c
 


    
  
 2



?


 
 


 

     
   
 

   


  



 

  
 

 

 
 
 

It is a type of financial service that provides a very sophisticated range of savings and investment
products, as well as mere compensation for death. It is basically a sharing device.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
?

??
 
?
?


?

? 
 
 





 



 





 

 


{ 
 

 




 

 




 






 

















 







 
 



{
   
  


The business of life insurance in India in its existing form started in India in the year 1818
with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important
milestones in the life insurance business in India are:

@ @

The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.

@

The Indian Insurance Companies Act enacted to enable the government to collect statistical
information about both life and non-life insurance businesses.

@ 
Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.

@ 
245 Indian and foreign insurers and provident societies taken over by the central government
and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution
of Rs. 5 crore from the Government of India.

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?


 

 

As life insurance became more established people considered it as a useful tool for number of
situations like:

@? 






The original purpose of life insurance remains an important element, namely providing for
replacement of income on death etc.

? M

! 

It provides for one¶s family and oneself, as a medium to long-term exercise (through a series of
regular payment of premiums). This has become more relevant in recent times as people seek
financial independence from their family.

?  



It helps to build the habit of while safeguarding it from the ravages of inflation. Unlike regular
saving products, investment products are traditionally lumpsum investments, where the individual
makes a one-time payment.

? M






Provision for one¶s own later years become increasing necessary, especially in a changing culture
and social environment. One can buy a suitable insurance policy, which will provide periodical
payments in one¶s old age.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

 
 

 


1.? 3rom an investor's point of view, an investment can play two roles - asset appreciation or
asset protection. While most financial instruments have the underlying benefit of asset
appreciation, life insurance is unique in that it gives the customer the reassurance of asset
protection, along with a strong element of asset appreciation.

2.? The core benefit of life insurance is that the financial interests of one¶s family remain
protected from circumstances such as loss of income due to critical illness or death of the
policyholder. Simultaneously, insurance products also have a strong inbuilt wealth creation
proposition. The customer therefore benefits on two counts and life insurance occupies a
unique space in the landscape of investment options available to a customer.

3.? Each of us has some goals in life for which we need to save. 3or a young, newly married
couple, it could be buying a house. Once, they decide to start a family, the goal changes to
planning for the education or marriage of their children. As one grows older, planning for
one's retirement will begin to take precedence.

Clearly, as your life stage and therefore your financial goals change, the instrument in which
you invest should offer corresponding benefits pertinent to the new life stage

"

 
is the only investment option that offers specific products tailormade for
different life stages. It thus ensures that the benefits offered to the customer reflect the needs
of the customer at that particular life stage, and hence ensures that the financial goals of that
life stage are met.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

4.? One can take a loan my keeping their policy document as collateral.

5.? One can also avail for income tax benefit under section 80 c as the premium paid is exempt
for tax.


  


  


Àoung & Single Asset creation Wealth creation plans
Àoung & Just Asset creation & protection Wealth creation and mortgage
married protection plans

Married with kids Children's education, Asset Education insurance, mortgage

creation and protection protection & wealth creation plans

Middle aged with Planning for retirement & Retirement solutions & mortgage
grown up kids asset protection protection

Across all life- Health plans Health Insurance

stages














c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
?

 
 

  ! !
" 

 

1. Protection
2. Liquidity
3. Tax relief
4. Money when you need it.

@? A
 

Savings through life insurance guaranteed full protection against risk of the saver. In life
insurance the full sum assured is payable with bonus whenever applicable whereas in other savings
schemes, only the amount saved with interest is payable.

?
"#



Saving can be made in a relatively ³painless´ manner because of the easy installment facility
built into the scheme.

?
$






Tax relief in Life insurance is available to the insurer for amount paid by way of premium for
life insurance subject to it rates in force.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

?











A suitable insurance plan a combination of different plans can be taken out of meet. Specific
needs are likely to arise in future.

Examples:

‡ Children¶s education
‡ Start in life
‡ Marriage provision or
‡ Periodical needs for cash over a stretch of time.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?



"   "

 


 

  
#
?
?
A.? $%&'(

-? It helps in transfer of technology in the field of life insurance. New techniques and
methods can be used for assessment of risk, fixation of reasonable premium and
provide new investment opportunities. This helps in expansion and development of
business.

-? ?It helps in adopting a flexible price policy on new life insurance policies can be
developed and introduced.

-? Service of efficient management and financial experts would be available. It can help
in development of knowledge of insurance business. Many educational and training
institution stand fast functioning this lead to availability of professional managers. It
will enlarge the scope of insurance.

-? It will help to tap the rural and small villages.

-? Competing ability has increased due to liberalization.

-? All categories of employees serving in life insurance sector will get more satisfaction
through good opportunity for training, higher opening in jobs and higher income.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
V










-? They can get better choice of selection of policy and insurer.

-? When there is large number of insurer, the insurer is able to select such an insurer
whose premium rate is reasonable.

-? The insurers play more attention to the interest of insured. This way interest of the
insured is well protected.

-? There will be number of policies based on social security brought out by different
insurers. Such schemes include plan like pension scheme, gratuity scheme,
medical claim etc.

-? Good employment opportunity in the life insurance sector when a number of new
institutions are established in these fields.

V












-? Vetter opportunity for training and development.

?
-? ?Knowledge can be gain about new method of functioning through education and
training.

-? The employee gets opportunity for job promotion and other financial nonfinancial
benefits. The productivity of employees shall develop due to education and
training facility.

-? Working with professional manager benefit the employee in learning the new
methods and technique in work situation. The employee will get motivation and
their moral will be higher.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
V.? $%&'(

-? Cut throat competition has been created due to acute competition in the life
insurance market. which is not in the interest of the industry, customers or the
country. This type of acute competition may sometime leads to insolvency of life
insurance companies and thereby the policy holders may face serious
consequences.

-? Dominance of outside companies as foreign companies would capture the life

insurance sectors as a whole under their dominance, because they possess more
efficient insurance techniques, knowledge. As such Indian companies cannot
survive before these foreign companies.

-? Shortage of funds for social cause: It is estimated that at present the LIC and GIC
invest a total of Rs 90,000 crores to the public/ social sector. This amount is nearly
70-80 % of their total fund available. Although the government is making rules for
the private sector companies to invest certain percentages of their premium income
in the social sector, the availability of such huge fund is doubtful.

-? Lack of government guarantee on polices ± the insurance policies issued by state

insurers carry Central Government¶s guarantee whereas no such guarantee shall be
available to the policies issued by the private insurance companies. The insured
remain unsecured in this way.

-? Employees of these insurance companies feel danger to their employment due to

process of liberalization measure. While implementing it, these corporation can
retrench certain number of employees who are exceeds in need. Vut this is not
tenable as the experience of the other countries shows it otherwise. Public sector
GIC and GIC are re-structuring themselves for better and more deployment of
staff in diversified companies.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
?


 
#
  

 ? ? ??? ??? ?
?
? ?
 
? HD3C Standard Life Insurance Company Ltd?

? ?  
? Max New Àork Life Insurance Co. Ltd.?

? ?
 
? ICICI Prudential Life Insurance Company Ltd.?

? ?  
? OM Kotak Mahindra Life Insurance Co. Ltd?

? ?   
? Virla Sun Life Insurance Company Ltd.?

? ?


? Tata AIG Life Insurance Company Ltd.?

? ?   
? SVI Life Insurance Company Limited.?

? ?
 
? ING Vysya Life Insurance Company Private Limited

? ?  
? Allianz Vajaj Life Insurance Company Ltd.?

? ?  
? MetLife India Insurance Company Pvt. Ltd. ?

?
?  

? AMP SANMAR Assurance Company Ltd.?

?

?  

? Aviva Life Insurance Co. India Pvt. Ltd.?

?
? 

? Sahara India Insurance Company Ltd.?

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

! "

 
#

?
?
%!&M %'(
A" (M
 M(
!) M(

*

ICICI PRUDENTIAL 24
HD3C STANDARD 12
RELIANCE LI3E 10
SVI LI3E 9
VIRLA SUN3ILE 8
VAJAJ ALLIANZ 8
MAX NEW ÀORK 7
TAT AIG 3
KOTAK MAHINDRA OM 3
CANARA HSVC OVC LI3E 3
OTHERS 13

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?
 #




INSURANCE INDIVIDUAL INDIVIDUAL GROUP SINGLE GROUP NON

PLAÀERS SINGLE NON SINGLE PREMIUM SINGLE
PREMIUIM PREMIUM PREMIUM

LIC 1716.16 1704.08 1316.73 1316.73

VAJAJ 49.84 120.38 22.94 43.88

ALLIANZ

SVI LI3E 101.18 109.23 105.33 52.82

RELIANCE LI3E 68.11 138.78 1.1 1.07

HD3C 5.09 194.13 0.55 22.74

STANDARD

VIRLA SUNLI3E 0.73 98.94 0.57 19.66

MAX 17.77 119.64 6.19 5.61

NEWÀORK

ICICI 429.18 91.14 34.78 70.05

PRUDENTIAL

KOTAK 0.29 33.23 9.43 7.18

MAHINDRA
OLD MUTUAL

AVIVA 0.25 36.06 0.05 4.62

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
?

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
?


 
#

 

  
#

?
? A
"' "
+ '
M

Within India political ambitions and rise of communalism, fissiparous tendencies are on the rise
and may well continue for quite some time to time. Therefore, it expected that the insurance
companies might consider offering political risk coverage also. The only area where Indian
insurers consider giving cover is with regard to customs duty change under certain conditions.

Certain type of political risk at the international level has serious implications exporters. Political
risk refers to the risk of loss when investing in a given country caused by changes in a
country's political structure or policies, such as tax laws, tariffs, expropriation of assets, or
restriction in repatriation of profits. 3or example, a company may suffer from such loss in
cases where they have tightened foreign exchange repatriation rules, or due to increased
credit risk the government changes policies to make it difficult for the company to pay
creditors.

@



A

 







The funds of policyholders are prohibited from being directly / indirectly invested outside
India as per section 27 ± C.

? ?

 
  

 



Subject to the above provisions contained in Section 27 -/ 27- A / 27 V, the IRDA may,

á? In the interest of the policyholders, specify the time, manner and other conditions of
investment by insurer.

á? Give specific directions applicable to all insurers for the time, manner and other
conditions subject to which the policyholder¶s funds should be invested in the
infrastructure and social sectors.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

á? After taking into account the nature of business and to protect the interest of the
policyholders, issue directions to insurers relating to time, manner and other
conditions of the investments provided the latter are given a reasonable opportunity of
being heard.

?  






 



All insurers are required to undertake such percentage of their insurance business, including
insurance for crops, in the rural social sector as specified by the IRDA. They should discharge
their obligations to providing life insurance policies to persons residing in the rural sector,
workers in the unorganized sector or to economically vulnerable classes of society and other
categories of persons as specified by the IRDA.

? '


#



The paid up equity of an insurance company applying for registration to carry on life
insurance business should be Rs 100 Crores.

? ?M




 

An insurer, who has been granted a certificate of registration, needs to renew their
registration on annual basis with each year ending on March 31 after the commencement
of the IRDA Act. The application for renewal should be accompanied by a fee as
determined by IRDA regulations, which would not exceed one forth of one percent of the
total gross premium income in India in the preceding year or Rs 5 Crores or whichever is
less, but not less than Rs 50000 for each class of business.

? M
#




'

The minimum paid up equity capital, excluding required deposits with the RVI and any
preliminary expenses in the formation of the country, for an insurer would be Rs 100 crore to
carry on life insurance business.

Õ?  



 


 

Insurers outside India as per Section 27-C cannot invest the funds of policyholders.
c
 cc
 c 
 c c
c
  ?
?
 c
  
    
  
 2



?

? ?A


 


 
 

The IRDA may, at any time, order in writing a person as investigating authority to investigate
the affairs of any insurer and report to it. Government has power to change the tax policy
against life insurance industry.

Ú?Health insurance rebate,

Ú?Pension saving rebate,
Ú?Mede claim premium rebate,
Ú?P.P.3., E.P.3., NSC all are tax exempted saving,
Ú?All life insurance policy are tax exempted saving ,
Ú?Agricultural income is tax exempted,
Ú?House rent allowances,
Ú?Post office saving,
Ú?Expenses on dreaded diseases are tax exempted.
Ú?Recently there is issue to increase 3DI level from 26% to 49%.
?
? M





 


As insurance is an important service sector, hence it is highly regulated by government. Since

1956 insurance sector was highly regulated by government of India. On March 16, 1999, the
Indian cabinet approved on Insurance Regulatory Authority Vills that was designed to
liberalize the insurance sector.

Two governments in India have fallen over the issue of liberalization of the insurance sector (which
was nationalized in 1971). Vut the government of A.V. Vajpayee as gone ahead to announce the
liberalization of this sector announcement was made in November 1998.

@? J
 
,
-




.

 


The main objective of opening of insurance sector to the private insurers is as under:

1. To provide better coverage to the Indian citizens.

2. To augment the flow of long-term financial resources to finance the growth of infrastructure.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
 

 












 
 
 


 





1.? Private companies with a  
 


M
@ should be allowed to enter
the industry.

2.? No company should deal in 


 



 
through a  




? +

 
 may be allowed to enter the industry in  with the 


 


? A


 
should be allowed to 









5.? Only 








 

  should be allowed to 




 

.

6. 3oreign investors can  





* of the
# of their - 


with  
.
?

V
(!
) 
M(J&" (
)(
!('
M

3or better regulation purpose of the insurance sector the government has established following bodies;

1. IRA: Insurance Regulatory Authority.

2. IRDA: Insurance Regulatory and Development Authority.
3. TAC: Tariff Advisory Committee.

Ë? 
    

The IRA, under the chairmanship of Rangachary, was set-up in January 1996. The IRA Vill has to
be passed by parliament to make the IRA a statutory body. Comprehensive legislation aimed at
reviewing the insurance Act of 1938 and repealing the life insurance corporation Act of 1956
have to be passed. The IRA is also preparing an internal rating system to screen all applications,
as entry will be in phases. The joint venture status of life insurance companies (with majority
holding of the domestic partner) is likely to be approved by the parliament. Consensus also seems
to be emerging on the minimum of Rs. 1 bn capital stipulations for new insurance companies.The
IRA has stipulated a minimum rural presence for all companies. The exhaustive guidelines have
been issued for the appointment of intermediaries (brokers, agents, surveyors and actuaries).

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

+



M 

1. The Vill allowed for up to 26% foreign equity participation in the insurance sector.

2. The current India monopoly companies were required to bring down their equity holding to
26% within a period of 10 years

J
 

 



1.? IRA will be 

, which will be responsible for  
of, 

 i.e. little or
no government or political interference in licensing process.

2.? No restriction on the number of licenses.

3.? No composite license for life insurance business.

4.? Licensing to be only on national basis (no city by city approach)

5.? IRA allowed for up to 26% foreign equity participation in the life insurance sector.

6. The current Indian monopolies companies are required to bring down their equity holding to
26% within a period of 10 years.

M




1. New player should start their business within 15-18 months.
2. Trafficking of licenses not to be permitted.
3. IRA to seek business plan with 5-year protection for all applicants.
4. A system of direct brokers to be introduced.
5. IRA to vet top management appointments.

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?

Ë? 
      

The Insurance Regulatory and Development Authority, constituted under the IRDA Act, 1999,
provide for the establishment of an authority to protect the interest policyholders, to regulate, promote and
ensure orderly growth of the life insurance industry.

@? V

M
#



A company will not be issued a license unless the IRDA is satisfied with the sound financial
condition, the general character of  

, the 



, the 
 
,

  

 for the insurers and that the  

 of the 


 will be served if
registration is granted to the insurer.

3oreign insurance companies have been allowed to have a maximum 26% shareholding. No life
insurance company can be registered under the Act unless they have a paid up capital of Rs. 100
crores. Every life insurer shall deposit with the reserve bank of India one percent of the total gross
premium written in India in any financial year, not exceeding Rs. 10 crores. This amount would
not be susceptible to any assignment or charge nor would it be available for the discharge of any
liabilities other than liabilities arising out of policies issued, so long as any such liabilities remain
undercharged.

?  






Every insurer is required to invest, and keep invested, assets equivalent to not less than the net
liabilities as follows:

(a) 25 % in government securities,

(b) a least 25% of the said sum in government securities or other approved securities and

(c) the balance in any approved investment rated as ³very strong´ or more by reputed rating
agencies, which include various debt instruments on which dividend on its ordinary shared for the
five years immediately preceding or for at least five out of the six or seven years immediately
preceding have been paid and which have priority in payment over ordinary shares of the

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?
company in winding up. The IRDA may in the interest of the policyholder¶s directions relation
the time, manner and other conditions and investments of assets to be held by an insurer. The
IRDA may also direct the insurer to realize the investment, if it sees the investments to be
unsuitable or undesirable. The Act prohibits an insurer from directly or indirectly investing
policyholder funds outside India.

3urther, every insurer has to always maintain an excess of the value of his assets over the amount
of his liabilities of not less than Rs. 50 crores in the case of an insurer carrying of life insurance
business. If at any time an insurer does not maintain the required solvency margin, he is required
to submit a financial plan, as per directions issued by the IRDA, indicating a plan of action to
correct the deficiency within three months.

In order to ensure that the company does not risk the money of the policyholder¶s, the Act
provides that an insurer who does not comply with the aforesaid provisions may be deemed to be
insolvent and may be would up by the court. Insurers are required to get an actuary to investigate
the financial conditions of the life insurance business including a valuation of liabilities every
year in order to ensure continual compliance. In order to maintain transparency in its dealings,
insurers would have to keep separate account relating to funds of shareholders and policyholders.

? ?' 
#



 





A company failing to comply with the act shall be liable for panel action. IRDA is empowered to
investigate into the affairs of the company. 3ailure to comply with the directions may lead to
cancellation of the license for the company. Also, if the IRDA has reason to believe that a
company is doing business in a manner likely to be prejudicial to the interest of policyholders, it
is required to report to the central government.

The central government may base on the report, appoint an administrator to manage the affairs of
the company. This would act as a further assurance to the consumers, as their interests would at
all times be a priority and that in the event that the company acts in the manner prejudicial to their
interests, than an administrator would be appointed to serve their needs. The court may also wind
up the company if it fails to deposit or keep deposits as per the requirements of the act or if the
continuance of the company is prejudicial to the interest of the policyholders or public interest.

Vut an insurance company cannot be wound up voluntarily or on the grounds that by reasons o its
liabilities it cannot continue its business, except for the purpose of affecting an amalgamation or

c
 cc
 c 

 c c
c
 

?
?
 c
  
    
  
 2



?
reconstruction of the company. Therefore, a company after issuing a policy cannot escape liability
by seeking voluntary winding up.














 

V



"
!



 


1.? The Insurance Regulatory and Development Authority should give priority to health
insurance.

2.? Policyholder¶s fund will be invested in the social sector and infrastructure. The percent
may be specified by the IRDA and such regulations will apply to all insurers operating
in the country.

3.? Insurers will be expected to undertake a certain percent of business in rural areas, and
cover workers in the unorganized and informal sectors and economically backward
classes.

4.? In the event of insurers failing to fulfill the social sector obligations, a fine of Rs. 25 lakh
would be imposed the first time. Subsequent failures would result in cancellation of
licenses.

Ë? î !"#$%#{{îî 

?

The tariff advisory committee established under the Act is empowered to control and regulate
the rates, terms, and etc. that may be offered by insurers in respect of any risk or of any
category of risks. It is provided that in fixing, amending or modifying such rates etc. the
committee shall try to ensure as far as possible that there is no unfair discrimination between
risk of essentially the same hazard and also that consideration is given to past and prospective
loss experience. Every insurer is required to make payment to the TAC of the prescribed
annual fees.

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?

@ ? ? 
A
"'
%
%!&M %'(
!('
M

Another factor, which affects the insurance sector, is the tax policy. The tax reforms in India are
such that it encourages the citizens to invest in the insurance sector.

The tax policy of the government is particularly relevant for life insurance which is a long-term
contract and inculcates among the policyholders the habit of saving. Taxation of returns on
investment influences, investment decisions and high rates of taxation will discourage the desire
to save. Already in India there are complaints that the rates of return on life policies are not what
they could be. Therefore tax incentives play a vital role in determining the attractiveness of such
policies. Such tax breaks are available in many countries and have helped in the development of
their life sector. In western countries the gain from the proceeds of a life insurance policy is paid
free of tax. Provided the policy satisfies certain qualifying conditions. Non-qualifying policies get
basic rate tax relief, though higher rate taxpayers may still have to pay tax on the gain, although at
a reduced rate. The insurance companies can use such tax concessions rate. The insurance
companies can use such tax concessions to design products for different categories of taxpayers

The other factors, which affect the insurance sector, are the employment law, and government
stability. These are the factors, which affect the insurance industry.

2 ? %/(!(%
('!
%!
 % (
V
J
/(M%(%


Insurers are required to fulfill certain social commitments as well. As many of the social welfare
measures companies are not just regulated, but have been mandated to hand over a portion of their
funds to the state for investment in infrastructure and for social development through government
bonds and securities. In India, the pattern was, accordingly, prescribed in great detail by the
government. This was not in the form of guidelines, but as a legal obligation under the insurance
Act, 1938.

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?

 
   "
  )

GOVERNMENT SECURITIES 25

GOVERNMENT SECURITIES OR OTHER APPROVED NOT LESS THAN

SECURITIES 50
APPROVED INVESTMENTS

A. IN3RASTRUCTURE AND SOCIAL SECTOR NOT LESS THAN

15
V. OTHER GOVERN VÀ EXPOSURE NORMS NOT LESS THAN
35

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?

V?('
%
'
+ '
M!

á? Interest rate at bank and interest rate of P.3 variation very much affect to life
insurance industry, because people always attract by higher return. Therefore, they do
not prefer lower return policy.

á? Unemployment could be another factor as individuals won¶t have enough funds to

invest.

á? Natural calamities like earthquakes, floods, etc cannot be controlled. In cases of such
incidents the toll of deaths would increase in turn increasing the claims.

á? Typical Indian want luxurious product against low income, so that they prefer
instalment or annuity (EMI), so that they may not have extra saving to invest in life
insurance.

›? & 

Capital adequacy is a matter of attention in view of the nature of the life insurance
business, where in the case a contingency arises, the insurers should be in a
position to meet its long-term contractual obligations and pay up the dues or
claims. In that sense, life insurance is a capital-intensive business and must be
backed by an adequate capital base on the part of the owners and the companies
should not be running their business purely on other people¶s money. So minimum
start up amounts and long running capital adequacy norms are absolutely essential,
in consideration of this, the Malhotra committee suggested and subsequently the
IRDA stipulated a minimum capital base of Rs 1 bn for any entity wanting to enter
the life insurance business.

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?

›?  
    

Although economic activity has slowed down since 1996, sooner or later there will be
an upswing. The increase in the growth rate in various sectors accompanied by the
growth in trade in the context of fulfilling of commitments to the WTO will signal a
growth in the demand for insurance covers of new types.

As far as cover against business interruption is concerned, the pace of business and of
change today is so fast that even the most careful assessment of exposure time,and the
most liberal coverage cannot protect the insured adequate in the event of a loss be on
the increase and insurance companies cannot afford to ignore the vastpotential in this
business.

›?  
 



3rom past few years government has rationalized interest rate creates better business
opportunities for the life insurance sector because the substitute products are graded
lower by the customers. If the returns recieved are less customers would prefer
investing elsewhere affecting insurance business.

›?    

Inflation can also be one of the causes to change the scenario of the insurance sector.
High inflation for instance, would tend to reduce the insurance business, particularly
life, because the real value of the money paid back to the policyholder on maturity of
the policy would go down and would, therefore, lose its attraction for the investor.

The response to an inflationary situation will depend on what benefit the insured is
looking for. In a situation of high inflation, clients would prefer policies where the
savings portion is periodically returned while the risk portion is maintain for the
duration of the contract. Those who prefer risk protection are likely to opt for long
term policies, which may also be preferred because they are likely to be low premium
policies. A flexible system, under which the sum insured, is increased from time to
time so that the real value of the cover is maintained, and could give a boost to the

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?
market under conditions of high inflation. 3luctuations in inflations rates dampens the
market.

›? {'   



These are the factors, which governs the entire life insurance sector. This include
internal as well as the external factors.

These all factors have changed the trend of life insurance sector, which is shown in
the following figure.

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?
3rom the above figure we can see that now day¶s strength of brand is very important aspect for
the success in this sector. Of course you should have strong distribution channel without which growth is
not possible.

›? %

 
  


Since the customer is the focus of any service industry, every such industry
continuously strives for greater variety and better quality of products, improvement in
its delivery system, cost effectiveness, easy access, and quick response to perceived
needs ± in short qualitatively superior service. Indian life insurance companies already
have a sizable line up of the products. The difference between them and the foreign
operators perhaps lies in the service provided, because there is still not enough
concern on the part of the Indian companies, with customer satisfaction, on time
renewals, claims settlements, etc. if high standards have been achieved elsewhere, it
is not impossible to attain the same in India too.

The concept of ³sales´ is now redefined as a long ± standing relationship. The

relationship does not end with the conclusion of the transaction, but has to be durable
and of a long term nature. Hence, improved in performance of the company will not
be synonymous with only basic cost reduction or larger business, but the new measure
of performance will be set in terms of service to the customer. One can anticipate
greater insistence from pressure groups like customer forums to keep customer
satisfaction at the top of the list of priorities of the insurers.

c
 cc
 c 

 c c
c
 
?
?
 c
  
    
  
 2



?

?
??  
?
?

The basic social factors that affect the life insurance sector are as under: -
›? ?Population
›? ?Life style
›? ?Educational level
›? ?Level of earning
›? ?Societal benefits

A  

Growth in the population is a major factor pushing up the demand. It is also going to exert a special
influence on the life insurance market in other ways. Apart from exerting pressure on demand for goods
and services, and through that, ill effects of uncontrolled growth of population also could spur the growth
of demand. 3or example, overcrowding in public places of entertainment, public support, or too many
vehicles on the road can result in hazards like stampedes and pollution, which require covers and still are
not sold on a large scale today. Thus the positive as well as the negative aspects of population growth are
going to spur demand.



?
The peculiar lifestyle of a country or an age also influences the insurance business. Change therein
produces different demands for life insurance. Nowadays consumers prefer lifestyle and status products
like cars, property, etc... Larger number of vehicles on the roads for people commuting to their jobs or
business would mean larger incidence of accidents. This will increase the demand for life insurance
products.

With time becoming scarcer for most people who pack in a full day, there is a higher demand for
convenience and service. Companies will respond by trying to shorten the transaction time for the
delivery of products and services and creating distribution systems that can reach clients wherever they
are and whenever they want to use them, so as to ensure convenient access to service providers.

c
 cc
 c 

 c c
c
   ?
?
 c
  
    
  
 2



?
Crumbling social values, the deteriorating law and order situation, the growing incidence of crime,
extortion, abduction, etc., are posing a new category of risks which need to be covered through suitably
designed policies.

  

India is one of the developing countries: the level of education is very low here. The literacy rate is very
poor. More than 50% of the population is still uneducated or more or less not educated. Thus the people
are not able to understand the concept of the life insurance. Among the educated people the quality of the
education is still a big question mark. Thus the awareness is not created and it has become a big challenge
for the industry. Thus one of the factors, which affect the life insurance sector, is low level of education.

  


Another factor, which affects the life insurance sector, is the level of earning. In India the rule of 80-20 is
working. The 80% of the total population is having the 20% of the wealth and the 20% of the total
population is having 80% of total wealth. Thus the richer are richer and poorer are poorer. Due to this the
life insurance sector is affected very much.

"  



In view of the fact that large sections of India have inadequate life insurance cover, an important social
responsibility of the government relates to spreading it far and wide. In addition, the government attempts
to extent life insurance with certain social obligations in view in both urban and the rural areas through
such means special schemes for the weaker sections, and by tilting of the life insurance companies¶
investments in favour of social developments.

The social changes emerging in the country provide opportunities for insurers to sell financial services
products such as family health care programmed, retirement plans disability insurance, long-term care for
senior citizens and different employee benefit plans.

Apart from the usual demographic and other well known factors such as age group, income level, sex-
wise distribution, and literacy level, a realistic assessment of this potential has to be based on several
other relevant factors. Many invisible factors like religious faiths and social values too need to be
considered. There are many practical factor affecting µ insurability´ such as old age, past and present
illness, and physical and mental impairments.

c
 cc
 c 

 c c
c
   ?
?
 c
  
    
  
 2



?

? 

?
?

Internet as an intermediary in the current Indian market customer is not aware about the intrinsic
value of insurance. He thinks of insurance only in the mount of March as a tax saving measure. The
security provide by an insurance cover is rarely thought about. In such a scenario Internet can be an
effective medium for educating the consumers about insurance. It serves as a single window for
disseminating product, process and procedural information to the consumers.

›? A     '       

With increase in the number of insurance companies there will be a need for market
segmentation and subsequently product designed for each of them. In such a scenario
Internet can be a effective channel for pushing product specific information to a
particular market segment. Consumer feedback about a particular product as well as
suggestions for different types or covers can also be generated through the Internet.

›?  '  

It is a commonly expected concept and the providers of the retail products and service
will try out for larger market and market share. There would be cut through
competition and the real benefit would be to the customers in terms of better products,
distribution, pricing, post transaction service and technology. Technology will perhaps
be the single largest driver of the retail thrust. The entire strategy will evolve around
the absolute ability of the organization. The customer will demand for greater
convenience of excess to the product/ service and all at low cost of delivery. Therefore
the use of technology and specifically the Internet with realigned strategies would be
one of the key factors to success. Constraints of locations, timing and accessibility
would not be a hurdle for either customers or businesses.

c
 cc
 c 

 c c
c
  
?
?
 c
  
    
  
 2



?

›? {     



The most important factor that is affecting the insurance industry is the marinating the
database of the customers. The insurance industry has a huge list of the customers.
With the change in time the computers has taken the work of this things. Thus with
the development of the technology it has becoming possible to maintain such huge
database very easily. A person can switch over to the computer and get the details of
the customer very easily. Thus maintaining the database has really become easy due to
the development in technology. Eg. SAP,ORACLE,CRM softwares.

›? 
 


   

The Internet has played a vital role in transforming the business of the 21st century.
Computers are now being used extensively for creating a storing data, information
with the help of complex and sophisticated technological tools in every kind of
business. This change having been widely accepted, the advantages are numerous
such as fast processing improved. Efficiency, cost reduction among several other
benefits obtained from it. However, with every positive change, there is an evil
attached and technology is no exception.

In technical terms, increased sophistications of technology brings with it, an increased

factor of risk involved. The risk can be of various attributes, for example, the risk of
data being lost due to a virus attack, the theft of important and confidential
information and so on, which ultimately results in losses for the business entity. With
this change in the business process, insurers have to devise new methods for
assessing, underwriting and servicing claims for the so-called e-business insurance.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?

›?   
   



Distribution channels are the most important part of the insurance industry. The
scenario is continuously changing in this industry. In future the customers are
expected to be more technology ± oriented, better informed, more knowledgeable and
more demanding. The insurers will have to offer all types of channel to customer and
it is the customer who will have the right to choose the channel suiting him/ her. Dual
income families with young children, singles with long working days and flexi-timers
all demand high level of sophistication and ease when it comes to service. Hence the
companies have to be very careful and cautious in catering to the needs of these
customers who provides a good amount of business to the insurers.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
?


 *+,*-  " 
!





Theres always a dilemma whether any industry would flourish in coming years or no. Vut
Indian life insurance industry could witness a rise in the insurance sector premiums to between 5.1
and 6.2 % of GDP in 2010, from current 4.1%. Such growth is possible due to the following factors:-

á? As the average per capita income of the individuals increases the population with
greater appetite would purchase protection products which in turn would increase
the households premiums.

á? Rural penetration is likely to increase to 35 % from 25% currently and penetration

in low income group in urban India is likely to rise from 30 % to 35 %

á? Consumers rank life insurance higher than other investments options because of its
ease and convenience in investing, tax benefits and protection.

á? The population under the middle class segment is likely to rise. This segment
largely uses insurance with an aim of tax planning, retirement planning and
savings therefore the demand would be more.

á? Increasing concept of bancassurance will also help to boost the sales.

á? Nowadays companies are focusing on providing good training to their employees

to enhance professionalism and especially agents which would also contribute
towards the growth of this industry.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
á? Companies are also focusing on optimum usage of technology so that they can
improve their process so that they can offer hassel ± fee customer service and
minimise human intervention.

 

 

The insurance industry is at a very critical stage, from where either it can flourish or can
witness muted growth. The last decade has been a phase of growth and development.

Vut now is the time for growth, along with stabilization. IRDA, on its part, is facilitating the
expansion of the sector by formulating enabling regulations. However, along with keeping the
interests of the customers at the forefront, there is a need to facilitate a favorable environment for
distribution intermediaries, which can result in the exponential growth of the sector. The regulator
has devised a framework for insurers to make the disclosure of financial statements, investment
portfolio as well as operating ratios. These disclosures are expected to make the industry stronger as
well as earn the faith of its stakeholders. The shift from solvency I to solvency II is also taken as a
big step toward risk management. IRDA is also considering the formulation of rules and regulations
for a smooth transition to this new regulatory standard. The growth potential and opportunities for the
Indian insurance industry is vast. In the wake of the improving global financial situation, the industry
is expected to be a major contributor to the country¶s economic growth.

c
 cc
 c 

 c c
c
  ?
?
 c
  
    
  
 2



?
?

  


+

 






 








á? Constant innovation of life insurance products is necessary so that the customers

get attracted towards them.

á? Excessive utilisation of technology needs to be made i.s usage of CRM packages

like ERP, SAP which would help in storage and accessing of data easily.

á? Even though the concept of bancassurance has been launched in India people still
prefer taking the products from the agents. In this case the insurance company as
well as the banks needs to join hands to promote this channel as it is profitable for
both.

á? Penetration in the rural areas would also help to boost the saled of life insurance
business.

á? 3ormulation of strong, fair and transparent guidelines would help to enhance trust
among the consumers.

á? Adequate amount of training needs to be provided to those who directly interact

with the customers while introducing the product.

?
c
 cc
 c 
 c c
c
  ?
?
 c
  
    
  
 2



?
?

c
 cc
 c 

 c c
c
  ?
?