurance in concrete terms could be said to being during the
first two
decades of twentieth century when most of the major companies were founded. They
grew in
terms of rise in the number of companies, in terms of number of polic ies and sum
assured as
well as total life fund. Indian Insurance Year Book, published for the first time
in 1914, gives
the figure of the total business-in -force as 22.44 crore whic h grew to Rs. 298
crore in 1938.
In 1914, there were only 44companies tra nsacting insuranc e business in India,
and during the
next 25 years their number rose to 176. The total progress on all the primary
heads, viz. life
fund (Rs. 50.50 crore), premium income (Rs. 10.50 crore) and new business (Rs.
43.30 crore)
indicate that Indian Insurance Business had been ma king a definite headway during
this
years. The inter-war -years thus saw rapid growth life insurance in India.
The promotion of new life insurance companies continued to be almost a craze and
insurance
companies mushroomed. In this period, 176 insurance companies were formed and many
of
them failed. Thus unhealthy growth was harmful to the interest of the polic y
holde rs and
insuranc e business in India. Feeling concerned about it, the All India Life
Assurance Offices'
Association urged upon the Governme nt in 1932 to undertake the insurance
legislation to
(a) Compulsorily register all Life Insurance companies.
•
(b) Secure a deposit of Rs.2 lakh from all Life Insurance companies.
•
(c) Compe l foreign companies doing business in India to keep sufficient funds in
•
India securities to meet their liabilities under all polic ie s issue d in India.
9

INSURANCE ACT, 1938

The Insurance Act, 1938, was the first comprehensive legislation gove rning not
only life but
also non- life bra nche s of insurance to provide strict state control over
insurance business. In
sub- sections to dealt with provide nt companies, mutual offices a nd co-operative
societies as
well.
The silent features of the Act were as follows:
(A) Constitution of a Department of Insurance under a superintendent ve sted with
•
wide powers of supervision and control over all kinds of insurance companie s.
(B) Regulation for the compulsory registration of insurance companies and for
filing
•
of returns of investme nt and financ ia l conditions.
(C) Provisions for deposit, to prevent insurers of inadequ ate financial resources
of
•
spe culative concerns for commencing business.
(D) Provisions that 55% of the net life fund of an Indian or non- Indian insurer
should
•
invested in Indian Government and approved securities with at least 25% in Indian
Government Rupee securities.. All other companie s, i.e., foreign companies must
invest 100% of their Indian liabilitie s in Indian Government and approved
securities,
with at least 33.3% Indian Government securities.
(E) Prohibition of rebating, restriction of commission, lice nsing of agents etc.
•
Maximum rates of commission were fixed at 40% of the first premiums and 5% of the
renewal premium in respect of life assurance business. The agent must be licensed,
to
improve the status of the profession.
(F) Periodical valuation of Indian Insura nce business of foreign companies and
the
•
business of Indian companies.
(G) Provision for polic yholders' directors, making it possible for the re
presentatives of
•
policyholders to be on the Board of directors.
(H) Standardization of policy conditions required all companies to file standard
forms
•
and tables of premium approved by an Actuary. Under this requirement, the initia l
deposit for life insurance business was raised from Rs. 25000 in Government
securitie s to Rs. 50000 in cash approved securities, which was subsequently to be
raised by installments to Rs. 2 lakh within a specified time limit.
10

GROWTH OF LIFE BUSINESS IN INDIA: 1914-1948

Sr
1914 1930 1940 1945 1948
no
1
No of insurers 44 68 195 215 209
200
189
(a) India n 44 68 179
(91.79)
(93.02)
(90.43)
(b) Non-India n - - 16 15 20
Total No. of
2
-
748997 1628381 2714000 3016000
policies In force
1371963
2376000
2791000
(a) India n - 513925
(68.61)
(84.25)
(87.55)
(90.15)
(b) Non-India n - 220703 181247 261000 234000
(c) India n outside
India - 14369 75171 77000 202000
Total business in
3
force 22.44 258.42 304.03 573.07 712.76
225.51
459.43
566.38
(a) India n (Rs. Crore) 22.44 84.89
(32.85)
(74.17)
(80.17)
(79.46)
(b) Non-India n - 69.76 60.12 91.85 101.08
(c) India n outside
India - 3.77 18.4 21.79 45.3
Total life funds
4
(Rs. Crore) 6.36 20.53 62.41 107.4 150.39
Note : Figures in brackets show percentage of the total.
11

Nationalization
THE LIFE INSURANCE CORPORATION OF INDIA: 1956
This was the first step taken towards the nationalization of life insurance
business in India.
On 20th January, 1956 all life insurance companies were taken over by 43 nominated
custodians. The custodians were experienced senior executives of private insurance
companies, reporting directly to the Finance Ministry. From the word go, the
complex task of
running the industr y on a permanent basis and c ontinuing the services to polic y
holders
without interruption were their major concerns. The actual work of integration had
to await
le gislation. The custodians managed the insurance companie s till 1-09-1956, when
Life
Insurance Corpora tion was established under the genera l direction and control of
the Ministry
of Finance.
The Ordinance provide d for the transfer of the control of 154 Indian insurers, 16
non Indian
insurers and 75 provident societies. These arrangements were designed to ensure
that no
inconvenience whatsoever was caused to the policy holders. With the Government
take over
the ma nagement aimed towards the evolution of a common uniform premium rate,
policy
conditions and service and working procedures and above all to help promote team
spirit.
The corporation, a body corporate shall consist of not more than 15 members
appointed b y
the Central Government, one of them being appointe d by the government as
chairman.
The capital of the corporation was at Rs 5 crore provided by the ce ntral
government.
INSURANCE SECTOR REFORMS
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor
R.N.
Malhotra was formed to evaluate the Indian Insurance industry and re commended its
future
direction.
The Malhotra committee was set up with the objective of complementing the reforms
initiated in the financial sector.
The reforms were aimed at "creating a more efficient a nd c ompetitive financ ial
system
suitable for the requirements of the economy keeping in mind the structural change
s currently
underway and recognizing that insurance is an important part of the over all
financial system
where it was necessary to address the need for similar reforms...".
In 1994, the committee submitted the report and some of the key recommendations
included:
(1) STRUCTURE
Government stake in the Insurance Companies to be brought down to 50%.
•
Government should take over the holdings of GIC and its subsidiaries so that these
•
subsidiaries can act as independent corporations.
All the insurance companies should be given greater freedom to operate
•
12

(2) COMPETETION
Private Companies with minimum paid up capital of Rs.1 bn should be allowed to
•
enter the industry.
No Company should deal in both Life and General Insurance through a single entr y.
•
Foreign Companies may be allowed to enter the industry in collaboration with the
•
domestic companies.
Postal Life Insurance should be allowed to operate in the rural market.
•
Only one State Leve l Life Insurance Company should be allowed to operate in each
•
state.
(3) REGULATORY BODY
The Insurance Act should be cha nged
•
An Insurance Regulatory Body should be set up.
•
Controller of Insurance (Currently a part from the Fina nce Ministry)should be
made
•
independent
(4) INVESMENTS
Mandatory Investments of LIC Life Fund in government securities to be reduced from
•
75% to 50%.
GIC and its subsidiaries are not to hold more than 5% in any company (There
current
•
holdings to be brought down to this leve l over a period of time).
(5) CUSTOMER SERVICE
LIC should pay interest on d elays on payments beyond 30 days.
•
Insurance Companies must be encouraged to set up unit linked pension plans
•
Computerization of operations and updating of technology to be carried out in the
•
insurance industry.
The committee emphasized that in order to improve the customer service and
increase the
coverage of insurance industry should opened up to competition. But at the same
time, the
committee felt the need to exercise caution as any failure on the part of new
players could
ruin the public confidence in the industr y.
Hence, it was decided to allow competition in a limited way by stipulating the
minimum
capital requirement of Rs. 100 crores. The committee felt the need to provide gre
ater
autonomy to insurance companies in order to improve their performance and enable
them to
act as independent companies with economic motives. For this purpose, it had
proposed
setting up an independent regulatory bod y.
13

Liberalization :
OPENING UP OF INSURANCE SECTOR – 1999 THE INSURANCE
REGULATORY AND DEVELOPMENT AUTHORITY
Reforms in the Insurance sector were initiated with the passa ge of the IRDA Bill
in
Parliament in December 1999. The IRDA since its incorporation as a statutory
body in April 2000 has fastidiously stuck to its schedule of framing regulations
and
registering the private sector insurance companies.
The other decision taken simultaneously to provide the supporting systems to the
insurance sector and in particular the life insurance compa nies wa s the launch
of
the IRDA's online service for issue and renewal of licenses to agents.
The app roval of institutions for imparting training to age nts has a lso ensured
that
the insurance companies would have a trained workforce of insurance agents in
place to sell their products, which are expected to be introduced by early next
year.
Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. In the private sector 14 life
insurance co mpanies have been registered.
ENTRY OF PRIVATE COMPANIES
Under the IRDA Act, private companies ca n now operate in India's insurance
industry. However, they must obtain a license from the IRDA before being
permitted to write busine ss.
To have its license application considered, a domestic private company must be
registered in accordance with the Companies Act of 1956 and have approximate ly
US$ 20 million of investment capital. The specific licensing requirements that
Private Indian Companies must fulfill are set forth in the Registration on Indian
Insurance Companie s Regulations, published by the IRDA 2000.
LIFTING OF BARRIERS TO FOREIGN INVESTMENT
The IRDA Act also lifts certain barriers to foreign direct investment in Indian
insurance industry.
Global insurers are now permitted to set up and register a domestic company in
order to write business in India. However, regulations stipulate that the y have a
capital base of at least US $ 20 million, and their investment in such company is
capped at 26 percent. Thus, to participate in the market, they must form a joint
venture with an India n partner that is able to inve st the remaining funds.
The equity investments limit is the same for global reinsures seeking to write
business in India, but they are required to put up a capital of approximately US$
45
million in order to establish a domestic company.
14

Since the IRDA first enacted these rules, 13 new life insurance companies have
entered the market.
On the other hand, no global reinsurer has established a domestic company.
Instead, most of the top international reinsuranc e companies operate from their
overseas offic es by sharing the reinsurance risks picked up by the GIC. A recent
proposal ha s been put forward to increase foreign direct investment to 49
percent.
In addition, global companies are pushing for the right to establish branc h
offices
in India. These changes are likely to substantially increase the presence of
international insurers, reinsurers, and brokers in India.
The IRDA Insurance Brokers Act in India 2002 permitted overseas insurance and
reinsurance brokers to enter the market, but with the same equity cap as that
governing the operations of foreign insurers and reinsurers. Thus, foreign brokers
must also form a joint venture with an Indian partner in order to establish an
Indian
broking house.
The 2002 IRDA legislation established four broker categories, one of which
brokers must select when applying for a license:
1. Category 1A : Direct General Insurance Broker
2. Category 1B : Direct Life Insurance Broker
3. Category 2 : Reinsurance Broker
4. Category 3: Composite Broker
5. Category4: Others, for example Insurance Consultants a nd Risk
Management Consultants.
Each category has different solvenc y mar gins and capital adequacy ratios, and
all
categories need to carry professional indemnity insurance at different minimum
levels.
In the years since market libe ralization wa s initiated, the insurance sector has
witnessed some impressive changes. The needs of insurance and reinsurance
buyers have grown; the market is introducing new products to address these needs;
and the services of brokers are now seen as critic al to making informed insurance
and reinsurance decisions.
OVERVIEW OF THE CURRENT INSURANCE MARKET
In the years since the IRDA Act initiated market reforms, the insurance sector has
experie nced some remarkable cha nges.
The entry of a large number of Indian a nd Foreign private companies in life
insurance business has to lead greater choice in terms of products and services.
Incre ased consumer awareness of the be nefits a nd importance of insura nce and
reinsurance has generated many more buyers; and new distribution channels_
among them brokers, bank assurance, the Internet, and corporate agents_ have
provided additional wa ys of getting products and services to customers.
15

Private insurance companies have to date written a small percentage of business

in
this secto r during the last three years, but they have ushered in a competitive
environment that has accelerated market growth.
State owned insurers still write the bulk of insurance business, and they have the
net worth required to underwrite large corporate risks without depending almost
entirely on reinsurance support. However, their focus on re structuring is
beginning
to put them at a disadvantage against private competitors.
Over the next few years, the share of the market held by the public insurers is
expected to drop substantially, with private companie s assuming a growing
percentage of the business written.
At present there are 15 private insurers with two standalone private players and
remaining private-foreign joint ve nture.
Purpose and Need of Insurance :
Assets are insured, because they are likely to be destroyed through accidental
occurrences.
Such possible occurrences are called perils. Fire, floods, breakdowns, lightening,
earthquakes, etc, are perils. If such perils can cause damage to the asset, we
say that the asset
is exposed to that risk. Perils are the events. Risks are the consequential losses
or damages.
The risk to a owner of a building, because of the peril of an earthquake, may be a
few lakhs
or a few crores of rupees, depending on the cost of the building and the contents
in it.
The risk only means that there is a possibility of loss or damage. The damage may
or may not
happen. Insurance is done against the contingenc y that it may happen. There has
to be an
uncertainty about the risk. Insurance is relevant only if there are uncertainties.
If there is no
uncertainty about the occurrence of an eve nt, it cannot be insured against. In
the case of
human being, death is certain, but the time of death is uncertain. In the case of
person who is
terminally ill, the time of death is not uncertain, though not exactly known. He c
annot be
insured.
Insured does not protect the asset. It does not prevent its loss due to peril.
The peril cannot be
avoide d through insurance. The peril can sometimes be avoided through bette r
safety and
damage control management. Insurance only tries to reduce the impact of the risk
on the
owner of the asset and those who depend on that asset. It only compensates the
losses ± and
that too, not fully.
Only economic consequences can be insured. If the loss is not financial, insurance
ma y not be
possible. Example of non-economic losses are love a nd affe ction of parents,
leadership of
managers, sentimenta l attachme nts to family heirlooms, innovative a nd creative
abilities, etc.
16

How Insurance Works?

The mechanism of insurance is very simple. People who are exposed to the same
risks come
together and agree that, if any one of them suffers a loss, the others will share
the loss and
make good to the person who lost. All people who send goods by ship are exposed to
the
same risks, whic h are related to water damage, ship sinking, piracy, etc. Those
owning
factories are not exposed to these risks, but they are exposed to different kinds
of risks like,
fire, hailstorms, earthquake, lightning, burglary, etc. Like this, different kinds
of risks can be
identified and separate groups made, including those exposed to such risks. By
this method,
the heavy loss that any one of them may suffer (all of them may not suffer such
losses at the
same time) is divided into bearable small losses by all. In other words, the risk
is spread
among the community and the likely big impact on one is reduced to smaller
manageable
impacts on all.
If a Jumbo Jet with more than 350 passengers cra shes, the loss would run into
several crores
of rupees. No airline would be able to bear such a loss. It is unlikely that many
Jumbo Jets
will crash at same time. If 100 airline companies flying Jumbo Jets, come together
into an
insuranc e pool, whenever one of the Jumbo Jets in the pool crashes, the loss to
be borne b y
each airline would come down to a few la khs of rupees. T hus, insurance is a
business of
µsharing ¶.
There are certain principles, which make it possible for insurance to remain a
fair
arrangement. The first is that it is difficult for any one individual to bear the
consequences of
the risks that he is exposed to. It will become bearable whe n the community
shares the
burden. The second is that the perils should occur in an acc idental manner.
Nobody should be
in a position to make the risk happen. In other words, none in the group should
set fire to his
assets and ask others to share the costs of damage. This would be taking unfair
advantage of
an arrangement put into place to protect people from risks they are exposed to.
The
occurrence has to be random, accidenta l, and not the deliberate cre ation of the
insured pe rson.
The ma nner in which the loss is to be shared can be determined before-hand. It
ma y be
proportional to the risk that each person is e xposed to. This would be indicative
of the benefit
he would receive if the peril befe ll him. The share could be collected from the
members after
the loss has occurred or the likely shares ma y be collected in advance, at the
time of
admission to the group. Insurance companies collect in advance and create a fund
from which
the losses are paid.
The collection to be made from each person in advance is determined on
assumptions. While
it may not be possible to tell beforehand, which person will suffer, it ma y be
possible to tell,
on the basis of past experiences, how many persons, on an avera ge, ma y suffer
losses. The
following two examples explain the abo ve concept of insurance:
17

Example 1
In a villa ge, there are 400 houses, each valued at Rs. 20000. Each ye ar, on the
average, 4
houses get burnt, resulting into a total loss of Rs. 80000. If all the 400 owners
come together
and contribute Rs. 200 each, the common fund would be Rs. 80000. this is enough
to pay Rs.
20000 to each of the 4 owners whose houses got burnt. Thus, the risk of 4 owners
is spread
over 400 house-owners of the village.
Example 2
There are 1000 persons who are all aged 50 and are healthy. It is expected that of
these, 10
persons may die during the year. If the economic value of the loss suffered by the
family of
each dying person is taken to b e Rs. 20000, the total loss would work out to Rs.
200000. If
each person in a group contributed Rs. 200 a year, the common fund would be Rs.
200000.
This would be enough to pa r Rs. 20000 to the family of each of the ten persons
who die.
Thus, the risks in the case of 10 persons, are shared by 1000 persons.
Insurance of ‘Human Asset’
A human being is an income generating asset. One ¶s manual labour, professional
skills and
business acumen are the assets. This asset also can be lost through unexpectedly
early death
or through sickness and disabilities caused by accidents. Accidents may or may not
happen.
Death will happen, but the timing is uncertain. If it happe ns aro und the time of
one ¶s
retirement, when it could be expe cted that the income will normally cease, the
person
concerned could have made some other arrangements to meet the continuing needs.
But if it
happens much earlier when the alternate arrangements are not in place, there can
be losses to
the person and dependents. Insurance is necessary to help those dependent on the
income.
A person, who may have made arrangements for his needs after his retireme nt, also
would
need insurance. This is because the arrangements would have been made on the basis
of some
expectations like, likely to live for a nother 15 years, or that childre n will
look after him. If
any of these expectations do not become true, the original arrangement would
become
inadequate and there could be difficulties. Living too long can be as much a
problem as dying
too young. Both are risks, which need to be safeguarded against. Insurance takes
care.
18

Insurance of Intangibles :
The concept of insurance has been exte nded beyond the coverage of tangible
assets.
Exporters run risk of losses if the importers in the other country default in pa
yments or in
collecting the goods. They will also suffer heavily du e to sudden changes in
currency
exchange rates, economic policies or political disturbances in the other country.
These risks
are insured. Doctors run the risk of being c harged with negligence and subsequent
liability
for damages. The amounts in question can be fairly large, beyond the capacity of
individuals
to be ar. These are insured. Thus, insurance is e xtended to intangibles. In some
countries, the
voice of a singer or the legs of a dancer may be insured.
Types of Insurance :
Any risk that ca n be quantified c an potentially be insured. Specific kinds of
risk that ma y
give rise to claims are known as "perils". An insurance polic y will set ou t in
detail which
perils are covered by the policy and which are not.
Below is a (non-exhaustive) list of the many different types of insurance that e
xist. A single
policy ma y cover risks in one or more of the categories set forth below. For e
xample, auto
insuranc e would typica lly cover both property risk (covering the risk of theft
or damage to
the car) and liability risk (covering legal claims from causing an accident). A
homeowner's
insuranc e policy in the U.S. typically includes property insurance covering
damage to the
home and the owner's belongings, liability insurance covering certain legal claims
against the
owner, and even a small amount of health insurance for medical expenses of guests
who are
injured on the owner's property.
‡ Automobile insuranc e known in the UK as motor insurance, is pr obably the most
common
form of insurance and ma y cover both legal liability claims aga inst the driver a
nd loss of or
damage to the insured's vehicle itself. Throughout most of the United States an
auto insurance
policy is required to le gally op erate a motor vehicle on public roads. In some
jurisdictions,
bodily injury compensation for automobile accident victims has been changed to a
no-fault
system, which re duces or eliminate s the ability to sue for compensation but
provides
automatic eligibility for benefits.
‡ Aviation insurance insures against hull, spares, deductible, hull war and
liability risks.
‡ Boiler insurance (also known as boiler and machiner y insurance or equipment
breakdown
insuranc e) insures against acc idental physical damage to equipment or machiner
y.
‡ Builder's risk insurance insures against the risk of physical loss or damage to
property
during construction. Builder's risk insurance is typica lly written on an "all
risk" basis
covering damage due to any cause (including the negligence of the insure d) not
otherwise
expressly excluded.
19

Business insurance can be any kind of insurance that protects businesses against
risks. Some
‡
principal subtypes of business insurance are (a) the various kinds of professional
liability
insurance, also called professional indemnity insurance, which are discussed below
under that
name; and (b) the business owners polic y (BOP), which bundles into one policy ma
ny of the
kinds of coverage that a business owner needs, in a way a nalogous to how
homeowners
insuranc e bundles the coverage that a homeowner needs.
‡ Casualty insurance insure s against accidents, not necessarily tied to any
specific property.
‡ Credit insurance repays some or all of a loan back when certa in things happen
to the
borrower such as unemployment, disability, or death. Mortga ge insurance (which
see below)
is a form of credit insurance, although the name credit insurance more often is
used to refer to
policies that cover other kinds of debt.
‡ Crime insurance insures the policyholder against losses arising from the
criminal acts of
third parties. For example, a company can ob tain crime insurance to cover losses
arising from
theft or embezzlement.
‡ Crop insura nce "Farmers use crop insurance to reduce or mana ge various risks
associated
with growing crops. Such risks include crop loss or damage caused b y weather,
hail, drought,
frost damage, insects, or disease, for insta nce."
‡ Defense Base Act Workers' compensation or DBA Insurance provides coverage for
civilian
workers hired by the government to perform contracts outside the US and Canada.
DBA is
required for all US citizens, US residents, US Green Card holders, and all
employees or
subcontractors hired on overseas government contracts. Depending on the countr y,
Foreign
Nationals must also be covered under DBA. This coverage typically inc ludes
expenses
related to medical treatment and loss of wages, as well as disability and death
benefits.
‡ Directors and officers liability insurance protects an organization (usually a
corporation)
from costs associated with litigation resulting from mistakes incurred b y
directors and
officers for which they are liable. In the industry, it is usually called "D&O"
for short.
‡ Disability insurance policies provide financial suppo rt in the event the polic
yholder is
unable to work because of disabling illness or injury. It provides monthly support
to help pa y
such obligations as mortgages and credit cards.
o Total permanent disability insurance provides benefits when a person is
permanently
disabled and can no longer work in their profession, often taken as an adjunct to
life
insurance.
‡ Errors and omissions insurance : See "Professional liability insurance" under
"Liability
insurance".
‡ Expatriate insurance provides individuals and organizations operating outside
of their home
country with protection for automobiles, property, health, liability and business
pursuits.
‡ Financ ial loss insurance protects individuals and companies a gainst various
financial risks.
For example, a business might purchase cover to protect it from loss of sales if a
fire in a
factory prevented it from carrying out its business for a time. Insurance might
also cover the
failure of a creditor to pay money it owes to the insured. This type of insurance
is frequently
20

referred to as "business interruption insuranc e." Fidelity bonds and surety bonds
are inc luded
in this categor y, although these products provide a benefit to a third party (the
"obligee") in
the event the insured party (usually referred to as the "obligor") fa ils to
perform its
obligations under a contract with the oblige.
‡ Health insurance policies will often cover the cost of private medical
treatments if the
National Health Service in the UK (NHS) or other publicly-funded health programs
do not
pa y for them. It will often result in quicker health care where better facilities
are available.
‡ Home insurance or homeowners insurance: See "Property insurance".
‡ Liability insurance is a very broad superset that covers legal claims against
the insured.
Many types of insurance include an aspect of liability coverage. For example, a
homeowner's
insurance policy will normally include liability coverage which protects the
insured in the
event of a claim brought by someone who slips and falls on the property;
automobile
insuranc e also includes an aspect of liability insurance that indemnifies against
the harm that
a crashing car can cause to others' lives, health, or property. The protection
offered by a
liability insurance polic y is twofold: a legal defense in the event of a lawsuit
commenced
against the polic yho lder and indemnific ation (payment on behalf of the insured)
with respect
to a settlement or court verdict. Liability policies typically cover only the ne
gligence of the
insured, and will not apply to results of willful or intentional acts by the
insured.
o Environmenta l liability insurance protects the insured from bodily injur y,
property damage
and cleanup costs as a result of the dispersal, release or escape of pollutants.
o Professional liability insurance a lso called professional indemnity insurance,
protects
professional practitioners such as architects, lawyers, doctors, and accountants
aga inst
potential negligence claims made by their patients/clients. Professional liability
insuranc e
may take on different names depending on the profession. For example,
professional liability
insuranc e in refere nce to the medical profession may be called malpractice
insurance.
Notaries public may take out errors and omissions insurance (E &O). Other potentia
l E&O
policyholders include, for example, real estate brokers, home inspectors,
appraisers, and
website developers.
‡ Life insurance provides a monetar y benefit to a decedent's family or other
designated
beneficiary, and may specifically provide for burial, funeral and other final
expenses. Life
insuranc e policie s often allow the option of having the proceeds paid to the
benefic iar y either
in a lump sum cash payme nt or an annuity.
o Annuities provide a stream of payments and are generally cla ssified as
insurance be cause
the y are issued b y insurance companies and regulated as insurance a nd require
the same kinds
of actuarial a nd inve stment management expertise that life insura nce requires.
Annuities and
pensions that pay a benefit for life are sometimes regard ed as insurance against
the possibility
that a retiree will outlive his or her financia l resources. In that sense, they
are the complement
of life insurance a nd, from an underwriting perspective, are the mirror image of
life
insurance.
‡ Locked funds insurance is a little-known hybrid insurance policy jointly issued
by
governments and b anks. It is used to protect public funds from tamper b y
unauthorized
parties. In special cases, a government may authorize its use in protecting semi-
private funds
21

which are liable to tamper. The terms of this type of insurance are usually very
strict.
Therefore it is used only in extre me cases where maximum security of funds is
required.
‡ Marine insurance and marine cargo insurance cover the loss or da mage of ships
at sea or on
inla nd waterways, and of the cargo that may be on them. When the owner of the
cargo and
the carrier are separate corporations, marine cargo insurance typically
compensates the owner
of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that
can be
recovered from the carrier or the carrier's insurance. Many marine insurance
underwriters will
include "time element" coverage in suc h policies, which extends the indemnity to
cover loss
of profit and other business expenses attributable to the delay caused b y a
covere d loss.
‡ Mortgage insurance insures the lender against default by the borrower.
‡ National Insurance is the UK's version of social insurance (which see below).
‡ No-fault insurance is a type of insura nce policy (typically automobile
insurance) where
insurers are indemnified by their own insurer regardless of fault in the incident.
‡ Nuclear incident insurance covers damages resulting from an incident involving
radio active
materials and is generally arranged at the national level. (For the United
States, see the Price-
Anderson Nuclear Industries Indemnity Act.)
‡ Pet insurance insures pe ts aga inst accide nts and illnesses - some companies
cover
routine/wellness care and burial, as well.
‡ Political risk insurance can be ta ken out b y businesse s with operations in
countries in which
there is a risk that revolution or other political conditions will result in a
loss.
‡ Pollution Insurance A first-party coverage for contamination of insured
property either b y
external or on-site sources. Coverage for liability to third parties arising from
contamination
of air, water or land due to the sudden and accidental release of hazardous
materials from the
insured site. The policy usually covers the costs of cleanup a nd may include
coverage for
releases from underground storage tanks. Intentional acts are spe cifically exc
luded
‡ Property insurance provides protection against risks to property, such as fire,
theft or
weather damage. This includes specialized forms of insurance such as fire insura
nce, flood
insuranc e, earthquake insurance, home insurance, inland marine insurance or
boiler
insurance.
‡ Purchase insurance is aimed at providing protection on the products people
purchase.
Purchase insurance can cover individual purchase protection, warranties, guarante
es, care
plans and even mobile phone insurance. Such insurance is normally very limited
in the scope
of problems that are covered by the polic y.
‡ Retrospectively Rated Insurance is a method of establishing a premium on large
commercial
accounts. The fina l premium is based on the insured's actual loss experience
during the policy
term, sometimes subject to a minimum and maximum premium, with the final premium
determined by a formula. Under this plan, the current year's premium is based
partially (or
wholly) on the current year's losses, although the premium adjustments ma y take
months or
years beyond the current year's expiration date. The rating formula is guaranteed
in the
insurance contrac t. Formula: retrospective premium = converted loss + basic
premium × tax
multiplier. Numerous variations of this formula ha ve be en developed and are in
use.
‡ Social insurance can be many things to many pe ople in many countries. But a
summary of
22

its essence is that it is a collection of insurance coverage (including components

of life
insuranc e, disability income insurance, unemplo yme nt insurance, health
insurance, and
others), plus retirement savings, that mandates participation by a ll citizens. By
forcing
everyone in society to be a policyholder and pay premiums, it ensures that
everyone can
become a claimant when or if he/she needs to. Along the way this inevitably
becomes related
to other concepts such a s the justice system a nd the we lfare state. This is a
large, complicated
topic that engenders tremendous debate, which can be further studied in the
following articles
(and others):
o Social welfare provision
o Social security
o Social safety net
o National Insurance
o Social Security (United States)
o Social Security debate (United States)
‡ Terrorism insurance provides protection against any loss or damage caused by
terrorist
act ivit ies.
‡ Title insurance provides a gua rantee that title to real property is vested in
the purchaser
and/or mortgagee, free and clear of liens or encumbrances. It is usually issued
in conjunction
with a search of the public records performed at the time of a real estate
transaction.
‡ Travel insurance is an insurance cover taken by those who travel abroad, which
covers
certain losses such as medica l expenses, lost of personal belongings, travel de
lay, personal
liabilities, etc.
‡ Workers' compensation insuranc e replaces all or part of a worker's wage s lost
and
accompanying medical expense incurred because of a job-related injur y.
Advantage s of Life Insur ance :
Life insurance ha s no competition from any other bu siness. Many people think
that life
insuranc e is an investment or a means of saving. This is not a correct view. When
a person
saves, the amount of funds available at any time is equal to the amount of money
set aside in
the past, plus interest. This is so in a fixed deposit in the bank, in national
savings certificates,
in mutual funds and all other savings instruments. If the money is invested in
buying shares
and stocks, there is the risk of the money being lost in the fluctuations of the
stock market.
Even if there is no loss, the available money at any time is the amou nt invested
plus
appreciation. In life insuranc e, however, the fund available is not the total of
the savings
already made (pre miums paid), but the amount one wished to have at the end of the
savings
period (which is the next 20 or 30 years). The final fund is secured from the very
beginning.
23

One is paying for it later, out of the savings. One has to pay for it only as long
as one lives or
for a lesser period if so chosen. There is no other scheme which provides this
kind of benefit.
Therefore life insurance has no substitute.
Even so, a comparison with other forms of savings will show that life insurance
has the
following adva ntages.
‡ In the event of death, the settlement is easy. The heirs can collect the mone
ys quicker,
because of the facility of nomination and assignme nt. The fac ility of nomination
is now
available for some bank accounts.
‡ There is a certain amount of compulsion to go though the plan of savings. In
other forms, if
one changes the original plan of savings, there is no loss. In insurance, there is
a loss.
‡ Certain c annot claim the life insurance moneys. They can be protected against
attachme nts
by courts.
‡ There are tax benefits, both in income tax and in capita l gains.
‡ M arketability and liquidity are better. A life insurance polic y is property
and can be
transferred or mortgaged. Loans can be raised aga inst the policy.
The following tenets he lp agents to believe in the benefits of life insurance.
Such faith will
enhanc e their determination to sell and their perseverance.
‡ Life insurance is not only the best possible wa y for family protection. There
is no other
way.
‡ Insurance is the only way to safeguard against the unpredictable risks of the
future. It is
unavoidable.
‡ The terms of life are hard. The terms of insurance are easy.
‡ The value of human life is far greater than the value of prope rty. Only
insurance can
preserve
it.
‡ Life insurance is not surpassed by many other savings or investment
instrument, in terms of
security, marketability, stability of value or liquidity.
‡ Insurance, including life insurance, is essentia l for the conservation of many
bu sinesses, just
as it is in the preservation of homes.
‡ Life insurance enhances the existing standards of living.
‡ Life insurance helps people live financ ia lly solvent live s.
‡ Life insurance perpetuates life, libe rty and the persu it of happiness.
‡ Life insurance is a wa y of life.
24

The Business of Insurance :

Insurance companie s are called insurers. The business of insurance is to (a)
bring together
persons with common insurance interests (sharing the same risks), (b) collect the
share or
contribution (called premium) from all of them, and (c) pay out compensation
(called c la ims)
to those who suffer. The premium is determined on the same lines as indicated in
the
examples above, but with some further refinements.
In India, insurance business is c lassified primarily as life and non-life or
general. Life
insuranc e inc ludes all risks related to the lives of human beings and Ge neral
insurance covers
the rest. General insurance has three classifications viz., Fire (dealing with all
fire re lated
risks), Marine (dealing with all tra nsport related risks a nd ships) and
Miscellaneo us (dealing
with all others like liability, fidelity, motor crop, personal accide nt, etc.).
Personal accident
and sic kness insuranc e, which are related to human beings, is classified as µ
non-life ¶ in India,
but is classified as µlife ¶, in many other countries. What is µNon-life ¶ in
India is termed as
µProperty and Casualty ¶ in some other countries.
The premium is based on expectations of the losses. These expectations are b ased
on studies
of occurrences in the past and the use of statistical principles. There is, in
statistics, a ³ law of
lar ge numbers ´ . When you toss a coin, the chance of a head or tail coming up is
half. If the
coin is tossed 10 times, one cannot be sure that the head will come up 5 times. If
the coin is
tossed 1 million times, the number of heads will be closer to half a million
proportionately
than in the ca se of 10. The variation will be less as a perce ntage. So also, the
larger the
numbers (of risks) included in the pool, the better the chances that the
assumptions regarding
the probability of the risk occurring, which is the basis of premium calculation,
will be
realized in practice. In order to be amenable to statistical predictions, insurers
have to insure
lar ge numbers of risks. Larger the spread of business better is the experience in
relation to
expectations.
The business of insurance is nothing but one of sharing. It spreads losses of an
individual
over the group of individuals who are exposed to similar risks. People who suffer
loss get
relief because their loss is made good. People who do not suffer loss are relieved
because
the y were spared the loss.
The insurer is in the position of a trustee as it is mana ging the common fund,
for and on
behalf of the community of polic yholders. It has to e nsure that nobody is a
llowed to take
undue advantage of the arrangement. That means that the management of the
insurance
business requires care to prevent entr y (into the group) of people whose risks
are not o f the
same kind a s well as paying claims on losses that are not accidental. The
decision to allow
entry is the process of underwriting of risk. Underwriting includes assessing the
risk, which
means, making an evaluation of how much is the exposure to risk. The premium to be
charged depends on this assessment of the risk. Both underwriting and claim
settlements have
to be done with great care.
25

Criticism of Insurance Companies :

Some people believe that modern insurance companie s are mone y-making businesses
which
have little interest in insurance. They argue that the purpose of insurance is to
spread risk so
the reluctance of insurance companies to take on high-risk cases (e.g. houses in
areas subject
to flooding, or young drivers) runs counter to the princ iple of insurance.
Other criticism s include:
‡ Insuranc e polic ies contain too many exclusion clauses. For example, some
house insuranc e
policies do not cover damage to garden walls.
‡ Most insurance compa nies now use call centre and staff atte mpt to answer
questions b y
reading from a script. It is difficult to speak to anybod y with expe rt
knowledge.
Role of Insurance in Economic Development :
For economic develop ment, investments are necessary. Investments are made out of
savings.
A life insurance company is a major instrument for the mobilization of savings of
people,
particularly from the middle and lower income groups. These savings are channeled
into
investments for economic growth.
As on 31.3.2002, the total investments of the LIC exceeded Rs. 245000 crores, of
which more
than Rs. 130000 crores were directly in Government (both State and Centre) related
securitie s, more than Rs. 12000 crores in the State Electricity Boards, nearly
Rs. 20000 crores
in housing loa ns and Rs. 4000 crores in water supply and sewerage systems. Other
investments included road transport, setting up industrial estates and directly
financing
industr y. Inve stments in the corporate sector (shares, debentures and term
loans) exceeded
Rs. 30000 crores. These directly affect the lives of the people and their economic
well-being.
A life insurance company will have large funds. These amounts are collected by way
of
premiums. Every premium represents a risk that is covered by that premium. In
effect,
therefore, these vast amounts represent pooling of risks. The funds are colle cted
and held in
tru st for the benefit of the polic yholders. The ma nageme nt of life insurance
companies are
required to keep this aspects in mind and make all its decisions in ways that
benefit the
community. This applies also to its investments. That is why successful insurance
companies
would not be found investing in speculative ventures. Their investments, as in the
case of the
LIC, benefit the society at large.
Apart from investments, business and trade benefit through insurance. Without
insurance,
trade and commerce will find it difficult to face the impact to major perils like
fire,
earthquake, floods, etc. Financiers, like banks, collapse if the factory, fina
nced by it, is
reduces to ashes by terrible fire. Insurers cover also the loss to financ iers, if
their debtors
default.
26

2. GLOBAL INSURANCE INDUSTRY :

The global insurance industry is one of the largest sectors of finance. It ranges
from
consumer to corporate and industrial insurance, and even reinsurance, or insurance
of
insurance.
The major insurance markets of the world are obviously the US, Europe, Japan, and
South
Korea. Emerging markets are found throughout Asia, specifically in India and
China, and are
also in Latin America.
With the internet a nd other forms of high-spee d communication, companies and
individuals
are now able to purchase insurance and related financial products from almost
anywhere in
the world. Increasing affluence, especially in developing countries, and a rising
unde rstanding of the need to protect wealth and human capita l has led to
significant growth in
the insurance industry.
Given the evolving and growing socio-economic conditions worldwide, insurance
companies
are increasingly reaching out across borders and are offering more competitive and
customized products than ever before.
Over the past ten years, global insurance premiums have risen by more than 50%,
with
annual growth rates ranging between 2 and 10%.In 2004, global insurance premiums
amounted to $3.3 trillion.
The majority of insurance comes from developed nations such as most of Europe, the
US,
and Japan. In 2004, premiums in North American amounted to $1,217 billion, while
the
European Union generated $1,198 billion, and Ja pan produced $492 billion. The UK
amounted to $295 billion.
The four biggest generators of insurance premiums comprised almost two-thirds of
premiums
for 2004, the US and Japan amount to half, while they only ma ke up 7% of the
world ¶s
population.
In contrast, the emerging markets that make up 85% of the world ¶s population
produced only
10% of the premiums.
The leading global insurance companies are:
Zurich Financial Services,
•
AXA
•
Berkshire Hathawa y/ Berkshire Hathawa y Re
•
Allianz
•
A viva
•
ING Group
•
Munich RE Group
•
American International Group (AIG)
•
Nippon Life Insurance
•
Assicurazioni Generali
•
27

GLOBAL LIFE INSURANCE DENSITY :

Cont i n en t /Cou nt ry 2 0 0 1 * *
2 0 0 2 ** 2 0 0 3 **
20 0 4 * * 2 0 0 5 **
2 0 0 6* *
Nor t h A m e ri ca 1 5 0 8. 6
1 5 6 3 . 8 15 65 . 7
1 6 17 . 2 16 8 6 .3
1 7 3 1 .8
Uni t e d S t a t es 1 6 02
16 6 2 .6 16 57 . 5
1 6 92 . 5 17 5 3 .2
1 7 8 9 .5
C a na da 6 7
5 .9 6 5 7 .3
7 2 2 .9 9 2 6 .1
10 7 1 .9 1 2 0 4 .1
La t i n Am e ri ca 2 6 .3
2 9 .1 3 0
3 7 . 2 4 2 .0
5 1 .3
Bra z i l
10 . 8 2 7 .2
3 5. 8 45 . 9
5 6 . 8 7 2 .5
Me x ic o 5
3 .2 5 9 .2
4 1. 3 50 . 2
4 9 . 9 6 2 .9
Uru gua y 21 . 5
1 7 .8 1 5 . 4
N /A 1 5 .5
16 . 6
Arge nt i na 6 8 . 8
1 9 .7 2 4 . 2
3 4 . 5 3 5 .4
43 . 8
Pa na m a 39 .
3 4 4 .6
4 2. 4 50 . 6
4 7 . 2 5 1 .2
C hi le 1
2 2 .1 1 0 3 .5
1 3 8 .3 1 6 4 .5
1 7 4 .9 1 7 6
C olom bi a 1 1 . 5
1 2 .5 1 2. 4
14 . 3 1 6 . 8
2 0 .5
Eu rope 5 7 3 .
2 6 2 0 .4
7 2 6 .9 8 4 8 .1
9 1 1 .8 1 1 1 9 .6
Uni t e d kin gdom 2 5 67 . 9
26 7 9 .4 26 17 . 1
3 19 0 . 4 32 8 7 .1
5 1 3 9 .6
S wi t z er la nd 2 7 15 . 7
30 9 9 .7 34 31 . 8
3 2 75 . 1 30 7 8 .1
3 1 1 1 .8
Ne t he rl a nds 1 3 45
12 9 6 . 1 1 5 6 1 .7
1 9 36 . 5 19 5 4 .2
2 0 7 1 .6
Fra nc e 1 2 6
8. 2 13 4 9 .5
17 67 . 9 2 1 50 . 2
24 7 4 .6 2 9 2 2 .5
Be l giu m 1 1 55
13 2 3 . 6 20 04 . 8
2 2 91 . 2 29 8 8 .7
2 4 2 7 .7
S we de n 1 3 56
1 2 3 2 . 2 16 02 . 3
1 76 4 . 3 21 0 5 .2
2 2 1 4 .6
De nm a rk 1 3 64 . 4
15 7 4 .9 20 37 . 5
2 31 0 . 5 24 8 9 .9
2 8 4 0 .8
Ge rm a ny 6 7 4 .3
7 3 6 .7 9 3 0 .4
1 0 21 . 3 10 4 2 .1
1 1 3 6 .1
I ta l y
7 2 0 .8 9 0 4 .9
12 38 . 3 1 4 17 . 2
14 4 9 .8 1 4 9 2 .8
Au st ri a 6 3
2 6 4 8 .7
8 1 1 9 5 5 .3
1 09 5 . 1 11 0 4 .6
Port u gal 3 0 2 .
9 4 1 8 .6
6 1 1 .4 7 6 8 .1
11 1 3 .7 1 1 3 1 .5
S pa in 4
9 1 5 8 8
4 8 8 .6 5 7 1 .9
6 1 5 .8
6 51 . 0
Pol a nd 4 8 .
7 5 0 .7
5 9. 9 73 . 3
1 0 1 .9
1 50 . 5
Ru ssi a 3
3 .2 2 3 .1
3 3. 9 24 . 8
6 .3 4. 0
C roa t ia 2
5. 3 3 3 .2
4 6. 3 58 . 7
7 0 . 9 8 1 .8
Hu nga ry 59 . 3
7 6 .7 9 9. 1
1 1 7 .3 1 4 8 .2
1 92 . 3
Gre e ce 1 0 8
.9 1 1 6
1 5 2 .1 1 7 7 .9
2 1 3 .1
2 56 . 7
Bu lga ri a 5
9 .9 5 .5
8 .2 1 1 . 1
1 3 .2
Ukra i ne 0 .1
0. 1 0 .3
0 .6 1 .3
1 .9
Tu rke y 5 .5
6. 5 8 .4
1 2 1 2 .7
1 3 .1
As ia
1 2 5 1 2 8 .1
1 4 0 .1 1 4 7 .2
1 4 9 .6
1 54 . 6
S out h Kore a 7 6 3 .4
8 2 1 .9 8 7 3 .6
1 0 06 . 8 12 1 0 .6
1 4 8 0 .0
Ja p a n 2 8
06 . 4 27 8 3 .9
30 02 . 9 30 4 4
2 9 5 6 .3 2 8 2 9 .3
Ti wa n 7 6 0
.9 9 2 5. 1
10 50 . 1 1 49 4 . 6
16 9 9 .1 1 8 0 0 .0
Ho ngkong 1 24 9 .7
1 2 3 7 . 9 14 83 . 9
18 8 4 . 3 2 2 1 3 .2
2 4 5 6
I sra e l 5
2 5 .2 4 5 9 .3
4 6 0 .8 4 6 7 .4
5 1 0 .2 5 32 . 6
Ma la ys ia 1 2 9 .
5 1 18 . 7
1 3 9 .8 1 6 7 .3
1 8 8 1 8 9 .2
S in gap ore 7 1 3 .2
7 30 . 1 13 00 . 2
14 8 3 . 9 1 5 9 1 .4
1 6 1 6 .5
Tha i l an d 3 4.
1 4 2 .1
5 2
5 0 . 8 5 4 .6
6 0
Ind i a
9 .1 1 1 .7
1 2. 9 15 . 7
1 8 . 3 3 3 .2
C hi na 1
2. 2 1 9 .5
2 5. 1 27 . 3
3 0 . 5 3 4 .1
Phi l li pi ne s 6 .6
8. 7 8 .6
9 .4 1 0 . 6
1 3 .1
UAE 5 6
.3 7 4
7 2. 5 5 9 .7
74 . 7 8 9 .8
S ri la nka
4 .3 4 .5
5 .3 6 .2
6 .9 8. 5
I ndon es ia 3 .6
5 .2 6 .4
7 .5 1 0 . 5
1 2 .5
Om a n 13 .
6 1 4 .8
1 3. 8 14 . 2
1 7 . 3 1 4 .3
Vie t na m 2 .1
3. 8 4 .1
7 .3 6 .1
6. 1
Ir a n
1 .1 1. 5
1 .7 2 .3
2 .2 2. 6
Kuw a it 3 0 .
3 3 6 .8
3 6. 9 39 . 1
3 5 . 7 4 0 .9
Pa ki st a n 1 .
2 1
1 .1 1 .5
1 .9 2. 3
S a udi a A ra bia 0 .6
1. 7 1 .7
2 .1 0 .7
0. 8
Afri c a 22
. 4 2 1 .5
2 6. 1 30 . 3
3 0 . 7 3 8 .3
S out h A f ri ca 3 7 7 .2
3 6 0 .5 4 7 6 .5
5 4 5 .5 5 5 8 .3
6 95 . 6
Ma ur it i us 9 5 .3
1 03 .7 1 19 .1
1 33 . 1 1 3 6 .1
N /A
Z imba bw e 1 2 .4
7 .8
2 1 .4 N/A
N /A
N /A
Moroc c o 9 .4
1 2 .2 1 2
1 0 . 6 1 1 .7
1 4 .7
Ke nya 2 .
9 3
3 .4 3 . 7
4 .5 5 .3
Ni ge ri a
0 .5 0. 5
0 .6 0 .7
0 .5 0. 8
Egyp t
2 .7 2 .4
2 .7 3 .1
4 4 .7
Al ge ria
0 .4 0. 5
0 .5 0 .8
0 .9 1 . 2
Oc e an i a 6 9
7 .5 6 6 8 .7
7 5 0 .7 8 5 1
8 8 5 8 96 . 3
Au st ra li a 1 0
40 . 3 10 1 0 .4
11 29 . 3 1 28 5 . 1
13 6 6 .7 1 3 8 9
Ne w Z e a la nd 1 9 8 .4
2 1 1 .1 2 7 2
3 1 8 2 1 9 .7
21 5
Wo rl d 2 3
5 2 4 7 .3
2 6 7 .1 2 9 1 .5
2 9 9 .5 3 30 . 6
S o urc e : S w i ss R e , S i gm a vo l um e s
* I ns ura n ce d en sit y i s m e a s ure d as ra t i o of p re m iu m t o t
ota l po pul a t ion
** D a t a re la t e s t o ca l en de r
ye ar s
Fig ure in US$
www.in diain s ur anc er es ear c
h.c om
28

3. PERFORMANCE OF INDIAN INSURANCE INDUSTRY :

Performance up to October 2006
The performance growth rate that was 22.8 percent as at September 2006 has mo ved
up to 23.3 percent at the end of October 2006, an improvement of significance. The
total premium at the end of October is Rs.14,628 crore as against Rs.11,855 crore.
The established players have added Rs.807 crore at a growth rate of 8.3 percent
with
the new players adding Rs.1966 crore at a growth rate of 62 percent. Here a gain,
ICICI Lombard has achieved a n accretion of Rs.887 crore; whereas the total
accretion
of all the established players is Rs 807 crores, a truly impressive record. New
India
with Rs.286 crore, closely followed by Oriental with Rs.277 crore are the major
contributors for the established players. Re liance, a late starter in the race
for
premium acquisition has recorded an accretion of Rs.357 crore as against a meager
last year renewal of Rs.89 crore. The growth path is now led by several players:
with
eight out of the twelve pla yers ha ving ac hieved accretions in exc ess of Rs.100
crore
and more at the end of October 2006. With the im minent detariffing aro und the
corner
in January 2007, the next two months should witness even more fierce battles for
supremacy of the market turf. A few of the new players are inching towards
breaking
into the big league premium players of yesteryears and this may happen sooner than
one thought. Interesting and cha llenging times are certainly ahead for all the
pla yers.
Premiums Rise 163.68% over October, 2006
Individual premium:
The life insurance industry underwrote Individual Single Premium of Rs.1336610.10
lakh for the period ended October, 2006 of which the private insurers garnered
Rs.118242.78 lakh a nd LIC garnered Rs.1218367.32 lakh. The corresponding
numbers for the previous year were Rs.443296.40 lakh for the industry, with
private
insurers underwriting Rs.64530.68 lakh and LIC Rs.378765.72 la kh. The Individual
Non-Single Premium underwritten during April-Oc tober, 2006 was Rs.1771903.71
lakh of which the private insurers underwrote Rs.536863.16 lakh and LIC
Rs.1235040.55 lakh. The corresponding numbers for the previous year were
Rs.743586.24 lakh, Rs.260432.63 lakh and Rs.483153.61 lakh respectively.
Group premium:
The industry underwrote Group Single Premium of Rs.467348.58 lakh of which the
private insurers underwrote Rs.30147.74 lakh and LIC Rs.437200.84 lakh. The lives
covered being 7678192, 456696 and 7221496 respectively. The corresponding
numbers for the previous year were Rs.171382.70 lakh with private insurers
underwriting Rs.17261.98 lakh and LIC Rs.154120.72 lakh and the lives covered
being 8547743, 397721 and 8150022 respective ly. The Group Non-Single Premium
underwritten during April-October, 2006 was Rs.53221.05 lakh which was
underwritten entirely by the private insurers, covering 2366084 lives. The
corresponding numbers for the previous year were Rs. 18031.15 lakh and covering
1277400 lives.
29

Segment-wise segregation:
A further segregation of the premium underwritten during the period indicates that
Life, Annuity, Pension and Hea lth contributed Rs.2329869.52 lakh (64.24%),
Rs.74006.48 lakh (2.04%), Rs.1221904.91 lakh (33.69%) and Rs.897.90 lakh (0.02%)
respectively. In respect of LIC, the bre ak up of life, annuity a nd pension
categories
was Rs.1677831.45 lakh (58.04%), Rs.69437.82 la kh (2.40%) and Rs.1143339.44
lakh (39.55%) respectively. In case of the private insurers, Rs.652038.07 lakh
(88.58%), Rs.4568.66 lakh (0.62%), Rs.78565.47 lakh (10.67%) and Rs.897.90 lakh
(0.12%) respectively was underwritten in the four segments.
Unit linked and conventional premium:
Analysis of the statistics in terms of linked and non-linked premium indicates
that
49.46% of the business was underwritten in the non-linked category, and 50.54% in
the linked category, i.e., Rs.1793702.35 lakh and Rs.1832976.45 la kh respective
ly. In
case of LIC, the linked and non-linked premium was 41.38% and 58.62%
respectively, as against whic h for the private insurers taken together this stood
at
86.53% and 13.47% respectively. During the corresponding period of the previous
year, linked and non- linked premium indicates that 54.74% of the busine ss was
underwritten in the non-linked category, and 45.26% in the linked category, i.e.,
Rs.752509.54 lakh and Rs.622185.30 lakh respective ly. In case of LIC, the linked
and
non-linked premium was 33.96% and 66.04% respectively, as a gainst which for the
private insurers taken together this stood at 77.02% and 22.98% respe ctively.
Growth momentum continues in October 2006 with 25.3 percent
All-round growth :
The month of October 2006 has been the month of extraordinar y growth for the non-
life insurers with the growth rate high at 25.3 percent. This ac hie ved rate is
only
slightly below that of September of 25.8 percent. As against the monthly renewals
of
Rs.1772 crore in Octobe r last year, the premium income scaled in 2006 is
Rs.2220
crore. The established players have recorded an accretion of Rs.151 crore at a
growth
rate of 11.3 percent. The new players have had an accretion of Rs.297 crore at a
growth rate of 63 percent. Among the former, New India leads with an accretion of
Rs.60 crore followed by Orie ntal with Rs.56 crore. But the stellar performances
in
the month have come from ICICI Lombard that has p roduced a massive accretion of
Rs.167 crore with Reliance adding Rs.56 crore to its meager renewal premium of
Rs.12 crore.
The new pla yers ha ve continued to maintain a strong grip on the ir market share
that
stands at 35 percent. Two points of interest to the market have emerged. One is
that
the monthly accretion of ICICI Lombard at Rs.167 crore is higher than the combined
accretion achieved by a ll the established players of Rs.151 crore. This
performance
should stand out as of interest to the market. The second point of market interest
is
that for the first time, the October monthly premium of ICICI Lombard at Rs.310
crore has exceeded the monthly premium performances of National Insurance and
UIIC that have accomplished premiums of Rs.305 crores and Rs.257 crore
respective ly. The established players do seem to be coming under increasing
pressure
by the new pla yers with their re lentless high growth rates and premium
productions.
30

41 per cent growth in life insurance industry in 2006 :

New Delhi: Life insurance sector grew by 41 per cent in 2005-06 due to better
performance of countr y's largest life insurer, LIC, and private players like Baja
j Allianz
and ICICI Prudential.
The 15 life insurance companies together collected Rs 35,898 crore in the fisc al
ended
March this year, compared to Rs 25,343 crore in the previous fiscal, according to
data
compiled by regulator IRDA.
Life Insurance Corporation's premium income rose more than 28 per cent to Rs
25,645
crore after it sold 3 .16 crore policies as against Rs 19,972 crore collected a
year a go.
However, LIC's market share dipped by 6.63 per cent to 71.44 per cent from 78.07
per
cent in the year ago period due to stiff competition and aggressive marketing of
private
life insurers.
The 14 private pla yers were able to steadily increase their market share from
21.93 per
cent to 28.56 per cent in a year's time by collecting Rs 10,252 crore during the
pe riod
under review.
Private sector life insurance business jumps 90% :
In a tough battle to expand market shares the private sector life insurance
industry
consisting 14 life insurance companies at 26% have lost 3% of market share to the
state
owned Life Insurance Corporation (LIC) in the domestic life insurance industry in
2006-
07.
According to the figures released by Insurance Regulatory & Development Authority
the
total premium these 14 companies have shot up b y 90% to Rs 19,471.83 crore in
2006-07
from Rs 10, 252 crore.
LIC with a total pr emium mobilization of Rs 55,934 crore has been able retain a
market
sha re of 74.26 % during the reporting period. In total the life insurance
industry in first
year premium has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07
performance has thrown a few surprises in the ranking among the private sector
life
insurance companies. New entrants like Re liance Life a nd SBI Life had shown a
huge
growth of over 381% and 210% respectively during the year. Reliance Life which has
become one of the top five companies ended the year with a premium of Rs 930 crore
during the year.
Though ICICI Prude ntial Life Insurance remained as the No 1 private se ctor life
insurance company during the year Bajaj Allia nz overtook ICICI Prudentia l in
terms of
monthly market share in March, for the first time ever. Bajaj's market share among
private players in non-single premium for March stood at 29.1% vs. ICICI
Prudential's
23.8%. Bajaj ga ined 4.6 percentage point market share among private sector
players for
FY07.
Among other private pla yers, SBI Life and Re liance Life continued to do well,
each
gaining 4% market share in FY07. SBI Life's growth was driven by increasing
contribution from ULIP premiums. Another notable development of the 2006-07
performance has been the expansion of reta il markets by the life insurance
comapnies.
Bajaj Allianz Life insurance has added 20 lakh policies while ICICI Pru dential
has
expanded over 19 lakh policies during the year.
31

Building a Vibrant Insurance Mar ket in India :

India's insurance industry is a n example of the positive effects of competition
and new
investors in the ma rketplace. As we know, India opened its insurance market to
the
private sector in 1999 when parliament passed a new law establishing an indepe
ndent
regulatory body to oversee the insurance market. The law opened the door for
participation of private insura nce companies and a limited participation of
foreign
insurance companies through joint ventures with Indian companies. The law also
charged
insurance companies to ma ke available insurance products and services to the huge
segment of the population that are vulnerable and not necessarily part of the
formal
economy.
The results of the liberalization are there for everyone to see. The insurance
markets --
both life and non-life -- have grown impressively. IRDA is working on a regulator
y
framework that helps level the pla ying fie ld for all type s of insurance
companies,
irrespective of their ownership. Since 1999, IRDA has licensed 22 new private
Indian
insurance companies, an overwhe lming number of which have globa l insurance
companies as their partners. To date, the industry has attracted foreign direct
investment
of $235 million.
In 2006, Indian insuranc e companies mobiliz ed over $29 billion, nearly four
times as
much as in 1999 ($8 billion). In other countries, this kind of capital
mobilization provides
crucial resources for investment in infrastructure, corporate businesses, long-
term bonds,
and municipal projects. Once India does more to free insurance companies to invest
in
such important sectors, it too can gain benefit from this long-term financial
resource.
Other improvements are occurring as we ll. New insurance products such as product
liability insurance, professional liability insurance, small/medium size
enterprise
insurance, weather insurance, and group health insurance for the poor have been
launched. Private insura nce companies are also using banks, microfinance
institutions and
cooperatives to increase their market share and compete with well-entrenched
state-
owned insurance companies.
The marketplace is getting competitive, but the market share of private insurance
companies remains very low in the 10-15 percent range. The heavy hand of
government
still dominates the market, with price controls, limits on ownership, and other re
straints.
We have see n what happens in India when a market is truly opened up. We saw it in
the
IT sector, we saw it in the telecom sector, and we are seeing it in the aviation
sector. Why
can't insurance be next? India's insurance market remains ver y small compared
with some
of the major emerging markets. South Africa and South Korea, with a fraction (one-
twentieth) of India's population, do at least twice as much insurance business as
Indian
companies did in 2004. This is a major missed opportunity for India's economy. A
vibrant
insurance market can support the economy by providing long-term capital -- equity
and
debt -- to the private sector. For example, in the U.S. over two-thirds of
financial assets of
insurance companies are in corporate bonds and equities, municipal securities and
commercial mortgages.
Insurance also shields hou seholds and businesses from irrecoverable loss, such as
from
major natural disasters, illness and death. In India, 80 percent of health care is
privately
provided, yet only 10 percent of the population has access to health insurance.
Therefore,
many individua l households ha ve to pay the full out-of-pocket costs for health
treatment.
What will expand the insurance industry and help it contribute to the economy?
Major
policy a nd institutional issues have to be addressed and changed.
32

Insurance is a capital-intensive industry. It is also a long-gestation business.

India's
insurance industry needs capital, and a major source of capital would be from
foreign
investors, who are now limited to 26 perce nt ownership. India needs to raise the
cap on
Foreign Direct Investment (FDI) to attract capital for the industry. For some time
there
has been an understanding that the FDI cap will be ra ised to 49 percent, and many
companies entered the Indian market with this e xpectation. Fa ilure to follow
through in
raising the cap is increasingly seen by investors as a bre ach of faith.
This promise needs to be delivere d, not 5 years from now, but soon, if India
wishes to
regain its cre dibility in the eyes of foreign investors. Increasing the cap on
FDI will both
enha nce the growth of the insurance indu stry and improve global confidence in
India as a
business and investment destination.
The cap should be raised above 50 percent within a short period so that fore ign
investors
would have manageme nt control commensurate with their investment and the flow of
FDI
to the sector will increa se. Leading foreign companies bring more than capital to
the
insurance industry. They also bring generations of successful experience in mana
ging and
growing the industry.
The benefit of the long-term capital that the insurance industry mobilizes is also
being
lost as a source of long-term capital. In India, ove r 60 percent of the insurance
industry's
financ ial a ssets are locked in government securities. Investment guide lines for
insurance
companies prescribed b y the regulator must be changed to allow and promote
access to
insurance funds by the corporate sector and infrastructure projects.
There is also a strong case for raising the FDI cap for reinsurance and auxiliary
insurance
services, such as brokerage and actuarial services.
Major lines of non-life insurance business such as fire and car continue to be
governed b y
a pricing re gime that is administered and not risk-based. This distorts the
market and
makes it inefficient. It has prevented the emergence of a culture of underwriting
in
insurance companies. The IRDA needs to dismantle this regime to make these segme
nts
of the market truly competitive.
The IRDA should also seek to create a regulatory regime that promotes the most
efficient
use of capital, eliminates avoidable micro-manageme nt of business practices,
allows
companies to price their products prudentia lly, and levels the playing fie ld
between
private and state-owned insurance companie s. When mar kets are competitive and
responsive to consumer demand and preference, it is the consumer that benefits in
terms
of lower cost and incre ased ability to manage r isks.
Hea lth is an area that is underserved by the insurance industry. India as an
economy has
high health spending but poor health outcomes. With no pooled risk sha ring from
insurance policies and a health care system that is primarily private, the cost to
individuals becomes a major economic bu rden. For this rea son, many microfinance
institutions are finding that a primary use of micro loans to the poor is to pay
medical
bills.
The current minimum capital requirement of $22 million capital for setting up a
health
insurance company is a significant barrier to entry, particularly when FDI is
restricted to
26 percent. The lack of data from both health providers and from e xisting claims
makes
risk-based pricing of hea lth insurance products difficult. The absenc e of an
appropriate
regulatory framework that enforces a minimum level of service and hygiene
standards is
33

an important reason the health insurance market in India is so underdeveloped. It

is not
surprising that not a single health insurance company is among the 22 new private
insurance companies lice nsed since 1999. Clearly, the IRDA a nd the Ministr y of
Health
need to work in tandem to solve these problems.
Another area where the insurance industry is not doing its job is he lping
mitigate the risks
for personal and business loss from natural catastrophes. In the past decade,
India and
China a ccounted for one-fourth of the global economic losses from natural
disasters.
Insurance availability in India for natura l catastrophes is almost ne gligible.
As we have
seen with the Indian Ocean tsunami, the absence of a "safety net" for property
lost in a
disaster has led to substantial personal loss and slowed economic recovery.
Insurance Sector Reforms in India: Challenges and Opportunities :
Insurance in India starte d without any regulations in the nineteenth ce ntury. It
was a
typical story of a colonial era: a few British insurance companies dominating the
market
serving mostly large urban centers. After the independence, the Life Insurance
Company
was nationalized in 1956, and then the general insurance business was nationalized
in
1972. Only in 1999 private insurance compa nies were allowed back into the
business of
insurance with a ma ximum of 26 per cent of foreign holding (World Bank Economic
Review 2000). The entr y of the State Bank of India with its proposal of bank
assurance
brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and
Development Authority bill was passed to protect the interest of the policyholders
from
private and fore ign players. The following companies are entitled to do insurance
business in India.
The private insuranc e joint ventures have collected the premium of Rs.1019.09
crore with
the investment of just Rs.3,000 crore in three ye ars of liberalization. The
private
insurance pla yers have significantly improving their market share when compared
to 50
years Old Corporation (i.e. LIC). As per the figures compiled by IRDA, the Life
Insurance Industry recorded a total premium underwritten of Rs. 10,707.96 crore
for the
period under review. Of this, private players contributed to Rs.1, 019.09 crore,
accounting
for 10 percent. Life Insurance Corporation of India (LIC), the public sector
giant,
continued to lead with a premium collection of Rs.9,688.87 crore, translating into
a
market share of 90 pe r cent. In terms of number of policie s and scheme s sold,
private
sector accounted for only 3.77per cent as compared to 96.23 per cent share of LIC
(The
Economic Times, 21March ¶04).
he ICICI Prudential topped among the private playe rs in terms of premium
collection. It
recorded a premium of Rs. 364.9 crore and a market share of 25 per cent, followed
b y
Birla Sun Life with a premium under- written Rs.170 crore and a market share of 15
percent, HDFC Standard with 132.7 crore and Max New York Life with Rs.76.8 crore
with a market share of approximately 15 per cent each. Unlike their counterpart in
the life
insurance business, private non-life insurance companies have not yet started
addressing
the retail market. All is set to change in the coming years. Like in the banking
sector, non-
life insurance companies will soon ha ve no choice but to focus on individual bu
yers.
The latest series of bomb attacks, attack on parliament, attack on Ayodhya,
attacks of the
Maoists, nature calamities like tsunami, floods and drought, ragging are prevailed
in the
country and need not to sa y about the farmer who has been insecure about rains,
seeds,
crops and suitable price for his crop. In developed countrie s, the owners have
insured
34

even pet dogs. Whereas in India about 80 percent of human beings a nd major
natural
resources have not been insured in globalization er a.
It is, therefore , an urgent need to explore the challenges and opportunities
faced b y the
insurance sector in India.
India’s Insurance Industry Likely To Jump By 500% In 2010:
ASSOCHAM :
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has
projected about 500% hike in the size of domestic insurance business which will
grow to
US$ 60 billion b y 2010 from the current size of around US$ 10 billion as the
growing
competitive age is developing a larger appetite among people for wider insurance
coverage.
The projections of the Chamber are based on fee dback that it received from its
various
constituents, engaged in the insurance business, highlighting that India ¶s life
insurance
premium as a percentage of GDP is currently estimated at 1.8% against 5. 2% in US,
6.5%
in UK and about 8% in South Korea.
Releasing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that rural
and semi-urban India will contribute US $35 billion to the Indian insurance
industry b y
2010, inc luding US $20 billion by way of life insurance and the rest US $15
billion
through non-life insurance schemes.
³ A large part of rural India is still untapped due to poor distribution, large
dista nces and
high costs relative to returns. Urban sector insurance is estimated to reach US
$25 billion
by 2010, life insurance US $15 billion and non- life insurance US $10 billion ´ ,
added Mr.
Dhoot.
ASSOCHAM findings reveals that in the coming years the corporate segment, as a
whole
will not be a big growth area for insurance companies. This is because pe
netration is
already good and c ompanies receive good services. In both volumes a nd
profitability
therefore, the scope for expansion is modest.
ASSOCHAM has suggested that insurer ¶s strategy should be to stimulate demand in
areas
that are currently not served at all. Insurance companies mostly focus on
manufacturing
sector; however, the services sector is taking a large a nd growing share of India
¶s GDP.
This offers immense opportunities for expansion opportunities.
To understand the prospects for insurance companies in rural India, it is very
important to
understand the requirements of India's villa gers, their daily lives, their
peculiar needs and
their occupational structures. There are farmers, craftsme n, milkmen, wea vers,
casua l
labours, construction workers and shopkeepers and so on. More often than not, they
are
into more than one profession.
The rural market offers tremendous growth opportunities for insurance companies
and
insurers should develop viable and cost-effective distribution channels; build
consumer
awareness and c onfidence. The Paper found that there are a total 124 million
rural
households. Nearly 20% of all farmers in rural India own a Kissa n Credit cards.
The 25
million credit cards used till date offer a huge data base and opportunity for
insurance
companies. An extensive rural age nt network for sale of insurance products could
be
35

established. The agent can play a major role in creating awarene ss, motivating
purchase
and rendering insurance services.
There should be nothing to stop insurance companies from trying to pursue their
own
unique policies and target whatever needs that they want to target in rural
India.
ASSOCHAM suggests that insurance needs to be pa ckaged in such a form that it
appears
as an acceptable investment to the rural people. In the near future, when we ¶ ll
see more
innovations in agriculture in the form of corporatization or a more professiona l
approach
from the farmers ¶ side, insurance will definitely be one option that the rural
Indian is
going to accept.
ASSOCHAM believes that insurers should enter into tie-ups or understandings with
governme nt age ncies to ensure the success of the insurance schemes. The ne ed of
the
hour is to have innovative policie s that have explicit benefits for the people
to observe,
understand and measure.
Indian Insurance Industry: New Avenues for Growth 2012 :
Description: With an annua l growth rate of 15-20% and the largest number of life
insurance policies in force, the potential of the Indian insurance industry is
huge. Total
value of the Indian insurance market (2004-05) was estimated at Rs. 450 billion
(US$10
billion). According to government sources, the insurance and banking services ¶
contribution to the country's gross domestic product (GDP) is 7% out of whic h the
gross
premium collection forms a significant part. The funds availab le with the state-
owned
Life Insurance Corporation (LIC) for investme nts are 8% of GDP. Till date, only
20% of
the total insurable population of India is covered under various life insurance
schemes,
the penetration ra tes of health a nd other non-life insurances in India is also
well below the
international level. These facts indicate the of im mense growth potential of the
insurance
sector.
The year 1999 saw a revolution in the Indian insurance sector, as major structural
changes
took place with the ending of government monopoly and the passage of the Insurance
Regulator y and Develop ment Au thority (IRDA) Bill, lifting all entry
restrictions for
private pla yers and allowing foreign players to enter the market with some limits
on direct
foreign ownership. Though, the existing rule says that a foreign partner can hold
26%
equity in a n insurance company, a proposal to inc rease this limit to 49% is
pending with
the governme nt. Since opening up of the insurance sector in 1999, foreign
investments of
Rs. 8.7 billion have poured into the Indian market and 21 private companies have
been
granted licenses.
Innovative products, smart marketing, and aggressive distribution ha ve e nabled
fledgling
private insurance companies to sign up Indian c ustomers faster than anyone
expected.
Indians, who had a lways 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 life insurance industry in India grew b y an impressive 36%, with premium
income
from new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving
stiff
competition from private insurers. This report, ³ Indian Insurance Industry: New
Avenues
for Growth 2012 ´ , finds that the market share of the state behemoth, LIC, has
clocked
21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policie
s in
36

2004-05. But this was still not enough to arrest the fall in its market share, as
private
players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion
in
2003-04. Though the total volume of LIC's bu siness increased in the last fiscal
year
(2004-2005) compared to the previous one, its market share came down from 87.04 to
78.07%. The 14 private insurers increased their market share from about 13% to
about
22% in a ye ar's time. The figures for the first two months of the fiscal year
2005-06 also
speak of the growing share of the private insurers. The share of LIC for this
period has
further come down to 75 percent, while the private players have grabbed over 24
percent.
There are presently 12 general insurance companies with four public sector
companies
and eight private insurers. According to estimates, private insurance companies
collectively have a 10% share of the non-life insurance market. Though the focus
of this
market researc h re port is on the pote ntial growth on the Indian Insurance
Sector, it also
talks about the market size, market segme ntation, and key de velopments in the
market
after 1999.
37

CHAPTER 2
RESEARCH METHODOLOGY
38

RESEARCH OBJECTIVES:
1. To compare the performance of LIC and private insurance companies in India.
2. To find out the performances of LIC and private insurance companies in each
category (size. growth, productivity a nd efficie ncy)
3. To compare grievance management of LIC and private insurance companies.
RESEARCH DESIGN :
a. Type of research design : Analytical Research
b. Data collection :
Secondary Sources
c. Statistica l T ools : Ratio Ana lysis
Bar Graph
RESEARCH PROCESS
In this research my research objective was to compa re the pe rformance of LIC and
Private
insuranc e companies. For this purpose I decided the four broad categories under
which I have
compared the LIC and Private insurance companies. These are:
1. Size
2. Growth
3. Productivity
4. Grie vance Handling
Under these Broad Categories I have analyzed 13 factors which are:
1. Size
•
Total Premium
•
Total Income
•
Size of Balance Sheet
•
Total number of Policies
•
Total number of Branches
2. Growth
•
Growth in Premium
•
Growth in Income
39

•
Growth in number of Policies
•
Growth in Market share
3. Produ ctivity
•
Business per Branch
•
Income per Branch
•
New Premium per Branch
4. Grie vance Handling
I have used the Se condary data of last five financial years. I ha ve collected
data from the
various balance sheet of LIC and other private insurance companies, web sites and
in some
cases I personally met some emplo yees of some insurance companies. I tried to
find out most
of the information required to compare the LIC and private insurance companies.
In Analysis I have found all the required data and on the basis of performance ga
ve the rank
to LIC and Private Insurance Companies on each factor and then points. Now these
Points
have been multiplied with the we ightage of that factor. And then after the a
nalysis of each
factor a consolidated point tab le has been prepared to know that which sector is
performing
better than other.
The Weightage for different categories are:
Factors Weightage
Size
25%
A. Total Premium 5%
B. Total Income 5%
C. Balance Sheet Size 5%
D. Total No. of Policies 5%
E. Total No. of Branches 5%
Growth
40%
A. First Premium 10%
B. Growth in Income 10%
C. Increase in No. of Policies 10%
D. Growth in Market Share 10%
Productivity 15%
A. Business per Branch 5%
B. Income Per Branch 5%
C. First Premium per Branch 5%
Grievance Handling 20%
40

LIMITATIONS:
1. Could reach to a limited number of documents of different insurance companies
in
regard to the management and other policies and resultant figures so as to
identify
the exact cause of their lag in performance.
2. Due to th e limited time could not study all the insurance
companies original
documents individually.
3. Non-Proficiency in technical aspects of insurance companies might have
hindered the
best analysis of the findings.
SIGNIFICANCE OF THE STUDY:
The Detailed Study has been done with the purpose of finding out the relative
share of LIC and
Private Insurance in India. It is useful for the people associated with the
Insurance Industry and
the research associates related to the Insurance Sector in India. This study will
acquaint them
with the data of all the banks complied at one place along with the findings,
conclusion and
recommendations.
41

CHAPTER 3
ANALYSIS AND
INTERPRETATION
42

1. SIZE :
(A) TOTAL PREMIUM :
(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
63533 75127 90792 127822 149789
LIC
3120 7727 15083 28253 51561
Private
Insurers
TOTAL 66653 82854 105875 156075 201350
PREMIUM OF LIC
149789
160000
127822
140000
120000
90792
100000
80000
63533 75127
60000
40000
20000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
PREMIUM OF PVT INSURERS
60000
51561
50000
40000
28253
30000
20000
15083
7727
10000
3120
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
43

points after
multiplying by
Avg. Pre mium
weightage
( In Crore s)
Rank points
(7.5%)
LIC 101412.20
1 1 7.5
Private Insurance Co. 21148.80
2 0.5 3.75
Average premium of LIC is much more than that of all insurance companies
altogether. LIC ¶s avera ge premium of the last five ye ars is nearly five time s
the average premium of the all other private insurance companies.
It can be said that up to that time their were less number of private players in
the fie ld of insurance but then also undoubtedly LIC is the king.
(B) TOTAL INCOME :
(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
93089 112393 132147 174425 206363
LIC
4323 9049 18863 24242 52648
Private
Insurers
TOTAL 97412 121442 151010 198667 259011
INCOME OF LIC
250000
206363
200000
174425
132147
150000
93089 112393
100000
50000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
44

INCOME OF PVT INSURERS

60000
51561
50000
40000
30000
24242
18863
20000
9049
10000
4323
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
points after
multiplying by
Avg. Income
weightage
( In Crores)
Rank points
(7.5%)
LIC 143683.40
1 1 7.5
Private Insurance Co. 21825.00
2 0.5 3.75
All over income of LIC is much more than than of private players.
It is due to the fact that LIC being a government agency is being
trusted by lot of companies and has large number of shares in big
corporates.
45

(C) SIZE OF BALANCE SHEET :

(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
346022 416910 531390 625956 776904
LIC
6585 13653 28910 53048 100774
Private
Insurers
TOTAL 352607 430563 560300 679004 877678
BALANCE SHEET SIZE OF LIC
1000000
776904
800000
625956
531390
600000
346022 416910
400000
200000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
BALANCE SHEET SIZE OF PVT
INSURERS
120000
100774
100000
80000
53048
60000
40000
28910
20000
6585 13653
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
46

Avg. Balance Sheet

points after
Size
multiplying by
( In Crores)
Rank points
weightage (7.5%)
LIC 539436.40
1 1 7.5
Private Insurance co. 40594.00
2 0.5 3.75
Total average size of balance sheet of LIC in the last five years is certainly
higher than that of private insurance companies. There is a huge gap in this
value. It is obvious that LIC has bigger balance sheet as being working in the
insurance field for quite large time. As compared to average balance sheet size
of 40,594 crores of private insurance companies, LIC ¶s average balance sheet
size goes to much high as that of 5,39,436.4 crores.
(D) TOTAL NUMBER OF POLICIES :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
26968069 23978123 31590515 38229292 37612599
LIC
1658847 2233075 3871410 7922294 13261558
Private
Insurers
TOTAL
28626916 26211198 35462117 46151586 50874157
47

TOTAL NUMBER OF POLICIES

60000000
50874157
50000000
46151586
40000000
35462117
LIC
28626916
30000000
26211198
PVT.INSURERS
INDUSTRY
20000000
10000000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
points after
multiplying by
Avg. number of
weightage
policies
Rank points
(7.5%)
LIC 31675670
1 1 7.5
Private Insurance Co. 5789437
2 0.5 3.75
LIC is an undoubted leader in the field of average number of policies
per year in the last five years. It is seen that private insurance companies are
gaining momentum and are trying to defeat LIC in case of new insurances.
Main reason behind LIC having such a large number of policies is the trust of a
common man. LIC being a government agency has got a faith of indian mass.
People are not yet prepared to give their savings in the hands of private players.
48

(E) NUMBER OF BRANCHES :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
2196 2197 2220 2301 2522
LIC
416 804 1645 3072 6391
P rivate
Insurers
TOTAL 2612 3001 3865 5373 8913
10000
8913
9000
8000
7000
6391
6000
5373
LIC
5000
PVT INSURERS
3865
4000
3072
INDUSTRY
2612 3001
3000
2196 2197 2220 2301 2522
1645
2000
1000
416 804
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
points after
%growth in
multiplying by
number of
weightage
branches
Rank points
(7.5%)
LIC
14.8
2 0.5 3.75
Private Insurance Co. 1436
1 1 7.5
When the matter of total number of branches comes its very much
obvious that LIC, being the oldest existing insurance company in India, has the
large number of offices in the countryby any single insurance company. Since
the number of private insurance companies is increasing, with continuous
expansion in their business, now the number of branches of all private players
has crossed the number of branches of LIC.
49

2. GROWTH :
o
(A) FIRST PREMIUM :
ß
(
)
Rs. In crores
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
17347 20653 28515 55934 59996
LIC
2440 5564 10270 19425 33715
Private
Insurers
TOTAL 19787 26217 38785 75359 93711
FIRST PREMIUM OF LIC
70000
55934 59996
60000
50000
40000
28515
30000
17347 20653
20000
10000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
FIRST PREMIUM OF PVT
INSURERS
40000
33715
35000
30000
25000
19425
20000
15000
10270
10000
2440 5564
5000
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
50
Growth in First
points after
Growth in
Premium
multiplying
First Premium
(in Absoute
by
(in Percentage
Terms) (in
weightage
Terms)
crores) Rank points
(10%)
LIC 245.85 42649
2 0.5 5
Private Insurance Co. 1281.76 31275
1 1 10
Though LIC has attained more growth in absolute terms i.e. Rs.42649
crores but private players being so less in number five years back has achieved a
dream come true growth of 1281.76 % which is certainly a matter of pride for
them.
(B) GROWTH IN INCOME :
(
)
Rs. In crores
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
12101 19303 19754 42277 31988
LIC
2692 4725 9814 5379 28406
Private
Insurers
TOTAL 14793 24028 29568 47656 60394
% GROWTH IN INCOME :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
14.9 20.7 17.5 32 18.3
LIC
165 109.3 108.4 28.5 117
Private
Insurers
TOTAL 17.8 24.6 24.3 31.5 30.3
51

180
165
160
140
117
109.3 108.4
120
100
LIC
80
PVT INSURERS
60
INDUSTRY
32
40
28.5
17.8 24.6 24.3 31.5 30.3
18.3
14.9 20.7 17.5
20
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
Growth in
points after
Growth in
Income
multiplying
Income
(in Absoute
by
(in Percentage
Terms) (in
weightage
Terms)
crores) Rank points
(10%)
LIC 164.34 19887
2 0.5 5
Private Insurance Co. 955.20 25714
1 1 10
Here LIC has neither attained more growth in absolute terms i.e.
Rs.19887 crores as compared to 25714 crores of private pla yers nor has got
more growth in terms of percentage.this shows that private players are doing
great job in enhancing their business.
(C) INCREASE IN NUMBER OF POLICIES :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
1475992 -2989946 7632584 6638585 -616693
LIC
804696 574228 1638335 4050884 5339264
Private
Insurers
TOTAL 2280688 -
9270919 10689469 4722571
2415718
52

% INCREASE IN NUMBER OF POLICIES :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
5.79 -11.09 31.75 21.01 -1.6
LIC
94.21 34.62 73.37 104.64 67.4
Private
Insurers
TOTAL 8.6 -8.4 35.3 30.1 10.2
% GROWTH IN NO. OF POLICIES
120
104.64
100
94.21
80
73.37
67.4
LIC
60
PVT INSURERS
35.3 30.1
34.62
40
INDUSTRY
31.75
21.01
20
10.2
8.6
5.79
0
-1.6
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
-8.4
-11.09
-20
Growth in
Growth in
points after
number of
number of
multiplying
policies
policies
by
(in Percentage
(in Absoute
weightage
Terms)
Terms) Rank points
(10%)
LIC 39.47 10644530
2 0.5 5
Private Insurance Co. 699.44 11602711
1 1 10
Private players are doing extremely well a s they a re increasing their
customer base rapidly.
53

(D) MARKET SHARE :

26.1
FY 07-08
73.9
25.8
FY 06-07
74.2
26.5
PVT. INSURERS
FY 05-06
73.5
LIC
21.2
FY 04-05
78.8
12.3
FY 03-04
87.7
0 20 40 60 80 100
LIC is still the market leader in insurance industry with 73.9 % share. But we
cannot forget that in last five years market share of LIC has decreased. It was
87.7 % in year 2003-04 which came down to 73.9 % in 2007-08.
54

3. PRODUCTIVITY :
(A) BUSINESS PER BRANCH :
(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
28.93 34.20 40.9 55.55 59.20
LIC
7.5 9.61 9.17 9.2 8.07
Private
Insurers
BUSINESS PER BRANCH
70
59.2
60
55.55
50
40.9
40
34.2
LIC
28.93
30
PVT INSURERS
20
7.5 9.61 9.17 9.2 8.07
10
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
points after
Av g. Business
multiplying by
Per Branch (In
weightage
crores)
Rank points
(5%)
LIC 43.756
1 1 5
Private Insurance
Co. 8.71
2 0.5 2.5
Avg business per branch of LIC is much higher than that of whole private
insurance companies.
55

(B) INCOME PER BRANCH :

(Rs. In crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
42.39 51.16 59.52 75.80 81.80
LIC
10.41 11.25 11.47 7.89 8.23
Private
Insurers
INCOME PER BRANCH
90
81.8
75.8
80
70
59.52
60
51.16
50
42.39
LIC
40
PVT INSURERS
30
20
10.41 11.25 11.47 7.89 8.23
10
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
Avg. Income Per
points after
Branch (In
multiplying by
crores)
Rank points
weightage (5%)
LIC 62.134
1 1 5
Private Insurance Co. 9.864
2 0.5 2.5
Average income per branch of LIC is much more than that of private
insurance companies. Its almost six times the total value of all the private
companies.
56

(C) NEW PREMIUM PER BRANCH :

(Rs.in crores)
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
7.90 9.40 12.84 24.30 23.78
LIC
5.86 6.92 6.24 6.32 5.28
Private
Insurers
NEW PREMIUM PER BRANCH
30
24.3 23.78
25
20
15
LIC
12.84
PVT INSURERS
9.4
10
7.9
5.86 6.92 6.24 6.32 5.28
5
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
Avg. New
Premium Per
points after
Branch (In
multiplying by
crores)
Rank points
weightage (5%)
LIC 15.644
1 1 5
Private Insurance Co. 6.124
2 0.5 2.5
This value tells us about increase in the business of an insurance compa ny
in a period. Here we see that LIC is ahead of private insurance companies
in case of increasing their business.
57

4. GRIEVANCE HANDLING :
TOTAL NUMBER OF GRIEVANCES :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
474 704 851 354 651
LIC
45 195 540 507 1406
Private
Insurers
NUMBER OF GRIEVANCES RESOLVED :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
39 123 215 313 80
LIC
26 83 216 450 1103
Private
Insurers
% OF GRIEVANCES RESOLVED :
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
8.2 17.5 25.3 88.4 12.2
LIC
57.7 42.6 40.0 88.7 78.4
Private
Insurers
58

GRIEVANCES IN LIC
800
704
651
700
540 507
600
474
450
500
400
TOTAL
300
216
RESOLVED
200
123
80
39
100
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
GRIEVANCES IN PVT. COMPANIES
1600
1406
1400
1103
1200
1000
800
TOTAL
540 507
600
450
RESOLVED
400
216
195
200
45
26 83
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
% OF GRIEVANCES RESOLVED
100
88.4
88.7
90
78.4
80
70
57.7
60
50
LIC
42.6 40
40
PVT INSURERS
25.3
30
17.5
20
12.2
8.2
10
0
FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08
59

points after
multiplying by
% Grievances
weightage
resolved
Rank points
(7.5%)
LIC 25.37
2 0.5 3.75
Private Insurance Co. 69.70
1 1 7.5
Grievance Ha ndling is one of the major issues in any organization. It plays an
important role in Insurance sector. People do attract towards companies who
handles their grievances.
Here we see that private players are much ahead of LIC when the matter comes
to grievance management. In the last five years LIC has resolved only 25.37 %
of cases brought in front of them while the percentage of cases resolved in case
of private players is 69.7 % .
This shows that private players are very serious about their image and are
working hard to provide the solution of the problems of the people as early as
possible.
60

TOTAL POINTS TABLE:

Private
Insurance
Factors LIC
Companies
Size
A. Total Premium
7.5 3.75
7.5 3.75
B. Total Income
7.5 3.75
C. Balance Sheet Size
7.5 3.75
D. Total No. of Policies
3.75 7.5
E. Total No. of Branches
Growth
A. First Premium
5 10
5 10
B. Growth in Income
C. Increase in No. of Policies
5 10
D. Market Share
10 5
Productivity
5 2.5
A. Business per Branch
5 2.5
B. Income Per Branch
C. First Premium per Branch
5 2.5
Grievance Handling
3.75 7.5
Total Score
77.75 72.75
61

CHAPTER 4
FINDINGS &
CONCLUSIONS
62

FINDINGS & CONCLUSIONS:

•
LIC is the giant of the insurance sector. The overall size of LIC is much more
than
that of all private insurance companies. Private insurers are in expansion mode
and
are increasing their size but are still much behind LIC. Total premium deposits
in
LIC is much higher than the private insurance companies. Total premium of LIC in
FY 07-08 was 149789 crores which three time s more than that of private insurance
companies.
•
Income of LIC is much greater than private insurance companies. Last year total
income fro m investments of LIC was 48244.14 crores which was nearly equal to the
total income of the all private insurance companies. By this we can imagine how
big
the LIC is.
•
Size of balance sheet of private insurance companies are lagging much behind LIC.
Balance sheet of LIC is se ven times bigger than that of private insurance
companies.
•
If we see the total number of policies issued by LIC and private insurance
companies,
we find that there is a huge gap between them. No doubt that LIC is a well
established
player in the field of insurance and many private companies have just started the
ir
business. Hence it is obvious that LIC is having large number of policyholde rs.
•
Number of branches of private insurance companies is increasing as the new players
are entering in this market. Also the established players are in expansion phase
and
hence are expanding there business. There are ma ny private insurance companies
and
hence there tota l number of branches has gone past LIC in the la st fina nc ia l
year. But
offices of private insurance companies are mostly in urban are as and still it is
LIC
which covers most of the area.
Hence we see that LIC is leading when it comes to size. It is giant in insurance
sector having huge network and customer base.
•
We see that due to excellent service quality and attractive offers private
insurance
compa nies have started getting a number of customers. They are growing rapidly.
Though LIC is also increasing its customer base but private insurance companies
are
moving at a fast pace.
•
Though the income of private insurance companies is negligible when compared with
LIC but then also the pace with which they are increasing their income is
tremendous.
Private insurance companies are expanding their business and will c ertainly going
to
give a tough competition to LIC in the coming days.
•
LIC is certa inly having a large customer base. Private insurance companies are
not
having that much numb er of customer base but they are increasing it rapidly. T he
y
have re gistered a decent growth of 104.64 % in number of new policies in the year
2006-07. Last ye ar also their growth rate was 67.4 %.
63

•
LIC, being the oldest pla yer in the existing insurance market, has the biggest
market
share of 73.9 % whic h was 87.3% five years earlier. We see that private insurance
companies are penetrating in the customer base of LIC.
Overall we can see that private insurance companies are giving a tough
competition to the LIC and will certainly create a good business for themselves
in the coming days.
•
There are many new e ntrants in this sector. There are many private insuranc e
companies who have reported loss in this a nd previous years. This is the main
reason
why private insurance companies la g behind LIC in case of business per branch.
There is a big differenc e betwe en them.
•
Same is the case when it comes to income pe r branch. LIC is much ahead of private
insuranc e companies in this field. They are undoubted champions in insurance when
it
comes to profit earning.
•
New busine ss is increasingly going towards private insurance companies but still
the
customer base of LIC is ver y strong. In issuing new policies per branch also,
they are
ahead of private insurance companies though not by very large margin.
Customer base of LIC is very strong and still business per branch, profit per
branch or premium per branch, they are leading much ahead of private
insurance companies.
•
LIC ha s not shown their good concern when the matter of grieva nce handling
comes.
Private insurance companies are far ahead in this matter. LIC has just resolved
25%
cases in the last five years while private insurance companies have resolved
nearly
70% cases. This is a matter from where customer shift starts. We have seen the
rapid
increase in customer base of private insurance companies which ca n be very much
affected b y this factor.
Overall we have seen tha t still LIC is very famous but private insurance
companies are
growing at exceptionally fast pace. Private companies show due concern in
grievance
management and brings innovative schemes to attract the customers. Right now they
are giving good competition to LIC and very soon they will give very tough
competition
to Life Corporation of India.
64

REFRENCES :
ÿ
Data on Indian Insurance from http://www.irdaindia.org
ÿ
Different statistics from http://www.rbi.org.in
ÿ
Journals published by Insurance Regulatory & Development Authority.
ÿ
Ma nageme nt of financial institutions by R.M. Srivastava
ÿ
http://www.businesstoday.com
ÿ
http://www.businessworld.com
ÿ
http://www.economictime s.com
ÿ
Different Survey on Insurance sector conducted by IIRC.
ÿ
Profile of Indian Insurance Companies by IRDA.
ÿ
www.licindia.co.in
ÿ
www.sbilife.co.in/
ÿ
www.tata-aig-life.com
ÿ
www.bharti-axalife.com/
ÿ
www.hdfcinsurance.com/
ÿ
www.reliancelife.co.in/
ÿ
www.bajaja llianz.com/
ÿ
www.metlife.co.in/
ÿ
www.birlasunlife.co m/
ÿ
http://www.finance. indiamart.com
65