Insurance Industry RM1

A study on Indian Insurance Industry
1. Executive Summary
The report tells us about the different aspects of the life insurance sector like the influence of political, social, economical and technology on the growth of Life Insurance Company. It talks about the current scenario and future trend or prospective of the life insurance company. Comparative study with US and other countries is done to get a view of the Indian insurance sector. The different promotional strategies of the companies such as their investment in advertisements, marketing expenses etc are mentioned below in the report. We have also analysed what are the different mergers and acquisitions that the foreign companies have adopted in order to enter into the Indian market. We have analysed the market share of Indian companies in life insurance sector and their competitive strategies these companies applying to gain the market competing with huge market share holder public company LIC. The Porters five force model is also related to know the threats resisting the growth of the companies. Overall it the reports portrays the situation analysis of the life insurance companies in insurance sector.
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2. Industry overview
2.1. Introduction The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. Life insurance was first introduced in 1818 during British rule when Oriental Life Insurance Company began its operation in India and general insurance was introduced only in the 1850 after the entry of Triton Insurance Company. Indian Insurance sector history can be broadly classified as Pre-Nationalisation, Nationalisation, and Post Nationalisation.
Life insurance was the first to be nationalized in 1956 by the formation of Life Insurance Corporation which consolidates the operations of various insurance companies existed at that time. Followed by General insurance was nationalized in 1973. General Insurance Corporation of India was set up as the controlling body with New India, United India, National and Oriental as its subsidiaries. In 1991 government initiated the process of opening up the insurance sector by forming Malhotra Committee. This committee submitted its report in 1994 and in 1999 Insurance Regulatory Development Act was passed resulting in opening up the market for Public and Private Insurance companies to effectively started operations in 2001. Insurance Regulatory Development Authority (IRDA) was formed as a part of Insurance Regulatory Development Act to regulate the insurance industry and have a control over the market and the players in it.
Since opening up, the number of participants in the industry has gone up from six insurers (including Life Insurance Corporation of India, four public sector general insurers and General Insurance Corporation as the national reinsurer) in the year 2000 to 48 insurers operating in the life, non-life and reinsurance segments (including specialised insurers, viz., ExportCredit Guarantee Corporation and Agriculture Insurance Company). Three of the nonlife insurance companies, viz., Star Health and Alliance Insurance Company, Apollo Munich Health Insurance Company and Max Bupa Health Insurance Company function as standalone health insurance companies. Of the twenty two insurance companies which have set up operations in the life segment post opening up of the sector, twenty are in joint venture with
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A study on Indian Insurance Industry foreign partners. Of the seventeen insurers (including health insurers) who have commenced operations in the non-life segment, sixteen are in collaboration with the foreign partners. The three standalone health insurance companies have been set up in collaboration with foreign joint venture partners. Thus, as on date, thirty six insurance companies in the private sector are operating in the country in collaboration with established foreign insurance companies across the globe.
Table 2.1: milestones in the life insurance business in India
Year
Milestones in the life insurance business in India
1912
The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business
1928
The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses
1938
Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.
1956
245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.
Source: IRDA website www.irda.gov.in
The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are given in the table 2.
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Table 2.2: Milestones in the general insurance business in India
Year
Milestones in the general insurance business in India
1907
The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business
1957
General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices
1968
The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.
1972
The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
Source: IRDA Website www.irda.edu.in
2.2. Types of Insurance On the basis of the risk they cover, insurance policies can be classified into two categories:

Life Insurance Policies General Insurance Policies
2.2.1. Life Insurance Life is very fragile and death is a certainty. We cannot control the uncertainties of life. But, we can cover the risks surrounding us. Life insurance, simply put, is the cover for the risks that we run during our lives. It protects us from the contingencies that could affect us.
Life insurance is not for the person who passes away, it for those who survive. It is the responsibility of every bread earner to guard against the events that could affect the family in the unfortunate circumstance of his / her demise. Thus, having a life insurance policy is very
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A study on Indian Insurance Industry vital. Before going for a life insurance policy it is imperative that you know about various types of life insurance policies. Major among them are:
Term Life Insurance Policy

As its name implies, term life insurance policy is for a specified period. It lets you select the length of time for which you want coverage, up to a period of 35 years. It has one of the lowest premiums among insurance plans and also carries an added advantage of fixed payments that do not increase during your term. In case of the policy holder's untimely demise, the benefit amount specified in the insurance agreement goes to the nominees.
Whole Life Insurance Policy

Whole life insurance policies do not have any fixed term or end date and is only payable to the designated beneficiary after the death of the policy holder. The policy owner does not get any monetary benefits out of this policy. Because this type of insurance involves fixed known annual premiums, it's a good option if you want to ensure guaranteed financial benefits for surviving family members.
Money Back Plan

With a money back plan, you receive periodic payments, which are a percentage of the entire amount insured, during the lifetime of your policy. It's a plan that offers insurance coverage along with savings. A unique feature of the money back plan is that in the event of the policy holder's death during the policy term, the beneficiary will get the full sum assured without having any of the survival benefit amounts, which have already been paid, deducted.
Pension Plan
Pension plans are different from other types of life insurance because they do not provide any life insurance cover, but ensure a guaranteed income, either for life or for a certain period. You make the investment for a pension plan either with a single lump sum payment or through installments paid over a certain number of years. In return, you get a specific sum every year, every half-year or every month, either for life or for a fixed number of years.
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A study on Indian Insurance Industry Endowment Policy An endowment policy can be taken out for a specified period. At the end of the stipulated period, the assured amount is paid back to the policy holder, along with the bonus accumulated during the term of the policy. Designed primarily to provide a living benefit, along with life insurance protection, the endowment policy makes a good investment if you want coverage, as well as some extra money.
Unit Linked Insurance Plan ULIP is a type of life insurance where the cash value of a policy varies according to the current net asset value of the underlying investment assets. It allows protection and flexibility in investment, which are not present in other types of life insurance such as whole life policies. The premium paid is used to purchase units in investment assets chosen by the policyholder.
2.2.2. General Insurance General Insurance provides much-needed protection against unforeseen events such as accidents, illness, fire, burglary et al. Unlike Life Insurance, General Insurance is not meant to offer returns but is a protection against contingencies. Almost everything that has a financial value in life and has a probability of getting lost, stolen or damaged can be covered through General Insurance policy.
Property (both movable and immovable), vehicle, cash, household goods, health, dishonesty and also one's liability towards others can be covered under general insurance policy. Under certain Acts of Parliament, some types of insurance like Motor Insurance and Public Liability Insurance have been made compulsory. Major insurance policies that are covered under General Insurance are:
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Health Insurance
Under the general insurance category, health insurance is one of the most popular choices. In India, Mediclaim covers hospitalization, expenses incurred during medical tests and for medicines. You can also get coverage for medical expenses by opting for the 'Critical Illness (CI)' rider available with life insurance policies. This means that in case of a 'critical illness' as defined by the insurance company during the policy tenure, you will be paid the amount as proposed in the policy.
Auto Insurance Under the policies of auto insurance, coverage is provided for any damage caused by accidents. The insured needs to pay an amount on a monthly basis to the insurer who in turn provides compensation to the insured in case of accident and mishaps. There are 3 types of auto insurance coverage liability coverage, physical damage coverage and uninsured and underinsured motorist coverage.
Home Insurance The home insurance provides compensation for any mishaps that occurs on your home. Coverage is provided according to the policy and premium paid by the homeowner. There are various types of home insurance plans that you can choose from to suit your needs.
Disability Insurance Disability insurance is the financial coverage provided to an insured individual when he loses his ability to work due to any illness or accident. There are two types of disability policies: Short Term Disability (STD) and Long Term Disability (LTD). In short term disability, compensation is provided for a period of maximum 2 years. On the other hand, if you avail the long term disability plan, you can get benefits for the rest of your life.
Business Insurance If you have a business organization, be it small or big, you should always opt for business insurance policies to protect it from any mishaps. Under business insurance, you can avail policies that provide coverage for business property and liability. The most popular business insurance policy that is availed by various business concerns is BOP (business
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A study on Indian Insurance Industry owners policy). BOP is a package that provides coverage for property insurance, business interruption insurance and liability protection.
Travel insurance Travel insurance is insurance that is intended to cover medical expenses, financial default of travel suppliers, and other losses incurred while traveling, either within one's own country, or internationally. Temporary travel insurance can usually be arranged at the time of the booking of a trip to cover exactly the duration of that trip, or a "multi-trip" policy can cover an unlimited number of trips within a set time frame. Coverage varies, and can be purchased to include higher risk items such as "winter sports".
2.2.3. Reinsurance Reinsurance is insurance that is purchased by an insurance company (insurer) from another insurance company (reinsurer) as a means of risk management. The reinsurer and the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues insurance policies to its own policyholders. The main reason for insurers to buy reinsurance is to transfer risk from the insurer to the reinsurer, but reinsurance has various other functions also. In India GIC is the only reinsurance company.
2.3. Insurance Regulatory Bodies Insurance laws and regulations in India takes care of all matters related to various insurance companies in the country. Much of the development and growth of the insurance sector in India is due to the government's decision to nationalize the insurance business and to allow private and foreign insurance companies to establish their businesses here. In India, there is one regulatory authority i.e. IRDA which oversees different functioning of the life insurance companies in India and provide them with guidelines.
1. Insurance Regulatory and Development Authority (IRDA) Insurance Regulatory and Development Authority (IRDA) is the controlling body, overseeing important aspects and functioning of various insurance companies in India. Established by the government, it safeguards the interest of the insurance policy holders of the country.
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Some of IRDA's functions include: To regulate, ensure and promote the orderly growth of the insurance business To prescribe regulations on the investment of funds by insurance companies To regulate the maintenance of the margin of solvency To adjudicate the disputes between insurers and intermediaries To supervise the functioning of the Tariff Advisory Committee
Other supporting organisations which facilitate in the working of the industry 1. Tariff Advisory Committee The main task of Tariff Advisory Committee is to regulate and control the rates, benefits, terms and conditions offered by life insurance companies in India. 2. Insurance Association of India All insurance companies in India are members of the Insurance Association of India. It has two councils under its patronage, mainly Life Insurance Council & General Insurance Council 3. Ombudsmen Ombudsmen play important role in regulating and ensuring smooth functions of the insurance companies. They are appointed to address all complaints relating to settlements of claims. Anyone having a grievance against an insurance company can approach Ombudsmen for redressal.
2.4. Rules and Regulations The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business. Life insurance in India was completely nationalized on January 19, 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India. The General Insurance Business Act of 1972 was enacted to nationalise the about 100 general insurance companies then and subsequently merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance,
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A study on Indian Insurance Industry Oriental Insurance and United India Insurance, which were headquartered in each of the four metropolitan cities. Until 1999, there were not any private insurance companies in India. The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies. In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries. A minimum capital of US$20 million (Rs.100 Crore) is required by legislation to set up an insurance business. IRDA was formed by an act of the Indian Parliament (known as the IRDA Act, 1999) as the regulatory body to govern the Indian insurance sector. A company, to operate as an insurance company in India, must be incorporated under the Companies Act, 1956, and possess the certificate of the memorandum of association and articles of association. Capital requirement paid up equity share capital At least US$ 208.3 million for life insurance or non-life insurance business At least US$ 416.7 million for reinsurance business International players can operate in India only through a joint venture with a domestic firm and are classified under private sector insurers. FDI up to 26 per cent is permitted in the insurance sector. IRDA does not allow foreign reinsurance companies to open branches in India. This proposal is currently under consideration in the Parliament
FDI norms The Insurance Laws (Amendment) Bill, 2008, proposes to provide for the increase in shareholdings by a foreign company from the current limit of 26 per cent to 49 per cent.
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A study on Indian Insurance Industry 2.5. Growth The Indian insurance sector has witnessed significant growth - the number of life policies in force has increased nearly 12-fold over 2000-2010, and health insurance policies nearly 25fold. Factors like better terms, availability of a wide variety of products (like unit-linked insurance products, whole life, maximum net asset value (NAV) guarantee etc), and government incentives have boosted the growth of the industry.
With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Data released by the Insurance Regulatory and Development Authority (IRDA) indicates that 23 life insurers registered 18,282.86 crore (US$ 4.1 billion) by writing new policies during April-June 2011. Stateowned Life Insurance Corporation (LIC) of India, collected premiums worth about 13,341.97 crore (US$ 3 billion), while its private peers collected 4,940.89 crore (US$ 1.1 billion) as new first-year premium during the period.
The first year premium, underwritten by the life insurers during 2009-10 was 1,09,894 crore as compared to 87,331 crore in 2008-09 registering a growth of 25.84 per cent against
negative growth rate of 6.81 per cent during 2008-09. In terms of linked and non-linked business during the year 2009-10, 54.53% of the first year premium was underwritten in the linked segment while 45.47% of the business was in non-linked segment (51.13 and 48.87% respectively in 2008-09). The total premium underwritten by the life insurance sector in 2009-10 was 2,65,450 crore as against 2,21,785 crore in 2008-09 exhibiting a growth of 19.69% (10.15% in 2008-09). In June 2011, industry collection stood at 6,022.98 crore
(US$ 1.35 billion). Revenue earned by selling new policies increased by 15.13 per cent in FY11, amounting to 1,25,826.03 crore (US$ 28.24 billion) against 1,09,290.38 crore (US$ 24.53 billion) in FY10.
The growth and evolution of Indian insurance sector can be measured in terms of the insurance penetration in the country and its density over the period. The measure of insurance penetration and density reflects the level of development of insurance sector in a country. While insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per capita premium). Since opening up of Indian insurance sector for private participation, India has reported
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A study on Indian Insurance Industry increase in both insurance penetration and density. But, the increase has been almost entirely contributed by the life insurance sector. As of 2009, the penetration of Insurance in India accounts only 5.2% in which Life Insurance accounts 4.6% and general insurance accounts 0.6%. From the table it is observed that the Indian life insurance sector showed a huge growth, the insurance density of life insurance sector had gone up from USD 9.1 in 2001 to USD 47.7 in 2009. Similarly, insurance penetration of life sector had gone up from 2.15 per cent in 2001 to 4.60 percent in 2009. This shows that India insurance industry has a huge potential and there is a chance of gaining more profits by the players.
Table 2.3: Insurance Penetration and Density in India
Life Insurance Year Density (USD) 2001 2002 2003 2004 2005 2006 2007 2008 2009 9.1 11.7 12.9 15.7 18.3 33.2 40.4 41.2 47.7 Penetration (%age) 2.15 2.59 2.26 2.53 2.53 4.1 4 4 4.6
General Insurance Density (USD) 2.4 3 3.5 4 4.4 5.2 6.2 6.2 6.7 Penetration (%age) 0.56 0.67 0.62 0.64 0.61 0.6 0.6 0.6 0.6
Industry Density (USD) 11.5 14.7 16.4 19.7 22.7 38.4 46.6 47.4 54.3 Penetration (%age) 2.71 3.26 2.88 3.17 3.14 4.8 4.7 4.6 5.2
Insurance density is measured as ratio of premium (in US Dollar) to total population. Insurance penetration is measured as ratio of premium (in US Dollars) to GDP (in US Dollars). Source: Swiss Re, IRDA Annual Reports 2001 to 2009
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A study on Indian Insurance Industry 3. Literature Review
Mr. Tapen Sinha (2005) in his research paper The Indian Insurance Industry: Challenges and Prospects highlighted the phenomenal growth experienced recently, in line with the country's improving economic fundamentals. He benchmarked the Indian insurance market against other regional counterparts. By comparing growth, penetration, density and other insurance variables, it can be shown that, whilst India is still an underdeveloped insurance market, it has a huge catch-up potential. He presented a necessary overview of the historical development of the sector, but the relevance to the current marketplace is not lost, as the original 938 Insurance Act still forms the backbone of present insurance regulation. A more detailed dissection of current regulatory issues is offered. He also discussed the issues in the life and non-life insurance sectors respectively. Developments with far-reaching implications, like the proliferation of bancassurance as an alternative distribution channel and the move to allow non-life insurance companies greater freedom in pricing their products, are looked at in detail. Finally, he summarises the potential and pitfalls of rural insurance in India. Even though there is strong potential for expansion of insurance into rural areas, growth has so far remained slow. Considering that the bulk of the Indian population still resides in rural areas, it is imperative that the insurance industry's development should not miss this vast sector of the population. Shilpa Thakur (2008) research Competition in Life Insurance sector of India is aimed at understanding the life insurance sector in India and flagging issues relating to competition in this sector. The life insurance sector has a small market and cover approx. 3 % of population in India. As a growing sector, it is important that all players get a level playing field. The competition act is to provide for a level playing field to all players to encourage competition in market. Through my study I have tried to substantiate this with facts and evidence proving that LIC as a state owned enterprise enjoys a dominant market. The enterprise having a dominant position is not per se illegal but abuse is. The dominance of LIC is not deliberate rather it is by virtue of the regulations that the market is deprived of a level playing field and market has an anti-competitive environment. This sector is highly lucrative and therefore increasing the FDI cap would be a step to enhance competition in this sector and also cover a large population. Exclusive networking, sovereign guarantee and entry barriers like limited FDI creates an anti-competitive environment in market.
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According to Krishna Chaitanya Vadlamannatis (2008) Do Insurance Sector Growth and Reforms Affect Economic Development? Empirical Evidence from India A welldeveloped insurance sector is necessary for the economic development of an emerging economy like India, as it provides long-term funds for physical and social infrastructure, while simultaneously strengthening risk-taking abilities. The investment requirements for India in the coming years are well-known and the rapid growth of the insurance sector in the post-liberalisation period is seen as a good sign as it can, to some extent, facilitate investment in infrastructure development to help sustain the economic growth of the country. Against this backdrop, this paper raises an important question: what has been the contribution of insurance sector growth to economic development in India? The paper further examines the economic growth effects of insurance sector reforms and the rate of growth of insurance reforms. The claims brought forward by this study are mixed. The contribution of the insurance sector to economic development is positive and exhibits a long-run equilibrium relationship. We find that reforms exert no strong relationship, but the rate of growth of reforms has a positive influence on economic development. The study therefore suggests that in order to make the insurance sector a more important component of the financial intermediation process, complete deregulation and an increase in the pace of reforms are the need of the hour. The Potential of Rural Life Insurance in India: Problems and Prospects of K. Spandana states that the recent research work on the commercial viability of doing
insurance business in rural India clearly indicate that the rural sector is a vibrant market, and that it holds tremendous potential for the growth of insurance business in India. However, the penetration of insurance in rural India remains pitifully low. This paper aims at exploring the potential of life insurance in rural India with all its problems, complexities and variables, and suggesting the means and ways of meeting the challenge of developing the rural insurance business in tandem with its potential of economic growth.
Ashish Sadh, Soniya Billore in their Brand Building and Advertising: approaches in Indian Life Insurance Industry explained that the Financial service brands are based on ensuring long-term financial security through a broad range of inherently risky services and investment options. In the insurance sector, branding has typically involved the concepts of
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A study on Indian Insurance Industry stability, trust and protection. If there was one industry in India which least considered branding as an essentiality, it would be the insurance industry. However, with liberalization of the industry, players have to realize the need for branding in a competitive environment. Insurance companies need to strive to build a brand in order to attract both the end customer and intermediaries. This study is intended to analyze the advertisements and to know through a set framework and model how closely the present day advertisements fall in line with what has been proposed in theory. It is meant to understand the features that come up in the Insurance product advertisement in the Indian industry and how closely the advertisements are in line with what has been theoretically prescribed as ideal way of communication for the Insurance products. The results of the analysis will be particularly useful for the players of the insurance industry, the media world and academicians.
Our research focus on most of the topics that the above research papers mention but our research paper goes one step beyond these research papers. We used Herfindahl index to know the nature of competition. We used PEST analysis, Porters Analysis and SWOT analysis to clearly understand about the insurance industry. We also covered the mergers and acquisitions takes place in the industry. We made a research to find the scope and ways to improve the industry from its current level using technology. We also made a global comparison and predicted the growth of Indian insurance industry in the future.
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4. Market Share of Life Insurance Industry

The introduction of private players in the industry has added value to the industry. The initiatives taken by the private players are very competitive and have given immens immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market, the insurance industry has seen new and innovative steps taken by the , insurance companies to grab market share. The new companies have improved the serviced quality of the insurance. They initiated many new policies for the betterment of both . company and policy holders. As a result down the years LIC gradually losse its market . losses shares to the private players. Though LIC still holds the 75% of the insurance sector but the rance upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 70.10% (2009 2009-10). But now as people showing more faith on Governments LIC, the private companies market shares are gradually declining. The following is the market share of Life Insurance Companies in the Indian Insurance Industry.
Fig 4.1: Market Share of Life Insurance Companies as of May 2011
Market Share of Life Insurance Companies

1% 2% 2% 2% 5% 5% HDFC Standard Max New York Life Bajaj Allianz 76% Birla Sunlife Reliance Life Tata AIG Others 1% 1% 5% SBI Life ICICI Prudential LIC India
Source: Forbes India Magazine, July 2011 ,
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The above chart shows that LIC with 75.68% (~76%) market share dominates the Life Insurance sector with its supremacy and is currently in growth phase. The first year premium of LIC was grown from 60.89% in 2008-09 to 65.08% in 2009-10. SBI Life Insurance and ICICI Prudential with 4.83% and 4.42% market shares holds second and third positions respectively. Other players hold negligible market shares in the industry.
4.1. Herfindahl-Hirschman index The Herfindahl index (also known as HerfindahlHirschman Index or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them.
Table 4.1: Herfindahl-Hirschman index calculation Companies LIC India SBI Life ICICI Prudential HDFC Standard Max New York Life Bajaj Allianz Birla Sunlife Reliance Life Tata AIG Others Market Share 0.7568 0.0483 0.0442 0.0238 0.0199 0.0179 0.0132 0.0125 0.0114 0.052 M^2 0.57274624 0.00233289 0.00195364 0.00056644 0.00039601 0.00032041 0.00017424 0.00015625 0.00012996 0.002704 0.58148008
HerfindahlHirschman Index
Source: Forbes Magazine, July 2011
After analysing the industry using the Herfindahl index we come to the conclusion that the Insurance industry is highly concentrated in India, as the parameters for the index state that the result if it is below (0.1) that the market is not concentrated and it shows the potential for new entrants to enter the market. The index if lying in between (0.1 to 0.18) means that the industry is not fully concentrated and is averagely concentrated, but anything above (0.18) it means that that the industry is heavily concentrated. But here we have an index of (0.58148)
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A study on Indian Insurance Industry which means to say that the industry is heavily populated and does not show any positive signs for new entrants.
However contrary to this we should also consider the fact that the Indian life insurance industry has been tapped only 0.46% and holds tremendous potential for companies to tap into the vast untapped market that needs to be captured. Almost a population of 100 crores population to be captured. The govt regulation on the J.V where foreign investment is regulated to 26 % of the total stake in the J.V.
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5. Industry Analysis
5.1. Introduction As Indian insurance market is highly concentrated and there is an involvement of more political and economical factors making the insurance history to split into Pre-Liberalisation, Liberalisation and Post-Liberalisation we made a PEST analysis to understand the factors involved and affecting the sector. Considering the increase in entry of more and more companies after liberalisation, we developed a Porters five force model and analyze the current market conditions. Finally to know the potential of the market and considering the outcome of the early two PEST analysis and Porters Five Force Model, we made a SWOT analysis to know its present status and to predict the insurance industrys future. The analysis are made available in the report.
5.2. PEST Analysis A PEST analysis (also sometimes called a STEP, PESTLE or STEEP analysis) looks at the external business environment. PEST stands for Political, Economic, Socio-cultural and Technological.
5.2.1. Political Factors The entry of private companies in the insurance sector allowed by The Insurance Regulatory Development Act, 1999 (IRDA Act), was the sole exclusive privilege of the public sector insurance companies. The IRDA act was passed in order to protect the concerns of share holders of insurance policy and also to govern and check the growth and development of the insurance sector. According to this act following are the circumstances under which allowed the private insurance companies were allowed to operate in India The company should be established and registered under the 1956 company Act. No company should be allowed to deal with both life and general insurance through a single entity. Private companies with the minimum paid up capital of Rs 100 crores should be allowed to enter into the sector.
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A study on Indian Insurance Industry A foreign partner or its subsidiaries or nominees can hold 26% equity capital in an Indian insurance company.
A policy known as 'Health plus Life Combi Product', offering health insurance along with life cover insurance which has been granted permission by the IRDA act , insurance companies are allowed to provide it now. The FDI (Foreign direct investment) limit in the insurance sector has been limited to 26% for the foreign markets but according to the Union Budget fiscal in 2005 there was a proposal to increase it to 49% this offer is pending at the Rajya Sabha. The Pension Fund Regulatory and Developmental Authority (PFRDA) on 1st April, 2010 have formed a low cost pension scheme for the poorer class to provide them social security. The compulsory surrender formally regulated by IRDA for every General Insurance Corporation (GIC), would go on to stay at 10%.Postal life insurance should be allowed in rural market. Governments objectives to liberalize insurance sector is to provide insurance coverage to all Indian citizen and to main a long term financial flow for growth of infrastructure. There are different policies which are adopted for investors outside India. They cannot invest outside India the funds of policy holders.
5.2.2. Economical Factors Development of insurance industry is an important part of the financial system, and which is expected to contribute to financial development and economic growth. Consequently, the insurance sector provides risk transfer and various compensation schemes by the efficient distribution of different risks at all possible level. Therefore, the insurance sector accelerates capital accumulation and leads the domestic savings to investment because of these functions. Inflation rate can be one of the factor which may affect the scenario of insurance sector. High inflation rate which is present persistent in India will show a slowdown in insurance business as the investor will get less ROI and hence will lose to attract the investors. In high inflation situation clients prefer scheme which is on short term basis or periodically repaid and risk policies are kept for long term. Capital adequacy is required to meet up long terms clients dues and claims. So minium amount of fund is required by the insurance sectors as suggested by IRDA is 1 billion to enter the insurance sector. Unemployment also affects the insurance sector as because they will be unaware or incapable of purchasing the insurance policy, so savings also affect the sector. Increase in economic growth or activity will increase the value of insurance companies as no demand will be created such as airlines industry etc.
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5.2.3. Social Factors Population, life style, educational level, level of earning and social benefits are the basic social factors that affect the life insurance factors that affect the life insurance sectors.
Population The population expansion is one of the major factor on the life insurance sector. As it may push up demand as in it may have positive effect because too many vehicles will create hazard and pollution which will require policy coverage which is otherwise not sold that much.
Life style Disintegration of social values, increase of possibility of accidents as most of them work outside home, illegal use of official property, funds, patronage, and abduction needs to be under coverage under suitable designed policies
Education Level More than 50%people in India are uneducated .They are not aware of the policies. Also the educated group are not qualified properly in terms of quality hence they doesnt understand the concept of insurance properly. Hence the policy awareness is the major issue in this sector now with low education as a barrier
Level of earning Due to unequal distribution of money the richer are becoming richer and the poorer are become poorer because only 20% of the population are having 80% of the wealth which is affecting the life insurance sector.
Social Benefits The pension policy scheme adopted by the life insurance sector based on the financing through employer and employee participation have acted as majority workforce in the unorganized sector and it helped to formalize channels of old age economic support and also helped to recover poverty and unemployment
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A study on Indian Insurance Industry 5.2.4. Technological Factors As most of the people are unaware of the risk coverage scheme by life insurance sector hence the best way to educate people will be through internet. It can serve as a single window for information about product, process and update. Through internet the growing insurance companies can get an idea on the market segmentation and also they can review and get suggestions from different customers. Through technological up gradation the customers can be benefited in many ways such as service transaction, pricing, product differentiation which will increase the convenient aspect of the customer service.
Maintaining data base It is very important to maintain a proper data base for the growth of the insurance sector which can easily done by using computers and other advance technological aspects.
E-business insurance in India Due to technological advancement there were various advantages such as fast processing time, sophisticated scheme of work etc. But too much sophistication increases the risk factor which needs to be under the risk coverage policies. Also online payment facility has risen the customer satisfaction level and attracted the clients
5.3. Porter Five Force Model Analysis One important component of industry and competitive analysis involves delving into the industrys competitive process to discover what the main sources of competitive pressure are and how strong each competitive force is. This analytical step is essential because managers cannot devise a successful strategy without in-depth understanding of the industrys competitive character. Even though competitive pressures in various industries are never precisely the same, the competitive process works similarly enough to use a common analytical framework in gauging the nature and intensity of competitive forces.
The state of competition in an industry is a composite of five competitive forces. 1. The rivalry among competing sellers in the industry. 2. The potential entry of new competitors. 3. The market attempts of companies in other industries to win customers over to their own substitute products.
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A study on Indian Insurance Industry 4. The competitive pressures stemming from supplier-seller collaboration and bargaining. 5. The competitive pressures stemming from seller-buyer collaboration and bargaining
Porters five- forces model of competition are as below:1. Threat from new entrants 2. Bargaining power of supplier 3. Bargaining power of buyer 4. Threat from substitute 5. Competition from existing players
The five-force model developed by porter in 1980, guides the analysis of an organizations, Environment and attractiveness of the life insurance industry. The nature and degree of competition in an industry hinge on five forces, which include the threat of substitute, bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants and degree of rivalry between the existing competitors.
5.3.1. Threat of new entrants The future of life insurance market scenario will be marked by the active presence of many international players, beside several Indian players. As far as life insurance industry there would be fewer entries due to more specialized firm with lower expenses ratios and better capitalization. In life insurance industry entry barriers is moderate so that it becomes profitable, it attracts new entrants, thereby increasing the number of competitors. Tax exemption makes the industry attractive. Private giants and international player are trying to enter in to the market in the large scale with their proper homework with customized and products too.
5.3.2. Bargaining power of buyers Market is segmented into different segments based on customers needs and demands and they have strong competitive force when they are able to bargain over premium, service other terms of sale etc. Due to increase of competition in each and every sector the bargaining power of customers are high. And the customers of this industry often switch over to other substitute products etc.
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A study on Indian Insurance Industry 5.3.3. Bargaining power of Suppliers Policy designer tend to have less leverage to bargain over premium and other terms of sale when the company is supplying to major customer. Suppliers bargaining power increases if there exist a reduction in administrative cost and claim procedure time. Insurance is tax exempted so that suppliers bargaining power increases. At the same time suppliers then have a big incentive to protect and enhance their customers competitiveness providing them with reasonable premium, better service and ongoing advances in the technology of the item supplied. Suppliers ability to integrate forward: the private players can integrate forward to increase the volumes of business by providing customized and tailormade policies whereas existing players whereas lack on this point. To maintain brand identity there is certainty among the minds of people in relation to maintain relation with the existing players.
5.3.4. Threat form substitutes The increasing market potential of Government bonds like NSC, debentures, etc,, is threat to the existing private players. Moreover the investment in insurance sector with an objective of tax exemption can be subsidised using similar products which offer the similar benefits. But risk coverage is only provided by this sector so no threat is there in this area.
5.3.5. Competition among existing players As a result of privatization competitive conditions prevail in which entry of companies buyers will exercise control. There is cut- thought competitions among rivals in life insurance industry. There are mainly 23 private organizations and one public organization in life insurance competition. The insurance sector is showing high market growth rate, which enables the insurance companies to achieve its own market growth through the growth in market place. The annual growth rate is expected to be 15%. All the insurance companies deal in identical policies, as service levels offered are similar. Hence, there is no much product differentiation. Post-privatization, product and service differentiation exist between public company-private companies. Ministry of finance controls all the insurance companies that are in the industry at present. Hence, there are less chances of exit. Also, post privatization made less chances of exit, as after 1999 IRDA governs the insurance companies. Nationalized players have negligible computerization and use of management information system (MIS). Although they are planning to implement software developed by
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A study on Indian Insurance Industry CMC for fulfilling the MIS requirements across various levels of offices. Private players make extensive use of MIS as well as have more or less a paperless office.
5.4. SWOT Analysis SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities and Threats involved in a projector in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. Strengths: characteristics of the business or team that give it an advantage over others in the industry. Weaknesses: are characteristics that place the firm at a disadvantage relative to others. Opportunities: external chances to make greater sales or profits in the environment. Threats: external elements in the environment that could cause trouble for the business.
5.4.1. Strengths The increasing literacy rate, especially in rural India, has spread awareness about the need for insurance. Between 2001 and 2026, the working population (2560 years) is expected to increase from 398.3 million to 675.8 million resulting in a favourable market for insurance companies. Projected per capita GDP is expected to increase from US$ 380.8 in 200001 to US$ 2,097.5 in 2026, reflecting higher disposable income. Premium income as a percentage of GDP has increased from 3.3 per cent in 200203 to 7.6 per cent in 200809. Insurance companies are providing a wide range of products to meet the diverse requirements of the Indian population. Life insurance is already the most popular financial product among Indians because of the tax benefits and income protection it offers. The rising income level and demographic shifts results in emergence of new market. Increase in per capita income increases the disposable income with people which create large insurable population resulting in purchase of new policies. Premium rates are increasing and so are commissions of the agents motivating them to sell more policies.
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A study on Indian Insurance Industry Prospects expect more services from their brokers.
5.4.2. Weaknesses Insurance companies are often slow to respond to changing needs. There is an increasing trend of financial weakness among the companies. There are more competitors for agencies to compete with banks and Internet players.
5.4.3. Opportunities Todays human life becomes full uncertain, so they prefer protection against the risk. Therefore they prefer life insurance. This is the opportunity for the life insurance sector. Easy accesses to development in the more advance market provide further opportunity to upgrade their working. Technological, financial or specific area based avenues of absorbing improved system are also now more easily available. So, that insurance companies working efficiently and fast service. Increased economic activities: increase in the economic activity has become the opportunity for the life insurance sector. The activity such as development in the automobile industry, development in the shipping industry. The growth in the GDP shows the opportunity for this industry. So this is also one of the opportunities for the life insurance sector. Uncovered market: The Insurance penetration in India is only 5.2% in which Life insurance accounts only 4.6%. The remaining 95% of market is untapped. Being the developing economy, there is a huge opportunity for the insurance companies to tap into the untapped market and gain more customers. Technology is improving to the point that paperless transactions are available. In the past companies used lot of paper works to maintain records from issuing policy, premiums payment records, claims records till policy is closed or withdrawn. But now due to the technological innovations these records are maintained in database format using computer and also the payment of insurance premium and claim process made online reducing the paper works. The clients increasing need for an insurance consultant can open new ways to service the client and generate income.
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A study on Indian Insurance Industry To enter into rural market where customer awareness about insurance is low by effective and efficient marketing strategies. To sell insurance products through electronic Medias. Natural calamities: natural calamities taking place now days have created a concern for life insurance among the public. Because of natural calamities like earthquake, flood, and cyclone people have become conscious about benefits and need of insurance. Thus through a calamity it has become a considerably big opportunity for the industry. Growing population: the growth in the population is very high. It is said that one Australia is added in our country every year. Thus potential customers for the life insurance industry. It has become an opportunity for the life insurance industry. The lack of comprehensive social security system combined with a willingness to save means that Indian people demand for pension products will be large. Thus, it has become an opportunity for the life insurance industry. India has traditionally been a highly savings oriented country. Needless to say, if the insurance market is properly tapped, it is possible to raise life insurance premium as a percentage of GDP from its existing level. Thus, it has become an opportunity for the life insurance industry. To use Internet and e-commerce technologies to dramatically cut the costs and/or to pursue new sales-growth opportunities. With the help of technology it has become easy for the companies to reach the customer quickly, easily, efficiently and in a better way. Also the companies can cut down the cost of operation up to considerable level. Thus technology has thrown lots of opportunity for the company.
5.4.4. Threats: Private entrants are naturally targeting the profitable and more lucrative segments, by providing better service, new products and flexibility. They are targeting the bigger corporate the other clients in the well established metropolitan center. These new entrants succeeded in eating share of the existing entities. This creates threat among rival firms itself. Fluctuation in the bank rate makes big difference for the life insurance industry. It has become threats for the life insurance industry.
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A study on Indian Insurance Industry Interest rate of P.F and bank saving create threat to insurance sector. All other saving is obviously the threat for life insurance sector. Increasing intensity of competition among industry rivals-may cause fall on profit margins. Consumers education- consumers are more and more confused because the market players are offering large number of product range. The consumers perceive life insurance as a tax saving tool instead of knowing its real benefit. Using this as advantage companies instead of educating the consumers they are selling the policies as a tax benefit tool. The flight of talent to new entrants is already in evidence, and could be on the rise for some time to come. Retaining qualified and competent executives will be considerable challenges for existing companies.
5.5. Business diversification of insurance sector in India Diversification is one of the fundamentals of business because it helps spread risk, which allows for the shifting of risk for reasonable pricing. Diversification can be accomplished through a variety of approaches, including line of business, product line, geographic concentration and distribution diversification strategies. Certainly no one would argue that diversification is not imperative in writing catastrophe exposed property insurance.
5.5.1. Types of Diversification Concentric Diversification Under concentric diversification new products and service are added to the line with the condition that these products and service are related to their existing products/services carried by the organization. For concentric diversification it becomes necessary that the products or services that ate added must be within the framework of the know and experience in technology, product lie, distribution channels or customer base of the organization.
Horizontal Diversification Where an organization adds unrelated products and services for existing customers, this is called horizontal diversification. The strategy is comparatively less risky because the
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A study on Indian Insurance Industry customers are known. The organization in fully acquainted with their consumer preference and their expectations about the quality and price of the goods and services.
Conglomerate Diversification Conglomerate diversification is growth strategy in which new products and services are added which are significantly different from the organizations present product and services.
Out of 24 registered life insurance companies in India most of the companies are diversified into different sectors. All the 24 life insurance companies can be considered as Concentric diversified as all the companies provide more than one type of policy to the customers. For eg: LIC provides Pension Plans, Endowment Plans, etc., Most of the companies can also list under Horizontal Diversification. For eg: ICICI serving customers through banking service, the same ICICI with the tie up with Prudential provides Life Insurance to the same customers. It also provides General Insurance in the name ICICI Lombard. Most of the companies in Life Insurance are Conglomerate diversified in nature as almost all companies have its presence in financial sector like banking, mutual funds, insurance, etc.,. Eg: SBI is in Banking and also in Insurance sector. ICICI is in Banking, mutual funds, insurance, etc., However there are few exceptions such as Bajaj Allianz as they have other business in automobile sector. Tata AIG is another example as Tata group have wide diversified business starting from salt to steel business. The other companies such as Reliance life insurance are also in mobile communication market to petroleum business.
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6. Mergers &Acquisitions
6.1. Introduction As if we see that only 5% of Indian population are covered with health and life insurance. With this percentage India stands in the 11th position in the world in insurance sector. By examining these figures we can say that there is bright future for the insurance sector in coming years. For this reason many foreign insurance companies are interested in Indian insurance industry and they want to enter to India. But as per the rules of IRDA only 26% FDI are allowed. Hence foreign companies are entering India by merging with the domestic companies. Therefore a lot of M&A are happened in recent years.
What is Mergers &Acquisitions? A Merger happens when two firms, often about same size, agree to go forward as a new single company rather than remain separately owned & operated by pooling all their resources together, to create a sustainable competitiveadvantage. When a Company takes over another one & clearly becomes the new owner, the purchase is called Acquisition. Unlike mergers, acquisitions can sometimes be unfriendly.
Motives behind mergers and takeovers Expansion and growth Tax Benefits Synergy Arresting downward trend Creating value to stakeholders Risk reduction Balancing product cycle Market leadership Market penetration Deploy surplus funds
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A study on Indian Insurance Industry 6.2. Merger and Acquisition in Indian Insurance industry 1. Bajaj Auto Limited and Allianz AG: Bajaj Allianz General Insurance Company Limited Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj Auto Limited and Allianz AG of Germany. Bajaj Allianz General Insurance came into existence on 2nd May 2001, when it got certification of Registration from the Insurance and Regulatory Development Authority. Bajaj Auto has a share of 74%, whereas Allianz has the remaining 26%. In the very first year, the company made a strong position for itself in the industry and was reckoned amongst the top private insurers. Bajaj Allianz serves customers in all areas of General and Health Insurance as well as Risk Management. It has in-depth knowledge of the local market and extensive distribution network with expertise, stability and experience. It has a capital base of Rs. 147 crores, and is allowed to serve both the General and Health insurance. It has achieved AAA rating, by ICRA Limited and has the highest claims- paying ability and a stable position in the market. In a 2006 survey, Business World has rated it among the Most Respected Companies, putting it at No.2 position in Insurance sector. The Company provides the following products under general insurance:

Travel Insurance Asset Insurance Health Insurance Corporate Insurance
2. ICICI bank and Prudential plc: ICICI Prudential Life Insurance Company ICICI Prudential is a joint venture between ICICI bank and Prudential plc, both having strong operations in their respective countries. ICICI bank is one of the leading banks in India providing quality financial services and Prudential is an international financial service provider headquartered at United Kingdom. ICICI and Prudential have respective shares of 74% and 26%. The Company started operating in December 2000. Currently, total capital with the company is Rs. 18.15 billion.
ICICI Prudential was the first insurance company in India to receive a National Insurer Financial Strength rating of AAA (Ind.) from Fitch ratings. It has been given the honour of being among the Most Trusted Brands in the industry by Economic Times for 3 consecutive
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A study on Indian Insurance Industry years. It has a network of 450 branches, over 1, 50,000 insurance advisors and 18 bank assurance partners.
3. ICICI Bank Limited and Fairfax Financial Holdings Limited: ICICI Lombard General Insurance ICICI Lombard General Insurance Company Limited is a joint venture between ICICI Bank Limited and Fairfax Financial Holdings Limited. ICICI bank is India's second largest bank; Fairfax is Canada-based, engaged in general insurance, reinsurance, insurance claims management and investment management. ICICI Lombard General Insurance Company commenced its operations in general insurance business in August 2001.ICICI Lombard is India's number one private insurance company; it is also the first general insurance company to be given certification of ISO 9001:2000. The company provides simple and fast documentation, fast claims settlement, online policy issuance, and comprehensive product line.
It has also been given AAA rating by ICRA for having highest claims paying ability. In the very first year of operations, it was able to reach financial breakeven and achieve underwriting breakeven in the second year.
4. Aditya Birla Group and Sun Life Financial Inc: Birla Sun Life Insurance Company Limited Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between Aditya Birla Group and Sun Life Financial Inc. BSLI started functioning in March 2001 after getting the certificate of registration from IRDA. Birla Sun Life Insurance Company Limited introduced unit Linked Life Insurance Solutions in India. Within a short span of time it was able to establish itself as a leading player in the Private Life Insurance Industry. It has been innovative and come up with customer-centric products to provide safety and services. The company has web-enabled IT systems for better customer services and a strong distribution channel which is easily approachable. The company shows corporate governance and a high degree of transparency in all business practices. It has professional knowledge and global expertise of Aditya Birla Group.
Birla Sunlife Insurance has been providing first class financial solutions to its customers and has been amongst the top three private sector life insurance companies.
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5. Tata Sons and American International Group, Inc. (AIG): TATA AIG General Insurance Tata AIG General Insurance Company Ltd. is a joint venture between Tata Sons and American International Group, Inc. (AIG). The Tata Group is holding 74 per cent stake and the rest 26 percent is held by AIG. The company has got the expertise, knowledge and strength of both the organizations. Tata AIG General Insurance Company was founded on January 22, 2001. It offers general insurance in various categories, such as automobile, home, personal accident, travel, energy, marine, property and casualty and specialized financial solutions. Jamsetji Tata founded Tata Group in 1860s. It has an estimated turnover of around US $ 14.25 billion. It has spread its operations in various fields such as steel, power, hotels, airlines, software services, communications, etc. Some of its major projects have been Tata Tea, Tata Steel, Tata Chemicals, Titan, Tanishq, Voltas, Westside and Tata Motors. Its imprints are made on the telecommunication and technology sector. Regarding telecommunications, it is the largest international long distance service provider. Approximately two- third of the equity of Tata Sons is held by a host of national institutions in science and technology, medical services and performing arts. By combining the ethical values with business acumen and fulfilling its commitment to the nation, it has become one of the largest groups in India. American International Group, Inc. (AIG) is the leading international player in insurance and financial services. Its network spreads across 130 nations. AIG member companies serve all types of customers, be it commercial or individual. AIG is among the leading insurers and the largest underwriter of insurance. Aircraft leasing, financial products and trading are some of the services offered by AIG. AIG has a global expertise of fulfilling the customer-centric needs. It has specialized investment management capabilities in equities, fixed income, alternative investments and real estate. AIG's stock has been listed in the New York Stock Exchange as well as stock exchanges in London, Paris, Switzerland and Tokyo.
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Table 6.1: M&A happened in the Indian insurance sector Name of the Company HDFC Standard Life Max New York Life ICICI Prudential Life Om Kotak Mahindra Birla Sunlife IDBI-Federal Bajaj Allianz Aviva TATA-AIG AMP Sanmar ING-Vysya MET Life India SBI Life Insurance Royal Sundaram Indian company HDFC Max India ICICI Bank Kotak Mahindra Aditya Birla Group IDBI Bajaj Auto Dabur Investments TATA Group Sanmar Group Vysya Bank Jammu Kashmir Bank SBI Sundaram Finance Foreign company Standard Life New York Life Prudential, UK Old Maruthi, South Africa Sun Life, Canada Federal and Fortis Allianz AG, Germany Aviva Plc, UK AIG, USA AMP, Australia ING Insurance, Netherlands MET Life, USA Cardiff, France Royal Sun, UK Area Life Insurance Life Insurance Life Insurance Life Insurance Life Insurance Life and General Life and General Life Insurance Life and General Life Insurance Life Insurance Life Insurance Life Insurance Life and General
Source: ISDL Data Source, www.irda.gov.in
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7. Technology Initiatives
7.1. Introduction Worldwide Insurance industry lags behind in technology till 20th century. But later Insurance industries find the need of technology in order to meet the needs of clients. If we compare the insurance industry with other financial industries, technologically it is far behind. Some might say that the insurance industry has made tremendous technological strides despite great challenges. Well, while banks and investment companies have emerged on how to open accounts online, and collect relevant data, and transfer money and provide multiple service categories, and not have to deal with issues such as insurance policies for the submission of multiple application to cover temporary needs, and approvals that add layers of complexity to the process of insurance. There is no doubt that the issue of the complexity of insurance and other financial products that do not.
7.2. Need and Challenges to have Technology Insurance companies have the ability to use internal legacy systems to new technology or opt for third party software and systems to use. Creating sustainable systems online is a difficult task. For many insurance companies, switching to an online purchasing system is expensive, time consuming and difficult to maintain. In fact, many insurance companies have introduced online systems with much fan fare, only to pull the plug immediately, due to maintenance and other issues. Apart from cost, another major concern for online transactions is security. This is the main obstacle to an insurance company is willing to participate in online community development intermediary. All entities (insurance offices, retail and wholesale online brokers) must work together to ensure the privacy, state control and individual licenses broker and agent licensing and compliance with other laws. Without a single security and the process of privacy, many brokers and operators are reluctant to use online services.
Another main reason industry has not fully embrace done-stop-shop platform is that many insurers would like a part of the race head-to-head to be, if that would be involved in a multiline insurance platform. But soon, we will not mention. Ultimately, consumers will force the
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A study on Indian Insurance Industry insurance industry to change. When customers expect their brokers to quickly find the best policy at the best price, brokers will force the issue with the carriers.
The insurance industry is faced with how to interact with customers and maintain in an effort to stimulate growth and profitability. Insurance companies that want to be leaders in their sector are focussing on three innovative technologies, social networks, telematics and SOA. A study by A.T. Kearney finds that the three important innovative technologies that are essential for insurance companies to become industry leaders are social networking, telematics and SOA. Chief Information Officers (CIOs) are challenged to be leaders in innovation to overcome and effective use of technology to constantly challenge the insurance industry.
In insurance industry, all companies are adopting a business strategy similar and consistent, as new ways to grow and find success. For many of the research strategies of wealth and efficiency of interaction with customers, improve the technological day more. Social networks, telematics and service-oriented architecture (SOA) all are in the mix and units of this change.
The study of A.T. Kearney included interviews with more than 150 leading executives in technology from around the world. The results indicate that social networks, telematics and service necessary to achieve growth and competitiveness. Discusses all of the following in more detail, including how each technology can play a role in the transformation of the insurance industry.
7.3. Role of Social Networking Insurance companies have the new technology to run efficiently. The benefits of IT, the importance of automation, the use of information to acts as an insurance underwriting, claims, marketing, etc., are described in this chapter. Change with the technology sector of the insurance in place with unprecedented speed, travelling further and more completely affects companies never expected. The business drivers driving insurers to look for technologies and business processes that are very different from what they have before. Driving forces such as globalization of markets, merger and acquisition activity, and absolute need for strategies to determine market segmentation, forcing companies are the move age of
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A study on Indian Insurance Industry information at an unprecedented rate. Who does not want to take more risks is left with unsatisfactory levels of the company, falling profits and, inability to survive.
More insurers are using social networking. Some companies are using their Facebook sites to build awareness among consumers and in the process of evaluating and selecting an insurer. State Farm uses its Facebook page to work with customers and customer service, a major component of the ongoing strategy to improve clients are connecting to. Social media is also a way to connect agents and brokers to insurance companies, the creation of communities with the power to impact on product development, sales and marketing. Progressive Facebook pages (with Flo) are probably the most popular in the industry and explain why the combination of social media with a popular campaign is a good way to communicate product information.
Some in the insurance industry are turning to the next step in commitment to social media with their followers in the "challenges". How Frito-Lay uses Facebook and YouTube every year to challenge users to create a new Doritos commercial to air during the Super Bowl, the insurer Aflac the "10-Second Challenge" commercial competition has generated more than 180 video contributions, which has seen over 250,000 times on Facebook and aflac.com.
Social networks also have the opportunity to save costs in an application, for example, some insurance providers to offer premium is lower for banks that use social networks to identify borrowers at risk of banks using the software. SAS, among others, to check the 'Association', who are known criminals and isolating patterns that suggest the potential for fraud,as technology becomes a major social network, we believe that insurance companies can take advantage of this opportunity. Although the financial value to businesses is still not completely clear, the potential to improve our products and services and influence the target consumer is perfectly clear.
7.4. Role of SOA in Insurance industry Service-oriented architectures or SOA, are considered among the most promising hidden technology. Companies to make their applications and computing resources (such as customer databases and catalogs of suppliers) are available on a unitary basis or through an intranet or Internet. Not surprisingly, the SOA gain traction in the insurance industry, especially as put together a large, reliable systems and legacy systems used in different ways,
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A study on Indian Insurance Industry such as e-commerce. Insurer is using SOA to share customer information with business units, and also cut costs with new software applications development to capitalize on these services. Other uses SOA to integrate legacy and new applications. Both companies understand that success in the insurance (or any business, for that matter) that requires the functionality of updating and using the existing infrastructure as SOAs become more popular as more insurance companies still consider their IT architectures as strategic assets.
7.5. Technologies that helps in transformation of Insurance industry According an article of Mr Anthony O'Donnell in conference 2011 Insurance Technology Outlook, which held on Jan-2011 hot technologies that helps in transformation of insurance technology in coming years are: Data Management Business Intelligence and Predictive Analytics Open Standards Architecture Cloud Computing/SaaS Social Media Mobile Technology
7.5.1. Data Management Insurance companies have plans to processing, the success of their projects on the quality and availability of improved data. So they invest in a variety of information technologies, including data warehouse, data storage and metadata initiatives, says Karen Pauli, Research Director, Insurance, Tower Group (Needham, MA). It is not possible to implement a meaningful strategy or the regulations, no data in usable condition. Insurers have recognized only limited progress in the liberation of data in tables and isolated local databases.
7.5.2. Business Intelligence and Predictive Analytics Insurance companies are sitting on a goldmine of customer and operational data, and they recognize that they are comprehensive Business Intelligence (BI) to use these insights to improve the customer, develop new products and markets, and online resources to the point where their performance relative to the accelerating. Hand in hand with the interest in BI, predictive analytics is to help insurers with premiums and claims leakage by driving better underwriting decisions and to help eliminate fraud.
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In life insurance arena, the airlines are making increasing use of heterogeneous data to better predict mortality experience, successful producer, surrenders, and tend to buy different items. Towards the industry in general, insurers will use predictive analytics to better manage through difficult economic times. Insurance companies continue to invest in better technology, which seeks to identify profitable growth opportunities in a hyper-market.
7.5.3. Cloud Computing/Saas Many insurers perception about cloud computing is not a risk / reward proposition, but the two activities, however, is likely to boom in the cloud-based applications, some e-mail, CRM, and even the political administration of P & C Insurance. After many years of careful exploration into the cloud computing, Insurers becoming more comfortable with the use of IT, as the tested model. CIOS two leverage cloud-based services up and down the stack, from infrastructure and services at the request of two applications.
7.5.4. Mobile Technology in Insurance industry Mobile commerce, generally defined as conducting information inquiries and transactions through the use of mobile devices via wireless communication, is considered the next big wave of investments and implementation of information technology. Although plenty of research available on the commercial side of mobile technology, there is very limited research on the strategies and M-commerce applications. These are the factors that influence successful introduction of mobile commerce in insurance industry. If the system is based on personal mobile commerce technologies Digital Assistant (PDA) for the insurance industry. Whether individual differences in cognitive fit of insurance implications of mobile use PDA-commerce system. Which of the three major insurance tasks is better suited for the PDA technology. The technology attribute affects 4 Which PDA is best for which type of insurance.
PDA mobile commerce system is in fact suitable for the insurance industry. With regard to the impact of individual differences, cognitive style and computer self-efficacy important factors affecting the proper implementation of PDA technology for insurance tasks predicted. Counter conventional wisdom, other demographic variables such as age and gender prove to
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A study on Indian Insurance Industry be insignificant. Among the three major insurance companies tasks, mobile PDA technology offers the highest level of customer support in post-contract, then recruiting new insurance contracts and tax and legal advisory information services.
Insurers are not always known for the latest on the media when it comes to technology because of the adequacy of old systems is to reduce administrative costs and the basic instincts of the conservatives. However, changing the business value and convenience through innovative technology created compulsory insurance for their business models and take delivery of affordable, high-payback, but meeting the challenges of technological solutions for increasing amounts of information in real time and costs.
The industry is keeping a watchful eye on innovations taking place in areas similar to BFSI and responds with the launch of low-cost and high ROI technology enablers such as mobile and wireless technologies.
This is a fundamental change, the value proposition of mobile solutions for most insurers have been. The change is accelerating the speed and convenience of business-enablement m directed its components, such as producers, consumers, employees and suppliers through information and transaction services. This is in direct contrast to the early days of e-mail communication alone. Mobile Computing has acquired the necessary importance of insurers in the IT budget dollars and enables m-SFA for its stakeholders and customer management.
Because of the ubiquity of mobile computing, there was a growing need for more services for agents and consumers with mobile devices and the demand seems to intensify over time were on offer. Through mobile phones, insurers have good tools to equip its agents in real-time information and contacts. Start mobile applications is becoming increasingly popular, especially in the United States, for insurers who want to create a new brand image.
Some of the major insurers in mature markets have proactively mobile applications to their customers for the submission of applications, photos, random information and assistance in the field as a vocation and location of shops, hospitals, regulators, etc. The insurers are also accelerates the process of affirmation m rolled to their adjustment to field a significant reduction in the overall cycle of political demand and operating costs. Days are not far when
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A study on Indian Insurance Industry mobile geo-targeting solutions through personalized and localized the interaction and maintenance of existing and potential customers.
Some insurers do not have the mobile strategies into their business processes; others are technology leaders in the insurance industry to mobile customers. Carriers have developed smartphone applications with functions of marketing payments to insurance buyers about the risks. The main features of smartphone applications for insurance, most cameras and GPS. Some of the most popular applications include insurance for auto insurance, the little easier to adapt to the smartphone interfaces with other types of insurance. The impact of mobile technology extends to the workplace in insurance.
The space now includes mobile applications, rich in features and functionality for agents, brokers, risk managers, claims adjusters and other insurance professionals. Distributed workers who benefit has always been important in insurance, in real time from the convenience of portable devices. Mobile applications are also influenced Software Assurance. Other suppliers and cheaper, the emphasis on ease of use, social, faster release cycles, and open-source approach to application development. All these aspects of application development have the potential to make, insurance and agile software update.
Mobile applications and platforms are becoming more common in the insurance industry. Insurance companies, which have to invest in mobile technologies an advantage in attracting and retaining customers, especially young people who rarely see expect officers in person, but that immediately communicate with the insurers on their handheld devices. Because many insurers in markets with little or no growth, in which customers often purchased from other insurers, can be mobile systems is an important competitive advantage to draw. Hence the future is of innovative strategies for communication and service on handheld devices.
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8. Marketing Initiatives
8.1. Introduction As we know that Marketing is important to any company, it is essential in Insurance industry. Marketing is a continuous activity in any insurance and includes various functions likesales promotion, advertising, public relations, efficient servicing, monitoring etc., whichis achieved by the marketing organization. A typical insurance company may includethe following marketing personnel, whose designations however may vary.
Regional Marketing Manager Senior Branch Manager Asst. Branch Manager Development Officers (Select, train, motivate, supervise agents, liaise with policy holder etc. Permanent employees, also called Field Officers in General Insurance)
Agents (Canvassing policies, sale & service of policies, avoid adverse selection, settlement of claims. Agents can be Part time, Full time or Career agents)
As we are mainly concentrated on life insurance, let us discuss about marketing strategies of LIC and Private Companies that provide life insurances.
8.2. Marketing Strategies of LIC In consonance with the changes taking place in the insurance market, the corporation has undergone a transformation, simultaneously requiring a revamp in its image.
Systematic and focused PR initiatives and wide spread publicity have resulted in markedly improved visibility. The corporation has emerged with a much younger and sleeker image.
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A conscious effort was made to bring about a transformation in the corporate image. Through various campaigns, the corporation tried to depict the organization as one oriented towards the younger generation. The corporation advertising campaigns assisted the marketing strategies.
8.2.1. PR Activities for Consumer Relations The business of insurance is purely service which cannot be seen or held. Hence, the consumer relations activities of LIC concentrate on the customer public and building relations with prospective customer. The corporation has time and again made endeavours to r each out to the consumers, interact with them and keep them satisfied. The corporation tries to achieve its objective through a number of means.
8.2.2. Oral Communication Oral communication with the consumer public is the most effective means of presenting facts and creating understanding of the organizations policies and practices.
8.2.3. Employee-Consumer Communication The harmonious relationship that LIC has, through the years, built and maintained with its customers has only been possible due to its dedicated and committed team of Development Officers and scores of Insurance Agents throughout the country.
8.2.4. Press Conferences Press Conferences are organised to announce new appointments of top executives, introduction of new schemes, etc. Audio-Visual Communication Television and Radio broadcasts are a basic medium of consumer communication Television and Radio advertising. The corporations advertisements reached nearly 25crore people through over 50 campaigns. There were 79 hours of TV advertising and 408 hours of Radio advertising.
8.2.5. Trans-slides The Corporation has placed trans-slides at strategic places, like Railway Stations and airports, for maximum exposure to public at large printed communication. At LIC printed communications are used in conjunction with oral communication media.
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8.2.6. Press Release: Press releases are frequently handed out to the media by the local PR department on behalf of the company. These generally comprise of any subject or issue concerning the company, containing information for policy holders or any item of news value to the media and its readers.
8.2.7. Journals and Publications The corporation takes out its annual working results and several other publications from time to time to keep the public abreast of the happenings and achievements at LIC.
8.2.8. Financial Results The annual financial report of the corporation is published in the National dailies and is also circulated amongst the shareholder s to keep them informed. It also aims attracting new investors.
8.2.9. Website The Corporations website www.licindia.com gives information about the corporations products, services, subsidiaries and addresses of branches and about premium payment through the internet. It also provides Press releases, News sections, Online policy status Online Premium Payment.LIC has tied up with HDFC Bank, ICICI Bank, UT I Bank, Bank of Punjab, Global Trust Bank, Corporation Bank, The Federal Bank Ltd., Citibank, and service providers like BillJunction.com, timesofmoney.com to offer the online premium payment facility to its customers in select cities.
8.2.10. Information Kiosks The corporation has installed online information kiosks at prominent places across the country. This provides information about the Products, services and policy status reports to the customers.
8.2.11. Community Relations LIC regularly provides Health vans to various organizations across the country. The
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A study on Indian Insurance Industry corporation also sponsors many sports events at the national level. Numerous publicity projects with a social purpose are undertaken at the zonal level. Recently the North Zone (Delhi) associated itself with the Perfect Health Melas to propagate the cause of good health.
8.3. Marketing strategies of ICICI Prudential Under private insurance companies, we discussed about the marketing strategies of ICICI Prudential Life Insurance. ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse, and Prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI
Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA).
Marketing strategies are:
8.3.1. The Target audience Representing an ideal mix of medium to high net worth individuals: The consumers most disposed towards buying life insurance. Middle-aged professionals, primarily male, salaried and self-employed, age group: 28 45 years, household income: Rs.20, 000 and above.
8.3.2. Creative Strategy To get the consumer to re look at Insurance as a means to lead a worry free life and not as a necessary evil. When ICICI Prudential Life Insurance first began operations, the task was to present the visiting card of the company to the public at large and build credibility and stature and to give the consumer the confidence that 'here was a company that could be trusted to invest funds with'. This required a corporate campaign, which started with advertising to establish the brand, build awareness and give the brand a larger than life image. To this effect the core brand insight highlighted was "As head of the family it's my responsibility to take care of my loved ones and protect them from the uncertainties of life", summed up in the advertising idea.
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Over the last few months, ICICI Prudential has been advertising in outdoor, TV and press. The company launched a corporate television campaign Saat-Phere which took the emotions and thoughts of initial Sindoor corporate film a few steps further. The film highlights the strength of promises that a husband makes to his wife, through the depiction of everyday situations, and then goes on to emphasize that ICICI Prudential will stand by the husband to help him fulfil all these promises. The TV campaign has also been extended to outdoor. The company has also undertaken press and internet campaigns to inform customers about benefits of some of its products, particularly retirement solutions, through the Chintamani campaign.
Once the corporate image and brand identity were established, and as the company expanded and its product range grew, the next phase of communication was to give the consumer rational and tangible reason to buy - first of all insurance and secondly from ICICI PrudentialLife. This was tackled through product-specific advertising, such as for ICICI Pru Smart Kid, retirement solutions or Lifetime.
8.3.3. The Creative execution Through television channels: Building image and creating a differential in the most creative and compelling manner. The creative execution heightened the emotional connect with the ICICI Pru brand- Indian; satisfaction of knowing that ones loved ones are protected.
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A study on Indian Insurance Industry Fig. 8.1: ICICI Prudential
Source: www.iciciprulife.com
8.3.4. Other Communications: Other programs included direct mail, PR of communications campaign in press & TV, website marketing; and database generation through channels. Other initiatives included tie-up with the Dabbawalla Organisation in Mumbai for a direct marketing exercise, to talk to the customer through a non-cluttered route, and thereby have a higher impact. The direct mailer was about ICICI Prudentials retirement solutions and the tax benefits that one can avail of buy investing in any of these. About 100,00 direct mailers were attached to the dabbas, in areas such as Churchgate, Bandra and Andheri where there are mostly office-goers.
ICICI Prudential Life Insurance has also announced a strategic distribution tie-up with HariyaliKisaan Bazaar, the rural business arm of DCM Shriram Consolidated Ltd (DSCL). As a partner, HariyaliKisaan Bazaar can now distribute ICICI Prudential's
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A study on Indian Insurance Industry protection, wealth creation, retirement solutions and health insurance products to
customers across the its growing number of rural business hubs in the country.
In addition to advertising, the company has also initiated several activities to raise consumer awareness about life insurance and ICICI Prudential. It includes seminars plus ICICI Prudential regularly holds consumer awareness meets on the need for retirement planning in different cities such as Pune, Aurangabad, Coimbatore, Nagpur, Bangalore and Mangalore. These are very well attended and have contributed significantly towards increasing awareness about the category and the company. Apart from this, company also entered into alliances with telecom companies, as well as companies like BPCL and Dominos.
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9. Future Outlook
Since the liberalization of Indian Insurance Sector in 1999, the growth of Insurance industry increased dramatically. Opening the market to private players and foreign investment, encouraged lot of Private Indian and Foreign companies to tap insurance market. In 1999, state owned Life Insurance Corporation (LIC) was the only company that provided Life Insurance in India. But now in 2011, the numbers of companies that provide life insurance to Indians are 24, in which 1 is state owned LIC which holds 75.68% of market share and other 23 are private players accounts market share of 24.32%. Considering the entry of more private players and opportunity of tapping untapped 95% of market, Indian Insurance Industry is expected to grow at an annual growth rate of 15-20%.
9.1. Factors favouring the growth of Insurance Industry
The estimated annual growth of Indias GDP of around 7% to 8% will make Indian economy as the 3rd biggest economy in the world after China and United States in 2020 providing a huge opportunity for the growth of Insurance sector as it is a capital market. Currently Life Insurance sector contributes 4% to the total Indias GDP and is expected to increase between 5.1% to 6.2% in 2012.
Most of the Indians perceive Life insurance as a tax benefit instrument and even the insurance agents sold those policies as tax benefit instruments, but the increase in competition and aggressive advertisements and marketing strategies makes the people aware of the requirement and actual benefit of the insurance. This makes more people to buy life insurance policies. This awareness is expected to grab the major people from untapped Semi-urban and rural market.
Understanding the growing insurance market, the Indian Government passed a bill in 2008 to increase the Foreign Direct Investment (FDI) in Insurance companies to from the current 26% to 49%. If this revamping of Insurance act, 1938 accepted by Indian Parliament, the Foreign Investment increases and it also attracts more new insurance companies to enter Indian market, creating a good path for Insurance sector in future.
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The rising income level and the dramatic demographic shifts will results in the emergence of new markets: The rising income level results in around 2.3million households to generate income more than 10 lakhs in 2012 and is likely to increase to more than 9.5million household in 2025.
Even the middle class average income is likely to increase from 5 to 10 lakhs per annum containing 37.7 million household in 2012 and lower end people with an income from 90000 to 2 lakh comprising 107.7 million households in 2012 provides new opportunities to for insurance companies to tap in to increase policy holders.
The increase in per capita income allows the emergence of larger insurable population which leads to the purchase of protection insurance products, thus increasing the household insurance premium from 1300 to 3000 - 4000 in 2012. This also like to increase the rural penetration from 25% to 35-42% and low income segment in urban India will rise from 30% to 40%.
The Indians do not prefer the Term policies as the people wont get back any monetary benefit if the insured person doesnt die within the term of policy. To face this problem, LIC after the approval of IRDA, provided an insurance policy which combines both Endowment and Term policy so that the insurer can get the insured money if he/she died during policy term and he/she also can get his/her cash value back once the term over under endowment policy.
According to the Old Age Social and Income Security report,(OASIS) there will be around 113 million people over 60 years of age in 2016 and around 117 million in 2026. But out of these only 10% to 11% of people hold formal old age security mechanisms. The rise is because of the increase in medical technology, the average Indian lifespan is set to around 80. So it is expected that these people live around 20 years non-earning. Hence, to take care of their financial needs for medical and other day to day requirements, pension plans provides a better platform and thus people purchasing these policies is likely to be increased. Currently the private insurance
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A study on Indian Insurance Industry companies aggressively selling their pension plan policies than LIC as they provide in low premiums and other benefits for the insurer.
Government has reduced the number of years after which companies can raise capital through an initial public offering (IPO) from 10 years to five years. The life insurance sector has witnessed the launch of innovative products such as Unit Linked Insurance Plans (ULIPs). Other traditional products have also been customised to meet specific needs of the Indian consumers.
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10. Global Comparison

In life insurance business, India ranked 9th among the 156 countries for which data are published by Swiss Re. During 2009, the life insurance premium in India grew by 10.1 per cent (inflation adjusted). However, during the same period, the global life insurance premium had contracted by 2 per cent. The share of Indian life insurance sector in global market was 2.45 per cent during 2009, as against 1.98 per cent in 2008.
As per the World Insurance Report published by reinsurance major Swiss Re, the global insurance premium for the calendar year 2009 was USD 4066 billion, which is 1.1 per cent (inflation adjusted) lower than USD 4220 billion reported during the previous calendar year 2008. The share of life insurance business was 57 per cent in total premium collection. While life insurance business collected USD 2331 billion as premium, the same for non-life business was USD 1735 billion. During 2009, the premium in life insurance business fell by 2 per cent on account of double digit decline in premium collection in USA and UK. However, compared to 2008, when life insurance premium fell by 5.8 per cent, this is an improvement on account of the improved sentiment in the calendar year 2009.
During year 2010, it is expected that overall premium growth in the industry will turn positive and profitability and balance sheets will continue to improve. The prospects for life insurance in 2010 are promising as growth resumes in the sector. A further recovery of the financial markets is likely to stimulate the overall growth of unit-linked products and allow insurers to continue strengthening their balance sheets.
Ernst & Young research identified the issues that will influence the growth of insurers in 2011: They are Dramatic Demographics shift and change in consumers buying pattern Developing strategies according to the local and global regulatory developments Accelerating business growth by developing dependable capital source
E&Y also predicted that by 2015, approximately 39% of the worlds economy is to be from Asia-Pacific.
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A study on Indian Insurance Industry Considering these factors, the Asia-Pacific markets has been classified as mature, developing and emerging markets
Table 10.1: Asia-Pacific insurance market by category
Category
Markets Australia Hong Kong Japan
Mature
Korea New Zealand Singapore Taiwan China
Developing
India Malaysia Thailand Indonesia
Emerging
Philippines Vietnam
Source: Ernst & Young, 2011 global insurance outlook
The global economy has slowly started recovering from the economic recession. Lagging employment, coupled with declining aggregate wages, a weakened residential and commercial real estate market, tight credit and a behavioural shift on the part of consumers from consumption to savings are factors contributing to a delayed recovery. Even though the financial crisis has not affected the insurance industry as much as the banks; it still has its set of issues.
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Managing risk Promoting compliance Growing globally Lack of innovation around products and delivery Adapting to demographic shifts
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Comparison of life insurance premiums, penetration and density for developed countries Table 10.2: Developed countries Life premiums Life premiums in 2009 Country Premiums, US$ million Australia France Germany Singapore South Korea United Kingdom United Arab Emirates United States 32,468 194077 111,776 9,057 57,436 217,681 732 492,345 Penetration, % of GDP 3.4 7.2 3.3 5.1 6.5 10 0.4 3.5 Density, per capita 1,524.80 2,979.80 1,359.70 1,912.00 1,180.60 3,527.60 159.2 1,602.60 US$ Rank 15 4 6 28 8 3 46 1
Source: World Insurance in 2009, Swiss Re, June 2010, Insurance Regulatory and Development Authority website, www.irdaindia.org, accessed
According to the Swiss Re, United States is the largest economy in the world and is also the Worlds largest Insurance market with the premium of USD 1,149,758 million (both life and non-life) as of 2009. Japan stands as the second largest insurance market with a total premium volume of USD 518070 million (both life and non-life). On comparing India with these countries, even though the penetration of life insurance is much higher than USA i.e. penetration of insurance in India is 4.6% and USA is 3.5% in life insurance but still India accounts only to the total premium of USD 65085 million (both life and non-life) and ranked as 12 largest insurance market in the world and with respect to Life insurance USA and India ranked 1 and 9 respectively.
We compare USA and India on various aspects and found that the total number of insurance companies is much higher in USA than in India resulting to more varieties in policies and premiums. The per capita income is much higher in USA so the disposable income with people in USA is much higher than Indians. The other favourable reason for USA is, most of
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A study on Indian Insurance Industry the people are aware of Life Insurance and its importance but Indians still perceive insurance as a tax saving tool.
Comparison of life insurance premiums, penetration and density for developing countries Table 10.3: Developing countries Life premiums Life premiums in 2009 Country Premiums, US$ million Bangladesh Brazil China India Indonesia Malaysia Mexico Pakistan Philippines Romania Russia South Africa Sri Lanka Taiwan Thailand Vietnam 636 24,781 109,175 46,206 5,066 5,682 7,688 543 1,563 533 636 28,773 238 52,204 6,212 671 Penetration, % of GDP 0.7 1.6 2.3 4.6 0.9 2.9 0.9 0.3 1 0.3 0 10 0.6 13.8 2.4 0.7 Density, US$ per capita 3.9 127.9 81.1 48.1 22 206.9 70.1 3 17 25.1 4.5 574.2 11.8 2,257.30 91.7 7.6 Rank 53 20 7 9 35 32 31 56 44 55 52 16 65 10 33 51
According to Swiss Re, among the key Asian markets, India is likely to have the fastestgrowing life insurance market, with life premium poised to grow at a CAGR of 15% for the next decade, slightly faster than the 14% expected for China. The growing consumer class, rising insurance awareness and greater infrastructure spending have made India and China the two most promising markets in Asia. Europe and the Americas represent relatively mature
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A study on Indian Insurance Industry insurance markets. Though Indias penetration appears higher, it is not excessive, given the high level of investments in insurance policies underwritten. Nonetheless, besides India, Taiwan is the other Asian market that shares similar characteristics. Taiwan has the highest insurance penetration in Asia, largely driven by the immense popularity of ULIPs.
Comparison of life insurance premiums, penetration and density for BRIC countries Table 10.4: BRIC countries Life premiums Life premiums in 2009 Country Premiums, US$ million Brazil Russia India China 24,781 636 46,206 109,175 Penetration, % of GDP 1.6 0 4.6 2.3 Density, US$ per capita 127.9 4.5 48.1 81.1 Rank 20 19 9 7
According to Ernst & Young research and Swiss Re, the so-called BRIC nations (Brazil, Russia, India and China) are developing markets and their Insurance sector is currently under growth phase. Out of these 4 countries, the penetration of life insurance in India is very high with 4.6% and followed by China with 2.3% penetration and Brazil with 1.6%. Russia accounts 0% penetration i.e. only negligible amount of Russians are covered under life insurance policy but the penetration of General insurance in Russia is 2.5%, which is higher than all the other BRIC nations. Even though the penetration of life insurance in India is higher than China, the premium of China is greater than India. This is because of the government policies, policy premiums and mainly the population. The population of China is much greater than India and hence, the policy holders are more in numbers in China than in India. As a result the contribution of China to the World is 4.68%, whereas Indias share in the global life insurance market is 2.45% only. Brazil and Russia has a world share of 1.06% and 0.03% respectively during 2009.
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A study on Indian Insurance Industry Fig. 10.1: Average Insurance growth rate by region (1999-2009)
Source: Ernst & Young, Windows of opportunity: 2011 global insurance outlook
Ernst & Young research about the growth rate of countries in insurance industry by regions in Fig.10.1. shows the region with more developing countries south and East Asia had a high growth rate in both Life and Non life insurance. The growth is more than twice the growth rate of the World. With developing countries like Brazil, Mexico, etc., Latin America and Caribbean region also showed a positive growth more than the growth of World. Whereas the growth rate in Western Europe and North America is low as the countries in those regions are matured and developed.
Fig. 10.2: Predicted GDP by Region
Source: Ernst & Young, Windows of opportunity: 2011 global insurance outlook
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A study on Indian Insurance Industry Ernst and Young research apart from just analyzing the GDP of countries by region, is also forecast the growth rate for countries by region till 2015. The Fig.10.2 shows that Asia has a huge market potential and so the GDP growth rate is predicted to be very high. Even European and North American regions are predicted to have a reasonable which is much higher than the average growth rate between 1999-2009. This is because the developed countries in these regions faced a recession and now slowly recovering back. Hence, it is predicted that the people will have enough disposable income and hence they will invest in buying policies. But the oceanic and South American regions predicted to have very low growth rate. Even though these regions consists developing countries like Brazil, etc., These countries insurance penetration % is very low.
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11. Conclusion
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References
1. Insurance Regulatory Development Authority Annual Reports (2007-06, 2008-09, 20092010). Retrieved from http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=AR&mid=1 1.1 2. Insurance Regulatory Development Authority Annual Reports (2000-2001, 2002-03, and 2004-05). Retrieved from http://www.irdaindia.org/anualreport.html 3. An analysis of the evolution of insurance industry in India. Retrieved from http://www.nottingham.ac.uk/business/cris/papers/2005-3.pdf 4. World insurance in 2009. Retrieved from http://media.swissre.com/documents/sigma2_2010_en.pdf 5. The insurance industry: challenges and prospectus. Retrieved from http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan025798.pdf 6. History of Insurance in India. Retrieved from http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4&mi d=2 7. Registered Life Insurance companies and its details. Retrieved from http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo129& mid=3.1.9 8. Insurance Laws, Acts and Regulations. Retrieved from http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=ACT&mid =4.1 9. Insurance regulations. Retrieved from http://www.lifeinscouncil.org/industryinformation/regulations 10. Global Insurance markets information. Retrieved from http://www.iii.org/index.html 11. Global Markets information. Retrieved from http://www.iii.org/index.html 12. Japan Life Insurance market report. Retrieved from http://www.insuranse.co.za/lifeinsurance-in-japan-market-report-new-market-research-report/ 13. China insurance industry data. Retrieved from http://www.iachina.cn/09/02/14/content/0102_news.html
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A study on Indian Insurance Industry 14. USA insurance industry overview. Retrieved from http://www.bls.gov/oco/cg/cgs028.htm 15. China Insurance sector. Retrieved from http://www.klakogroup.com/en/china-investmonthly-newsletter/insurance-industry-in-china 16. China Laws and Regulations. Retrieved from http://www.iic.org.cn/D_infoZL/infoZL_index.php?t=4 17. Global insurance industry data. Retrieved from http://iifdc.org/ 18. Market Shares of Indian insurance companies. Retrieved from http://business.in.com/article/briefing/lifes-insurance-in-the-slow-lane/27032/1 19. Indias future outlook. Retrieved from http://www.indiaprwire.com/pressrelease/insurance/200805079347.htm 20. Indian insurance industry. Retrieved from http://www.insuranceinstituteofindia.com/InsuranceInst/Publication/Uploads/JournalJuly-Dec-2008/India's%20Insurance%20sector.pdf 21. LIC data. Retrieved from www.licindia.com 22. Global Insurance Outlook. Retrieved from http://www.ey.com/Publication/vwLUAssets/Global_insurance_outlook/$FILE/EY_2011 _global_insurance_outlook.pdf 23. La Porta, Rafael et al., Law and finance, working paper, Harvard University, 1998. 24. Planning Commission, Vision 20202. Retrieved from http://planningcommission.nic.in/plans/planrel/pl_vsn2020.pdf 25. Sinha, Tapen. 2004a, Relationship between Economic Growth and Saving: Evidence from India, in preparation. 26. Sinha, Tapen. 2004b, Life Insurance Demand in India, in preparation. 27. Sinha, Tapen. 2004c, Role of Insurance in saving, in preparation. 28. Cummins,J.D. and M.A.Weiss,1993, Measuring Cost Efficiency in the PropertyLiability Insurance Industry, Journal of Banking and Finance, 17:463-481. 29. Cummins, J.D. and H. Zi, 1998, Comparison of frontier efficiency methods: An application to the U.S. life insurance industry, Journal of Productivity Analysis. 30. Grace, M.F., and S.G. Timme, 1992, An examination of cost economies in the United States life insurance industry, Journal of Risk and Insurance, Volume 59, 72-103. 31. Indian Insurance Sector. Retrieval from http://www.ey.com/Publication/vwLUAssets/Insurance_sector_in_India/$FILE/Indian_in surance_sector.pdf
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A study on Indian Insurance Industry 32. India Life Insurance 2012. Retrieved from http://www.mckinsey.com/locations/india/mckinseyonindia/pdf/Insurance_A_Summary.p df 33. 2010 life insurance fact book. Retrieved from http://www.acli.com/Tools/Industry%20Facts/Life%20Insurers%20Fact%20Book/Docum ents/c5f7023eda304ba280820098fc99cafeFactBook2011.pdf 34. Japans insurance market 2010. Retrieved from http://www.toare.co.jp/english/html/pdf/2010_insurance.pdf 35. Insurance November 2010. Retrieved from http://www.ibef.org/download/Insurance_270111.pdf
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Table 2.1: milestones in the life insurance business in India

Milestones in the life insurance business in India

Source: IRDA website www.irda.gov.in

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Table 2.2: Milestones in the general insurance business in India

Milestones in the general insurance business in India

Source: IRDA Website www.irda.edu.in

Life Insurance Policies General Insurance Policies

Term Life Insurance Policy

Whole Life Insurance Policy

Money Back Plan

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A study on Indian Insurance Industry

Table 2.3: Insurance Penetration and Density in India

A study on Indian Insurance Industry 3. Literature Review

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4. Market Share of Life Insurance Industry

Fig 4.1: Market Share of Life Insurance Companies as of May 2011

Market Share of Life Insurance Companies

Source: Forbes India Magazine, July 2011 ,

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Travel Insurance Asset Insurance Health Insurance Corporate Insurance

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Source: ISDL Data Source, www.irda.gov.in

A study on Indian Insurance Industry

A study on Indian Insurance Industry

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Marketing strategies are:

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A study on Indian Insurance Industry Fig. 8.1: ICICI Prudential

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9.1. Factors favouring the growth of Insurance Industry

A study on Indian Insurance Industry

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10. Global Comparison

Markets Australia Hong Kong Japan

Korea New Zealand Singapore Taiwan China

India Malaysia Thailand Indonesia

Source: Ernst & Young, 2011 global insurance outlook

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Fig. 10.2: Predicted GDP by Region

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