DISSERTATION PROJECT REPORT ON A COMPARATIVE ANALYSIS OF LIFE INSURANCE CORPORATION AND PRIVATE INSURANCE COMPANIES Report submitted in partial

fulfillment of the requirements for Post Graduate in Management PROJECT GUIDE: SUBMITTED BY: Prof. Usha Kiran Rai Shashank Tripathi FMS BHU MBA IV Sem (Finance) FMS BHU

CONTENTS

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

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

CHAPTER 1 INTRODUCTION 4

5 1. CONCEPT OF INSURANCE : Life has always been an uncertain thing. To be secure against unpleasant possibi lities, always requires the utmost resourcefulness and foresight on the part of man. To pray or to pay for protection is the spirit of the humanity. Man has been accustomed to pray God for protection and security from time immemorial. In modern days Insurance Companies want him to pay for protection and security. The insurance m an says "God helps those who help themselves"; probably he is correct. Too many people in this country are not in employment; and work for too many no longer guarantees income security. Several millions are part-time, self employed and low-earning workers living under pitiable circumstances where there is no securi ty cover against risk. Further the inherent changing employment risks, the prospect of continual change in the work place with its attendant threats of unemployment an d low pay especially after the adoption of New Economic Policy and the imminent li fe cycle risks - a new source of insecurity which includes the changing demands of family life, separation, divorce and elderly dependents .. are tormenting the so ciety. Risk has become central to one's life. It is within this background life insuran ce policy has been introduced by the insurance companies covering risks at various levels. Life insurance coverage is against disablement or in the event of death of the insure d, economic support for the dependents. It is a measure of social security to livel ihood for the insured or dependents. This is to make the right to life meaningful, wor th living and right to livelihood a means for sustenance. Therefore, it goes withou t saying that an appropriate life insurance policy within the paying capacity and means of the insured to pay premium is one of the social security measures envisaged u nder the Indian Constitution. Hence, right to social security, protection of the fami ly, economic empowerment to the poor and disadvantaged are integral part of the righ t to life and dignity of the person guaranteed in the constitution. Man finds his security in income (money) which enables him to buy food, clothing , shelter and other necessities of life. A person has to earn income not only for himself but also for his dependents, viz., wife and children. He has to provide legally for his family needs, and so he has to keep aside something regularly for a rainy day an d for his old age. This fundamental need for security for self and dependents proved t o be the mother of invention of the institution of life insurance.

What is Insurance : The business of insurance is related to assets. Every asset has a value. The asset would have owner. The asset is valuable to the owner, because The benefit may be an income or some thing else. It s needs. In the case of a factory or a cow, the product d. In the case of a motor car, it provides comfort and no direct income. the protection of the economic values of been created through the efforts of the he expects to get some benefit from it. is a benefit because it meets some of hi generated by is sold and income generate convenience in transportation. There is

Every asset is expected to last for a certain period of time during which it wil l perform. After that, the benefit may not be available. There is a life-time for a machine in a factory or a cow or a motor car. None of them will last for ever. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time, a substitute is made available. Thus, he makes sure that the value or income is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it n on-functional. In that case, the owner and those deriving benefits from there, would be deprive d of the benefit and the planned substitute would not have been ready. There is an advers e or unpleasant situation. Insurance is a mechanism that helps to reduce the effect o f such adverse situations. Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable tra nsfer of the risk of a potential loss, from one entity to another, in exchange for a premium. Insu rer, in economics, is the company that sells the insurance. Insurance rate is a factor u sed to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. Origin of Insurance PRACTICE OF INSURANCE IN INDIA: 1818-1956 It is claimed that insurance was practiced in India even in Vedic times in one f orm or the other. The Sanskrit term "Yogakshema" in the Rigveda meant some kind of insuranc e, which was practiced by the Aryans in India nearly 3000 years ago. During the Mughal pe riod

insurance took firm roots. There are even references to the cover against war ri sks. Losses due to the passage of royal troops through farms were compensated by the State a s a gesture of goodwill. The year 1818 is an epoch -making year in the history of our country. The first Life Insurance Company on India soil appears to have been started in this year. A group of Euro peans pioneered the establishment of the Oriental Life Insurance Society to afford rel ief to the distressed relatives of European. The venture was not quite successful but the c ompany was reformed in 1829.The renewed Company also got into trouble in 1833 when Agency H ouse of Calcutta, partners of the same, fell. 6

Prince Dwarkanath Tagore was the only solvent partner & the sole responsibility for carrying on the institution developed on him. Meanwhile, early in Janury1834, the Governm ent made up its mind to establish a Public Insurance Company & a Committee was set up for this purpose .A number of foreign Insurance Companies then operating in the country v iewed this move with alarm. They set up Committees of their own enquire into their individu al affairs. Dwarkanath Tagore, too, had a Committee appointed to look into the affairs of th e Oriental. As a result, another company was born out of the previous one in the name of "Ne w Oriental Company" In the reorganization of the "Oriental" in the year 1834, two other gentlemen we re associated. One was Ramtanu Lahiri and the other Rustamjee Cowasjee. The latter was another prominent figure of the business world. Rustamjee entered insurance business in 1828, he was already known to the community and the Government as a wealthy Parsi merchan t. Rustamjee's connection with insurance also started with "Laudable Societies", bu t he was later on associated with Companies like "Sun Life Office (1834) ", New Oriental (1835),Universal Life (1835) , New Laudable (1840) , and Indian Laudable (1841) . He was also on the Committee of the Union Insurance Company which was formed by a group of five persons. This Company was issuing policies covering river-risks only. He wa s intimately connected with the Committee of Insurance Offices in Calcutta. Rustamjee Cowasje e & Dwarkanath Tagore was probably the first Indians to join in partnership business with the Europeans & in the field of insurance they were pioneers on this side of the cou ntry. Apart from Calcutta, several enterprising people in Bombay started in 1823 the " Bombay Life" Assurance Company. The company went into liquidation soon and could not re vive. In 1829, the "Madras Equitable "was formed. It finally ceased to function in 1921 d ue to financial difficulties after the First World War. The effort to set up a public insurance company at the government level also wen t in vain, mainly from objection of private operators. Majority of the early attempts to fo rm insurance offices were in the province of Bengal. This was due to its political & economic importance at that time. The contribution of Raja Ram Mohan Roy, one of the greatest social reformers of India, to the development of life insurance is very great. He was deeply concerned about t he sad plight

of desperate widows and helpless orphans. OVERSEAS INSURERS Initially, when Life Offices were established in large numbers in Britain, some of them ventured to issue sterling policies to the British residents in India. Premiums collected here were credited to England largely for British beneficiaries. Business seems to ha ve been brisk and profitable and was usually under short term policies. Insurance mortality ta bles and insufficient mortality data of Englishmen in India made the premiums heavy-heavi er than at home. Insurance was denied to the "natives" even if they wanted it- for their li ves were always considered risky and sometimes valueless. When Indian lives were accepted as a very special case, the extras charged were still heavier. Prominent amongst the companies which came to India around this period was the " Medical Invalid and General" incorporated in London in 1841. As more areas were annexed and the 7

ruling power, with vested interests in developing trade, took charge , the "Medi cal" extended its area of operation, established large connections, absorbed the" Agra Life" a nd in 1835, took over the "New Oriental". P.M. Tate, the then manager of the "Medical", was a keen businessman, widely liked, influential and shrewd. With W.F. Ferguson, who was t he manager of the "New Oriental" before amalgamation, he commenced very active oper ations which were temporarily affected by the 1857 "Mutiny". The Universal Life Insurance Company established in England in 1836 opened its I ndian Branch in 1840 and enjoyed a long period of successful operations until it was t aken over by the "North British" in May 1901. Insurance exceeding Rs. 10 crores were issued i n India during this period. Another English Company operating in India at that time was the Colonial Life Assurance Company. It was established in 1846 under the auspices of the Sta ndard Life Assurance Company. The original prospectus of this company declared its purpose as "extending to the Colonies of Great Britain and to Indian the full benefit of Li fe Assurance". It appointed agents with local boards which were first established on Calcutta, Bombay, Madras and Colombo. Later on this company was taken over by the "Standard Life" and made valuable contribution to investigations into the mortality experience of as sured lives in India. Eventually it ceased its operations in India in 1938. It is difficult to say which was the oldest Life Policy in India, but the oldest known appears to be one sold by the Royal Insurance (which commenced business in India in 1845) o n the life was to Cursetjee Furdonjee on 6th January 1848, no reference to any earlier poli cy being available. In the year 1853, the Liver pool and London and Globe Insurance Compa ny established in England in 1836, commenced business in India. Sir Charles Forbes was its first agent, succeeded by M/s. Forbes, Forbes and Campbell. It accepted only European lives and commenced insuring Indian lives only after 1929.This too, was mainly to oblige g ood agents of the Company for classes other than life business. The North British and Merca ntile was the next company to appear on the Indian scene. It started fire insurance business in the year 1861 and life business 1864. The London Assurance started life business in 1864, limited principally to European lives a nd closed down its life department when the Life Assurance Companies Act 1912 made submiss ion of returns compulsory.

On 3rd December, 1870, seven earnest men of Bombay with just seven rupees for in itial expenses gave shape to a plan of offering insurance to the public without the ri sk of ruin and the "Bombay Mutual Life Assurance Society" came into existence. This was followe d by the Oriental Life Assurance Company in1874, the Bharat in 1896 and the Empire of Ind ia in 1897. THE BIRTH OF INDIAN INSURERS With the advent of the 20th century, the glorious renaissance of swadeshi days d awned. At the same time, well- to do Indians realized the potentiality of Indian Insurance business. The Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operati ve Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative In surance Company took its birth in one of the rooms of the Jorasanko House of the great p oet Rabindranath Tagore, in Calcutta. The Indian Mercantile (1907) was started in Bo mbay, 8

General Assurance (1908) at Ajmer and the Swadeshi Life (Later Bombay Life) in B ombay in 1908. The end of the First World War (1914-18) witnessed an influx of insurance compan ies in India. Famous Indian business houses started new insurance companies. Industrial and Prudential Bombay, Western India, Satara, were floated before the war, but by 19 19, companies like Jupiter General, New India, Vulcan Insurance Company etc. came in to being. Pandit K.Santhanam with blessing of Lala Lajpat Rai and Pandit Motilal Nehru sta rted Laxmi Insurance Co. Similarly, Andhra Insurance was started in Masulipatnam, with the initiative of stalwarts like Dr. Pattabhi Sitaramaiah. From political platforms also, national leaders supported this cause. It is duty to every Indian to support only Indian Insuranc e. The keynote of our Swaraj is in placing all our insurance with our Indian companies", said M ahatma Gandhi in his message. "I hope Indians will realize the importance of patriotism only through Indian insurance institution", stated Pandit Jawaharlal Nehru. Thus, the cause o f Indian insurance became a national issue. The pursuit to boost Indian insurance represe nted a crusade to extricate the Indian economy from foreign domination. PROGRESS IN INSURANCE BUSINESS The growth of Life Insurance in concrete terms could be said to being during the first two decades of twentieth century when most of the major companies were founded. They grew in terms of rise in the number of companies, in terms of number of policies and sum assured as well as total life fund. Indian Insurance Year Book, published for the first tim e in 1914, gives the figure of the total business-in -force as 22.44 crore which grew to Rs. 298 crore in 1938. In 1914, there were only 44companies transacting insurance business in India, an d during the next 25 years their number rose to 176. The total progress on all the primary he ads, viz. life fund (Rs. 50.50 crore), premium income (Rs. 10.50 crore) and new business (Rs. 4 3.30 crore) indicate that Indian Insurance Business had been making a definite headway durin g this years. The inter-war -years thus saw rapid growth life insurance in India. The promotion of new life insurance companies continued to be almost a craze and insurance companies mushroomed. In this period, 176 insurance companies were formed and ma ny of them failed. Thus unhealthy growth was harmful to the interest of the policy hol ders and insurance business in India. Feeling concerned about it, the All India Life Assu

rance Offices' Association urged upon the Government in 1932 to undertake the insurance legisla tion to (a) Compulsorily register all Life Insurance companies. (b) Secure a deposit of Rs.2 lakh from all Life Insurance companies. (c) Compel foreign companies doing business in India to keep sufficient funds in India securities to meet their liabilities under all policies issued in India. 9

INSURANCE ACT, 1938 The Insurance Act, 1938, was the first comprehensive legislation governing not o nly life but also non- life branches of insurance to provide strict state control over insura nce business. In sub- sections to dealt with provident companies, mutual offices and co-operative societies as well. The silent features of the Act were as follows: (A) Constitution of a Department of Insurance under a superintendent vested with wide powers of supervision and control over all kinds of insurance companies. (B) Regulation for the compulsory registration of insurance companies and for fi ling of returns of investment and financial conditions. (C) Provisions for deposit, to prevent insurers of inadequate financial resource s of speculative concerns for commencing business. (D) Provisions that 55% of the net life fund of an Indian or non- Indian insurer should invested in Indian Government and approved securities with at least 25% in India n Government Rupee securities.. All other companies, i.e., foreign companies must invest 100% of their Indian liabilities in Indian Government and approved securi ties, with at least 33.3% Indian Government securities. (E) Prohibition of rebating, restriction of commission, licensing of agents etc. Maximum rates of commission were fixed at 40% of the first premiums and 5% of th e renewal premium in respect of life assurance business. The agent must be license d, to improve the status of the profession. (F) Periodical valuation of Indian Insurance business of foreign companies and t he business of Indian companies. (G) Provision for policyholders' directors, making it possible for the represent atives of policyholders to be on the Board of directors. (H) Standardization of policy conditions required all companies to file standard forms and tables of premium approved by an Actuary. Under this requirement, the initia l deposit for life insurance business was raised from Rs. 25000 in Government securities to Rs. 50000 in cash approved securities, which was subsequently to b e raised by installments to Rs. 2 lakh within a specified time limit. 10

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

Nationalization THE LIFE INSURANCE CORPORATION OF INDIA: 1956 This was the first step taken towards the nationalization of life insurance busi ness in India. On 20th January, 1956 all life insurance companies were taken over by 43 nominat ed custodians. The custodians were experienced senior executives of private insuran ce companies, reporting directly to the Finance Ministry. From the word go, the com plex task of running the industry on a permanent basis and continuing the services to policy holders without interruption were their major concerns. The actual work of integration h ad to await legislation. The custodians managed the insurance companies till 1-09-1956, when Life Insurance Corporation was established under the general direction and control of the Ministry of Finance. The Ordinance provided for the transfer of the control of 154 Indian insurers, 1 6 non Indian insurers and 75 provident societies. These arrangements were designed to ensure that no inconvenience whatsoever was caused to the policy holders. With the Government t ake over the management aimed towards the evolution of a common uniform premium rate, pol icy conditions and service and working procedures and above all to help promote team spirit. The corporation, a body corporate shall consist of not more than 15 members appo inted by the Central Government, one of them being appointed by the government as chairma n. The capital of the corporation was at Rs 5 crore provided by the central governm ent. INSURANCE SECTOR REFORMS In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian Insurance industry and recommended it s future direction. The Malhotra committee was set up with the objective of complementing the reform s initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial s ystem suitable for the requirements of the economy keeping in mind the structural chan ges currently underway and recognizing that insurance is an important part of the over all fin ancial system

where it was necessary to address the need for similar reforms...". In 1994, the committee submitted the report and some of the key recommendations included: (1) STRUCTURE Government stake in the Insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that the se subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate 12

(2) COMPETETION Private Companies with minimum paid up capital of Rs.1 bn should be allowed to enter the industry. No Company should deal in both Life and General Insurance through a single entry . Foreign Companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state. (3) REGULATORY BODY The Insurance Act should be changed An Insurance Regulatory Body should be set up. Controller of Insurance (Currently a part from the Finance Ministry)should be ma de independent (4) INVESMENTS Mandatory Investments of LIC Life Fund in government securities to be reduced fr om 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (There curr ent holdings to be brought down to this level over a period of time). (5) CUSTOMER SERVICE LIC should pay interest on delays on payments beyond 30 days. Insurance Companies must be encouraged to set up unit linked pension plans Computerization of operations and updating of technology to be carried e insurance industry. The committee emphasized that in order to improve the customer service ase the coverage of insurance industry should opened up to competition. But at time, the committee felt the need to exercise caution as any failure on the part ayers could ruin the public confidence in the industry. out in th and incre the same of new pl

Hence, it was decided to allow competition in a limited way by stipulating the m inimum capital requirement of Rs. 100 crores. The committee felt the need to provide gr eater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had pro

posed setting up an independent regulatory body. 13

Liberalization : OPENING UP OF INSURANCE SECTOR 1999 THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch o f the IRDA's online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured t hat the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 14 life insurance companies have been registered. ENTRY OF PRIVATE COMPANIES Under the IRDA Act, private companies can now operate in India's insurance industry. However, they must obtain a license from the IRDA before being permitted to write business. To have its license application considered, a domestic private company must be registered in accordance with the Companies Act of 1956 and have approximately US$ 20 million of investment capital. The specific licensing requirements that Private Indian Companies must fulfill are set forth in the Registration on India n Insurance Companies Regulations, published by the IRDA 2000. LIFTING OF BARRIERS TO FOREIGN INVESTMENT The IRDA Act also lifts certain barriers to foreign direct investment in Indian insurance industry. Global insurers are now permitted to set up and register a domestic company in order to write business in India. However, regulations stipulate that they have a capital base of at least US $ 20 million, and their investment in such company i s capped at 26 percent. Thus, to participate in the market, they must form a joint venture with an Indian partner that is able to invest the remaining funds. The equity investments limit is the same for global reinsures seeking to write business in India, but they are required to put up a capital of approximately US $ 45 million in order to establish a domestic company.

14

Since the IRDA first enacted these rules, 13 new life insurance companies have entered the market. On the other hand, no global reinsurer has established a domestic company. Instead, most of the top international reinsurance companies operate from their overseas offices by sharing the reinsurance risks picked up by the GIC. A recent proposal has been put forward to increase foreign direct investment to 49 percen t. In addition, global companies are pushing for the right to establish branch offi ces in India. These changes are likely to substantially increase the presence of international insurers, reinsurers, and brokers in India. The IRDA Insurance Brokers Act in India 2002 permitted overseas insurance and reinsurance brokers to enter the market, but with the same equity cap as that governing the operations of foreign insurers and reinsurers. Thus, foreign broke rs must also form a joint venture with an Indian partner in order to establish an I ndian broking house. The 2002 IRDA legislation established four broker categories, one of which brokers must select when applying for a license: 1. Category 1A : Direct General Insurance Broker 2. Category 1B : Direct Life Insurance Broker 3. Category 2 : Reinsurance Broker 4. Category 3: Composite Broker 5. Category4: Others, for example Insurance Consultants and Risk Management Consultants. Each category has different solvency margins and capital adequacy ratios, and al l categories need to carry professional indemnity insurance at different minimum levels. In the years since market liberalization was initiated, the insurance sector has witnessed some impressive changes. The needs of insurance and reinsurance buyers have grown; the market is introducing new products to address these needs ; and the services of brokers are now seen as critical to making informed insuranc e and reinsurance decisions. OVERVIEW OF THE CURRENT INSURANCE MARKET In the years since the IRDA Act initiated market reforms, the insurance sector h as experienced some remarkable changes. The entry of a large number of Indian and Foreign private companies in life insurance business has to lead greater choice in terms of products and services.

Increased consumer awareness of the reinsurance has generated many more among them brokers, bank assurance, provided additional ways of getting 15

benefits and importance of insurance and buyers; and new distribution channels_ the Internet, and corporate agents_ have products and services to customers.

16 Private insurance companies have to date written a small percentage of business in this sector during the last three years, but they have ushered in a competitive environment that has accelerated market growth. State owned insurers still write the bulk of insurance business, and they have t he net worth required to underwrite large corporate risks without depending almost entirely on reinsurance support. However, their focus on restructuring is beginn ing to put them at a disadvantage against private competitors. Over the next few years, the share of the market held by the public insurers is expected to drop substantially, with private companies assuming a growing percentage of the business written. At present there are 15 private insurers with two standalone private players and remaining private-foreign joint venture. Purpose and Need of Insurance : Assets are insured, because they are likely to be destroyed through accidental o ccurrences. Such possible occurrences are called perils. Fire, floods, breakdowns, lightenin g, earthquakes, etc, are perils. If such perils can cause damage to the asset, we s ay that the asset is exposed to that risk. Perils are the events. Risks are the consequential loss es or damages. The risk to a owner of a building, because of the peril of an earthquake, may be a few lakhs or a few crores of rupees, depending on the cost of the building and the content s in it. The risk only means that there is a possibility of loss or damage. The damage ma y or may not happen. Insurance is done against the contingency that it may happen. There has to be an uncertainty about the risk. Insurance is relevant only if there are uncertaintie s. If there is no uncertainty about the occurrence of an event, it cannot be insured against. In t he case of human being, death is certain, but the time of death is uncertain. In the case o f person who is terminally ill, the time of death is not uncertain, though not exactly known. He cannot be insured. Insured does not protect the asset. It does not prevent its loss due to peril. T he peril cannot be avoided through insurance. The peril can sometimes be avoided through better saf ety and damage control management. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It only compensates the l osses .. and that too, not fully. Only economic consequences can be insured. If the loss is not financial, insuran ce may not be possible. Example of non-economic losses are love and affection of parents, lead ership of managers, sentimental attachments to family heirlooms, innovative and creative a bilities, etc.

17 How Insurance Works? The mechanism of insurance is very simple. People who are exposed to the same ri sks come together and agree that, if any one of them suffers a loss, the others will shar e the loss and make good to the person who lost. All people who send goods by ship are exposed to the same risks, which are related to water damage, ship sinking, piracy, etc. Those owning factories are not exposed to these risks, but they are exposed to different kind s of risks like, fire, hailstorms, earthquake, lightning, burglary, etc. Like this, different kin ds of risks can be identified and separate groups made, including those exposed to such risks. By t his method, the heavy loss that any one of them may suffer (all of them may not suffer such losses at the same time) is divided into bearable small losses by all. In other words, the ris k is spread among the community and the likely big impact on one is reduced to smaller manag eable impacts on all. If a Jumbo Jet with more than 350 passengers crashes, the loss would run into se veral crores of rupees. No airline would be able to bear such a loss. It is unlikely that man y Jumbo Jets will crash at same time. If 100 airline companies flying Jumbo Jets, come togeth er into an insurance pool, whenever one of the Jumbo Jets in the pool crashes, the loss to be borne by each airline would come down to a few lakhs of rupees. Thus, insurance is a busi ness of ..sharing... There are certain principles, which make it possible for insurance to remain a f air arrangement. The first is that it is difficult for any one individual to bear th e consequences of the risks that he is exposed to. It will become bearable when the community shar es the burden. The second is that the perils should occur in an accidental manner. Nobo dy should be in a position to make the risk happen. In other words, none in the group should set fire to his assets and ask others to share the costs of damage. This would be taking unfair advantage of an arrangement put into place to protect people from risks they are exposed to. The occurrence has to be random, accidental, and not the deliberate creation of the insured person. The manner in which the loss is to be shared can be determined before-hand. It m ay be proportional to the risk that each person is exposed to. This would be indicativ e of the benefit he would receive if the peril befell him. The share could be collected from the members after the loss has occurred or the likely shares may be collected in advance, at the t ime of admission to the group. Insurance companies collect in advance and create a fund

from which the losses are paid. The collection to be made from each person in advance is determined on assumptio ns. While it may not be possible to tell beforehand, which person will suffer, it may be p ossible to tell, on the basis of past experiences, how many persons, on an average, may suffer lo sses. The following two examples explain the above concept of insurance:

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

19 Insurance of Intangibles : The concept of insurance has been extended beyond the coverage of tangible asset s. Exporters run risk of losses if the importers in the other country default in pa yments or in collecting the goods. They will also suffer heavily due to sudden changes in cur rency exchange rates, economic policies or political disturbances in the other country . These risks are insured. Doctors run the risk of being charged with negligence and subsequen t liability for damages. The amounts in question can be fairly large, beyond the capacity of individuals to bear. These are insured. Thus, insurance is extended to intangibles. In some countries, the voice of a singer or the legs of a dancer may be insured. Types of Insurance : Any risk that can be quantified can potentially be insured. Specific kinds of ri sk that may give rise to claims are known as "perils". An insurance policy will set out in d etail which perils are covered by the policy and which are not. Below is a (non-exhaustive) list of the many different types of insurance that e xist. A single policy may cover risks in one or more of the categories set forth below. For exa mple, auto insurance would typically cover both property risk (covering the risk of theft o r damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U.S. typically includes property insurance covering dama ge to the home and the owner's belongings, liability insurance covering certain legal clai ms against the owner, and even a small amount of health insurance for medical expenses of guest s who are injured on the owner's property. .. Automobile insurance known in the UK as motor insurance, is probably the most common form of insurance and may cover both legal liability claims against the driver a nd loss of or damage to the insured's vehicle itself. Throughout most of the United States an auto insurance policy is required to legally operate a motor vehicle on public roads. In some j urisdictions, bodily injury compensation for automobile accident victims has been changed to a no-fault system, which reduces or eliminates the ability to sue for compensation but prov ides automatic eligibility for benefits. .. Aviation insurance insures against hull, spares, deductible, hull war and lia bility risks. .. Boiler insurance (also known as boiler and machinery insurance or equipment b reakdown insurance) insures against accidental physical damage to equipment or machinery. .. Builder's risk insurance insures against the risk of physical loss or damage to property

during construction. Builder's risk insurance is typically written on an "all ri sk" basis covering damage due to any cause (including the negligence of the insured) not o therwise expressly excluded.

20 .. Business insurance can be any kind of insurance that protects businesses agai nst risks. Some principal subtypes of business insurance are (a) the various kinds of profession al liability insurance, also called professional indemnity insurance, which are discussed bel ow under that name; and (b) the business owners policy (BOP), which bundles into one policy ma ny of the kinds of coverage that a business owner needs, in a way analogous to how homeown ers insurance bundles the coverage that a homeowner needs. .. Casualty insurance insures against accidents, not necessarily tied to any spe cific property. .. Credit insurance repays some or all of a loan back when certain things happen to the borrower such as unemployment, disability, or death. Mortgage insurance (which s ee below) is a form of credit insurance, although the name credit insurance more often is used to refer to policies that cover other kinds of debt. .. Crime insurance insures the policyholder against losses arising from the crim inal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement. .. Crop insurance "Farmers use crop insurance to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, ha il, drought, frost damage, insects, or disease, for instance." .. Defense Base Act Workers' compensation or DBA Insurance provides coverage for civilian workers hired by the government to perform contracts outside the US and Canada. DBA is required for all US citizens, US residents, US Green Card holders, and all emplo yees or subcontractors hired on overseas government contracts. Depending on the country, Foreign Nationals must also be covered under DBA. This coverage typically includes expen ses related to medical treatment and loss of wages, as well as disability and death benefits. .. Directors and officers liability insurance protects an organization (usually a corporation) from costs associated with litigation resulting from mistakes incurred by direct ors and officers for which they are liable. In the industry, it is usually called "D&O" for short. .. Disability insurance policies provide financial support in the event the poli cyholder is unable to work because of disabling illness or injury. It provides monthly suppo rt to help pay such obligations as mortgages and credit cards. o Total permanent disability insurance provides benefits when a person is perman ently disabled and can no longer work in their profession, often taken as an adjunct t o life insurance.

.. Errors and omissions insurance: See "Professional liability insurance" under "Liability insurance". .. Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and busines s pursuits. .. Financial loss insurance protects individuals and companies against various f inancial risks. For example, a business might purchase cover to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover the failure of a creditor to pay money it owes to the insured. This type of insuranc e is frequently

21 referred to as "business interruption insurance." Fidelity bonds and surety bond s are included in this category, although these products provide a benefit to a third party (th e "obligee") in the event the insured party (usually referred to as the "obligor") fails to perf orm its obligations under a contract with the oblige. .. Health insurance policies will often cover the cost of private medical treatm ents if the National Health Service in the UK (NHS) or other publicly-funded health programs do not pay for them. It will often result in quicker health care where better facilitie s are available. .. Home insurance or homeowners insurance: See "Property insurance". .. Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the ins ured in the event of a claim brought by someone who slips and falls on the property; automob ile insurance also includes an aspect of liability insurance that indemnifies agains t the harm that a crashing car can cause to others' lives, health, or property. The protection o ffered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the ne gligence of the insured, and will not apply to results of willful or intentional acts by the ins ured. o Environmental liability insurance protects the insured from bodily injury, pro perty damage and cleanup costs as a result of the dispersal, release or escape of pollutants. o Professional liability insurance also called professional indemnity insurance, protects professional practitioners such as architects, lawyers, doctors, and accountants against potential negligence claims made by their patients/clients. Professional liabili ty insurance may take on different names depending on the profession. For example, profession al liability insurance in reference to the medical profession may be called malpractice insur ance. Notaries public may take out errors and omissions insurance (E&O). Other potenti al E&O policyholders include, for example, real estate brokers, home inspectors, apprai sers, and website developers. .. Life insurance provides a monetary benefit to a decedent's family or other de signated beneficiary, and may specifically provide for burial, funeral and other final ex penses. Life insurance policies often allow the option of having the proceeds paid to the ben

eficiary either in a lump sum cash payment or an annuity. o Annuities provide a stream of payments and are generally classified as insuran ce because they are issued by insurance companies and regulated as insurance and require th e same kinds of actuarial and investment management expertise that life insurance requires. A nnuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance. .. Locked funds insurance is a little-known hybrid insurance policy jointly issu ed by governments and banks. It is used to protect public funds from tamper by unautho rized parties. In special cases, a government may authorize its use in protecting semi -private funds

22 which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is re quired. .. Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of the cargo that may be on them. When the owner of the ca rgo and the carrier are separate corporations, marine cargo insurance typically compensa tes the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses th at can be recovered from the carrier or the carrier's insurance. Many marine insurance und erwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a cove red loss. .. Mortgage insurance insures the lender against default by the borrower. .. National Insurance is the UK's version of social insurance (which see below). .. No-fault insurance is a type of insurance policy (typically automobile insura nce) where insurers are indemnified by their own insurer regardless of fault in the inciden t. .. Nuclear incident insurance covers damages resulting from an incident involvin g radio active materials and is generally arranged at the national level. (For the United State s, see the PriceAnderson Nuclear Industries Indemnity Act.) .. Pet insurance insures pets against accidents and illnesses - some companies c over routine/wellness care and burial, as well. .. Political risk insurance can be taken out by businesses with operations in co untries in which there is a risk that revolution or other political conditions will result in a l oss. .. Pollution Insurance A first-party coverage for contamination of insured prope rty either by external or on-site sources. Coverage for liability to third parties arising fro m contamination of air, water or land due to the sudden and accidental release of hazardous mate rials from the insured site. The policy usually covers the costs of cleanup and may include cov erage for releases from underground storage tanks. Intentional acts are specifically exclu ded .. Property insurance provides protection against risks to property, such as fir e, theft or weather damage. This includes specialized forms of insurance such as fire insura nce, flood insurance, earthquake insurance, home insurance, inland marine insurance or boil er insurance. .. Purchase insurance is aimed at providing protection on the products people pu rchase. Purchase insurance can cover individual purchase protection, warranties, guarant ees, care

plans and even mobile phone insurance. Such insurance is normally very limited i n the scope of problems that are covered by the policy. .. Retrospectively Rated Insurance is a method of establishing a premium on larg e commercial accounts. The final premium is based on the insured's actual loss experience dur ing the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based pa rtially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guarantee d in the insurance contract. Formula: retrospective premium = converted loss + basic prem ium tax multiplier. Numerous variations of this formula have been developed and are in u se. .. Social insurance can be many things to many people in many countries. But a s ummary of

23 its essence is that it is a collection of insurance coverage (including componen ts of life insurance, disability income insurance, unemployment insurance, health insurance , and others), plus retirement savings, that mandates participation by all citizens. B y forcing everyone in society to be a policyholder and pay premiums, it ensures that every one can become a claimant when or if he/she needs to. Along the way this inevitably beco mes related to other concepts such as the justice system and the welfare state. This is a la rge, complicated topic that engenders tremendous debate, which can be further studied in the foll owing articles (and others): o Social welfare provision o Social security o Social safety net o National Insurance o Social Security (United States) o Social Security debate (United States) .. Terrorism insurance provides protection against any loss or damage caused by terrorist activities. .. Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate trans action. .. Travel insurance is an insurance cover taken by those who travel abroad, whic h covers certain losses such as medical expenses, lost of personal belongings, travel del ay, personal liabilities, etc. .. Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred because of a job-related injury. Advantages of Life Insurance : Life insurance has no competition from any other business. Many people think tha t life insurance is an investment or a means of saving. This is not a correct view. Whe n a person saves, the amount of funds available at any time is equal to the amount of money set aside in the past, plus interest. This is so in a fixed deposit in the bank, in national savings certificates, in mutual funds and all other savings instruments. If the money is invested in b uying shares and stocks, there is the risk of the money being lost in the fluctuations of the stock market. Even if there is no loss, the available money at any time is the amount invested plus appreciation. In life insurance, however, the fund available is not the total of the savings already made (premiums paid), but the amount one wished to have at the end of th e savings period (which is the next 20 or 30 years). The final fund is secured from the ve

ry beginning.

24 One is paying for it later, out of the savings. One has to pay for it only as lo ng as one lives or for a lesser period if so chosen. There is no other scheme which provides this k ind of benefit. Therefore life insurance has no substitute. Even so, a comparison with other forms of savings will show that life insurance has the following advantages. .. In the event of death, the settlement is easy. The heirs can collect the mone ys quicker, because of the facility of nomination and assignment. The facility of nomination is now available for some bank accounts. .. There is a certain amount of compulsion to go though the plan of savings. In other forms, if one changes the original plan of savings, there is no loss. In insurance, there is a loss. .. Certain cannot claim the life insurance moneys. They can be protected against attachments by courts. .. There are tax benefits, both in income tax and in capital gains. .. Marketability and liquidity are better. A life insurance policy is property a nd can be transferred or mortgaged. Loans can be raised against the policy. The following tenets help agents to believe in the benefits of life insurance. S uch faith will enhance their determination to sell and their perseverance. .. Life insurance is not only the best possible way for family protection. There is no other way. .. Insurance is the only way to safeguard against the unpredictable risks of the future. It is unavoidable. .. The terms of life are hard. The terms of insurance are easy. .. The value of human life is far greater than the value of property. Only insur ance can preserve it. .. Life insurance is not surpassed by many other savings or investment instrumen t, in terms of security, marketability, stability of value or liquidity. .. Insurance, including life insurance, is essential for the conservation of man y businesses, just as it is in the preservation of homes. .. Life insurance enhances the existing standards of living. .. Life insurance helps people live financially solvent lives. .. Life insurance perpetuates life, liberty and the persuit of happiness. .. Life insurance is a way of life.

25 The Business of Insurance : Insurance companies are called insurers. The business of insurance is to (a) bri ng together persons with common insurance interests (sharing the same risks), (b) collect th e share or contribution (called premium) from all of them, and (c) pay out compensation (ca lled claims) to those who suffer. The premium is determined on the same lines as indicated in the examples above, but with some further refinements. In India, insurance business is classified primarily as life and non-life or gen eral. Life insurance includes all risks related to the lives of human beings and General in surance covers the rest. General insurance has three classifications viz., Fire (dealing with a ll fire related risks), Marine (dealing with all transport related risks and ships) and Miscella neous (dealing with all others like liability, fidelity, motor crop, personal accident, etc.). Personal accident and sickness insurance, which are related to human beings, is classified as ..no n-life.. in India, but is classified as ..life.., in many other countries. What is ..Non-life.. in India is termed as ..Property and Casualty.. in some other countries. The premium is based on expectations of the losses. These expectations are based on studies of occurrences in the past and the use of statistical principles. There is, in s tatistics, a ..law of large numbers... When you toss a coin, the chance of a head or tail coming up is half. If the coin is tossed 10 times, one cannot be sure that the head will come up 5 times. If the coin is tossed 1 million times, the number of heads will be closer to half a million pro portionately than in the case of 10. The variation will be less as a percentage. So also, the larger the numbers (of risks) included in the pool, the better the chances that the assumpt ions regarding the probability of the risk occurring, which is the basis of premium calculation , will be realized in practice. In order to be amenable to statistical predictions, insure rs have to insure large numbers of risks. Larger the spread of business better is the experience i n relation to expectations. The business of insurance is nothing but one of sharing. It spreads losses of an individual over the group of individuals who are exposed to similar risks. People who suffe r loss get relief because their loss is made good. People who do not suffer loss are reliev ed because they were spared the loss. The insurer is in the position of a trustee as it is managing the common fund, f or and on behalf of the community of policyholders. It has to ensure that nobody is allowe d to take undue advantage of the arrangement. That means that the management of the insura

nce business requires care to prevent entry (into the group) of people whose risks a re not of the same kind as well as paying claims on losses that are not accidental. The decisi on to allow entry is the process of underwriting of risk. Underwriting includes assessing th e risk, which means, making an evaluation of how much is the exposure to risk. The premium to be charged depends on this assessment of the risk. Both underwriting and claim sett lements have to be done with great care.

26 Criticism of Insurance Companies : Some people believe that modern insurance companies are money-making businesses which have little interest in insurance. They argue that the purpose of insurance is t o spread risk so the reluctance of insurance companies to take on high-risk cases (e.g. houses in areas subject to flooding, or young drivers) runs counter to the principle of insurance. Other criticisms include: .. Insurance policies contain too many exclusion clauses. For example, some hous e insurance policies do not cover damage to garden walls. .. Most insurance companies now use call centre and staff attempt to answer ques tions by reading from a script. It is difficult to speak to anybody with expert knowledge . Role of Insurance in Economic Development : For economic development, investments are necessary. Investments are made out of savings. A life insurance company is a major instrument for the mobilization of savings o f people, particularly from the middle and lower income groups. These savings are channele d into investments for economic growth. As on 31.3.2002, the total investments of the LIC exceeded Rs. 245000 crores, of which more than Rs. 130000 crores were directly in Government (both State and Centre) relat ed securities, more than Rs. 12000 crores in the State Electricity Boards, nearly R s. 20000 crores in housing loans and Rs. 4000 crores in water supply and sewerage systems. Other investments included road transport, setting up industrial estates and directly financing industry. Investments in the corporate sector (shares, debentures and term loans ) exceeded Rs. 30000 crores. These directly affect the lives of the people and their econom ic well-being. A life insurance company will have large funds. These amounts are collected by w ay of premiums. Every premium represents a risk that is covered by that premium. In ef fect, therefore, these vast amounts represent pooling of risks. The funds are collecte d and held in trust for the benefit of the policyholders. The management of life insurance com panies are required to keep this aspects in mind and make all its decisions in ways that be nefit the community. This applies also to its investments. That is why successful insuranc e companies would not be found investing in speculative ventures. Their investments, as in t he case of the LIC, benefit the society at large. Apart from investments, business and trade benefit through insurance. Without in surance, trade and commerce will find it difficult to face the impact to major perils lik e fire, earthquake, floods, etc. Financiers, like banks, collapse if the factory, financ

ed by it, is reduces to ashes by terrible fire. Insurers cover also the loss to financiers, i f their debtors default.

27 2. GLOBAL INSURANCE INDUSTRY : The global insurance industry is one of the largest sectors of finance. It range s from consumer to corporate and industrial insurance, and even reinsurance, or insuran ce of insurance. The major insurance markets of the world are obviously the US, Europe, Japan, an d South Korea. Emerging markets are found throughout Asia, specifically in India and Chi na, and are also in Latin America. With the internet and other forms of high-speed communication, companies and ind ividuals are now able to purchase insurance and related financial products from almost an ywhere in the world. Increasing affluence, especially in developing countries, and a risin g understanding of the need to protect wealth and human capital has led to signifi cant growth in the insurance industry. Given the evolving and growing socio-economic conditions worldwide, insurance co mpanies are increasingly reaching out across borders and are offering more competitive a nd customized products than ever before. Over the past ten years, global insurance premiums have risen by more than 50%, with annual growth rates ranging between 2 and 10%.In 2004, global insurance premiums amounted to $3.3 trillion. The majority of insurance comes from developed nations such as most of Europe, t he US, and Japan. In 2004, premiums in North American amounted to $1,217 billion, while the European Union generated $1,198 billion, and Japan produced $492 billion. The UK amounted to $295 billion. The four biggest generators of insurance premiums comprised almost two-thirds of premiums for 2004, the US and Japan amount to half, while they only make up 7% of the wor ld..s population. In contrast, the emerging markets that make up 85% of the world..s population pr oduced only 10% of the premiums. The leading global insurance companies are: Zurich Financial Services, AXA Berkshire Hathaway/ Berkshire Hathaway Re Allianz Aviva ING Group Munich RE Group American International Group (AIG) Nippon Life Insurance Assicurazioni Generali

GLOBAL LIFE INSURANCE DENSITY : Continent/Country 2001** 2002** 2003** 2004** 2005** 2006** North America 1508.6 1563.8 1565.7 1617.2 1686.3 1731.8 United States 1602 1662.6 1657.5 1692.5 1753.2 1789.5 Canada 675.9 657.3 722.9 926.1 1071.9 1204.1 Latin America 26.3 29.1 30 37.2 42.0 51.3 Brazil 10.8 27.2 35.8 45.9 56.8 72.5 Mexico 53.2 59.2 41.3 50.2 49.9 62.9 Uruguay 21.5 17.8 15.4 N/A 15.5 16.6 Argentina 68.8 19.7 24.2 34.5 35.4 43.8 Panama 39.3 44.6 42.4 50.6 47.2 51.2 Chile 122.1 103.5 138.3 164.5 174.9 176 Colombia 11.5 12.5 12.4 14.3 16.8 20.5 Europe 573.2 620.4 726.9 848.1 911.8 1119.6 United kingdom 2567.9 2679.4 2617.1 3190.4 3287.1 5139.6 Switzerland 2715.7 3099.7 3431.8 3275.1 3078.1 3111.8 Netherlands 1345 1296.1 1561.7 1936.5 1954.2 2071.6 France 1268.2 1349.5 1767.9 2150.2 2474.6 2922.5 Belgium 1155 1323.6 2004.8 2291.2 2988.7 2427.7 Sweden 1356 1232.2 1602.3 1764.3 2105.2 2214.6 Denmark 1364.4 1574.9 2037.5 2310.5 2489.9 2840.8 Germany 674.3 736.7 930.4 1021.3 1042.1 1136.1 Italy 720.8 904.9 1238.3 1417.2 1449.8 1492.8 Austria 632 648.7 811 955.3 1095.1 1104.6 Portugal 302.9 418.6 611.4 768.1 1113.7 1131.5 Spain 491 588 488.6 571.9 615.8 651.0 Poland 48.7 50.7 59.9 73.3 101.9 150.5 Russia 33.2 23.1 33.9 24.8 6.3 4.0 Croatia 25.3 33.2 46.3 58.7 70.9 81.8 Hungary 59.3 76.7 99.1 117.3 148.2 192.3 Greece 108.9 116 152.1 177.9 213.1 256.7 Bulgaria 5 9.9 5.5 8.2 11.1 13.2 Ukraine 0.1 0.1 0.3 0.6 1.3 1.9 Turkey 5.5 6.5 8.4 12 12.7 13.1 Asia 125 128.1 140.1 147.2 149.6 154.6 South Korea 763.4 821.9 873.6 1006.8 1210.6 1480.0 Japan Tiwan 2806.4 760.9 2783.9 925.1 3002.9 1050.1 3044 1494.6 2956.3 1699.1 2829.3 1800.0 Hongkong 1249.7 1237.9 1483.9 1884.3 2213.2 2456 Israel 525.2 459.3 460.8 467.4 510.2 532.6 Malaysia 129.5 118.7 139.8 167.3 188 189.2 Singapore 713.2 730.1 1300.2 1483.9 1591.4 1616.5 Thailand 34.1 42.1 52 50.8 54.6 60 India 9.1 11.7 12.9 15.7 18.3 33.2 China 12.2 19.5 25.1 27.3 30.5 34.1

Phillipines 6.6 8.7 8.6 9.4 10.6 13.1 UAE 56.3 74 72.5 59.7 74.7 89.8 Srilanka 4.3 4.5 5.3 6.2 6.9 8.5 Indonesia 3.6 5.2 6.4 7.5 10.5 12.5 Oman 13.6 14.8 13.8 14.2 17.3 14.3 Vietnam 2.1 3.8 4.1 7.3 6.1 6.1 Iran 1.1 1.5 1.7 2.3 2.2 2.6 Kuwait 30.3 36.8 36.9 39.1 35.7 40.9 Pakistan 1.2 1 1.1 1.5 1.9 2.3 Saudia Arabia 0.6 1.7 1.7 2.1 0.7 0.8 Africa 22.4 21.5 26.1 30.3 30.7 38.3 South Africa 377.2 360.5 476.5 545.5 558.3 695.6 Mauritius 95.3 103.7 119.1 133.1 136.1 N/A Zimbabwe 12.4 7.8 21.4 N/A N/A N/A Morocco 9.4 12.2 12 10.6 11.7 14.7 Kenya 2.9 3 3.4 3.7 4.5 5.3 Nigeria 0.5 0.5 0.6 0.7 0.5 0.8 Egypt 2.7 2.4 2.7 3.1 4 4.7 Algeria 0.4 0.5 0.5 0.8 0.9 1.2 Oceania 697.5 668.7 750.7 851 885 896.3 Australia 1040.3 1010.4 1129.3 1285.1 1366.7 1389 New Zealand 198.4 211.1 272 318 219.7 215 World 235 247.3 267.1 291.5 299.5 330.6 Source: Swiss Re, Sigma volumes * Insurance density is measured as ratio of premium to total population ** Data relates to calender years Figure in US$ www.indiainsuranceresearc h.com 28

3. PERFORMANCE OF INDIAN INSURANCE INDUSTRY : Performance up to October 2006 The performance growth rate that was 22.8 percent as at September 2006 has moved up to 23.3 percent at the end of October 2006, an improvement of significance. T he total premium at the end of October is Rs.14,628 crore as against Rs.11,855 cror e. The established players have added Rs.807 crore at a growth rate of 8.3 percent with the new players adding Rs.1966 crore at a growth rate of 62 percent. Here again, ICICI Lombard has achieved an accretion of Rs.887 crore; whereas the total accre tion of all the established players is Rs 807 crores, a truly impressive record. New India with Rs.286 crore, closely followed by Oriental with Rs.277 crore are the major contributors for the established players. Reliance, a late starter in the race f or premium acquisition has recorded an accretion of Rs.357 crore as against a meage r last year renewal of Rs.89 crore. The growth path is now led by several players: with eight out of the twelve players having achieved accretions in excess of Rs.100 c rore and more at the end of October 2006. With the imminent detariffing around the co rner in January 2007, the next two months should witness even more fierce battles for supremacy of the market turf. A few of the new players are inching towards break ing into the big league premium players of yesteryears and this may happen sooner th an one thought. Interesting and challenging times are certainly ahead for all the p layers. Premiums Rise 163.68% over October, 2006 Individual premium: The life insurance industry underwrote Individual Single Premium of Rs.1336610.1 0 lakh for the period ended October, 2006 of which the private insurers garnered Rs.118242.78 lakh and LIC garnered Rs.1218367.32 lakh. The corresponding numbers for the previous year were Rs.443296.40 lakh for the industry, with priv ate insurers underwriting Rs.64530.68 lakh and LIC Rs.378765.72 lakh. The Individual Non-Single Premium underwritten during April-October, 2006 was Rs.1771903.71 lakh of which the private insurers underwrote Rs.536863.16 lakh and LIC Rs.1235040.55 lakh. The corresponding numbers for the previous year were Rs.743586.24 lakh, Rs.260432.63 lakh and Rs.483153.61 lakh respectively. Group premium: The industry underwrote Group Single Premium of Rs.467348.58 lakh of which the private insurers underwrote Rs.30147.74 lakh and LIC Rs.437200.84 lakh. The live s

covered being 7678192, 456696 and 7221496 respectively. The corresponding numbers for the previous year were Rs.171382.70 lakh with private insurers underwriting Rs.17261.98 lakh and LIC Rs.154120.72 lakh and the lives covered being 8547743, 397721 and 8150022 respectively. The Group Non-Single Premium underwritten during April-October, 2006 was Rs.53221.05 lakh which was underwritten entirely by the private insurers, covering 2366084 lives. The corresponding numbers for the previous year were Rs. 18031.15 lakh and covering 1277400 lives. 29

Segment-wise segregation: A further segregation of the premium underwritten during the period indicates th at Life, Annuity, Pension and Health contributed Rs.2329869.52 lakh (64.24%), Rs.74006.48 lakh (2.04%), Rs.1221904.91 lakh (33.69%) and Rs.897.90 lakh (0.02%) respectively. In respect of LIC, the break up of life, annuity and pension categ ories was Rs.1677831.45 lakh (58.04%), Rs.69437.82 lakh (2.40%) and Rs.1143339.44 lakh (39.55%) respectively. In case of the private insurers, Rs.652038.07 lakh (88.58%), Rs.4568.66 lakh (0.62%), Rs.78565.47 lakh (10.67%) and Rs.897.90 lakh (0.12%) respectively was underwritten in the four segments. Unit linked and conventional premium: Analysis of the statistics in terms of linked and non-linked premium indicates t hat 49.46% of the business was underwritten in the non-linked category, and 50.54% i n the linked category, i.e., Rs.1793702.35 lakh and Rs.1832976.45 lakh respectivel y. In case of LIC, the linked and non-linked premium was 41.38% and 58.62% respectively, as against which for the private insurers taken together this stoo d at 86.53% and 13.47% respectively. During the corresponding period of the previous year, linked and non-linked premium indicates that 54.74% of the business was underwritten in the non-linked category, and 45.26% in the linked category, i.e. , Rs.752509.54 lakh and Rs.622185.30 lakh respectively. In case of LIC, the linked and non-linked premium was 33.96% and 66.04% respectively, as against which for the private insurers taken together this stood at 77.02% and 22.98% respectively. Growth momentum continues in October 2006 with 25.3 percent All-round growth : The month of October 2006 has been the month of extraordinary growth for the non life insurers with the growth rate high at 25.3 percent. This achieved rate is only slightly below that of September of 25.8 percent. As against the monthly renewal s of Rs.1772 crore in October last year, the premium income scaled in 2006 is Rs.2220 crore. The established players have recorded an accretion of Rs.151 crore at a g rowth rate of 11.3 percent. The new players have had an accretion of Rs.297 crore at a growth rate of 63 percent. Among the former, New India leads with an accretion o f Rs.60 crore followed by Oriental with Rs.56 crore. But the stellar performances in the month have come from ICICI Lombard that has produced a massive accretion of Rs.167 crore with Reliance adding Rs.56 crore to its meager renewal premium of Rs.12 crore. The new players have continued to maintain a strong grip on their market share t hat stands at 35 percent. Two points of interest to the market have emerged. One is

that the monthly accretion of ICICI Lombard at Rs.167 crore is higher than the combin ed accretion achieved by all the established players of Rs.151 crore. This performa nce should stand out as of interest to the market. The second point of market intere st is that for the first time, the October monthly premium of ICICI Lombard at Rs.310 crore has exceeded the monthly premium performances of National Insurance and UIIC that have accomplished premiums of Rs.305 crores and Rs.257 crore respectively. The established players do seem to be coming under increasing pres sure by the new players with their relentless high growth rates and premium productio ns. 30

41 per cent growth in life insurance industry in 2006 : New Delhi: Life insurance sector grew by 41 per cent in 2005-06 due to better performance of country's largest life insurer, LIC, and private players like Baj aj Allianz and ICICI Prudential. The 15 life insurance companies together collected Rs 35,898 crore in the fiscal ended March this year, compared to Rs 25,343 crore in the previous fiscal, according t o data compiled by regulator IRDA. Life Insurance Corporation's premium income rose more than 28 per cent to Rs 25, 645 crore after it sold 3.16 crore policies as against Rs 19,972 crore collected a y ear ago. However, LIC's market share dipped by 6.63 per cent to 71.44 per cent from 78.07 per cent in the year ago period due to stiff competition and aggressive marketing of private life insurers. The 14 private players were able to steadily increase their market share from 21 .93 per cent to 28.56 per cent in a year's time by collecting Rs 10,252 crore during the period under review. Private sector life insurance business jumps 90% : In a tough battle to expand market shares the private sector life insurance indu stry consisting 14 life insurance companies at 26% have lost 3% of market share to th e state owned Life Insurance Corporation (LIC) in the domestic life insurance industry i n 2006 07. According to the figures released by Insurance Regulatory & Development Authorit y the total premium these 14 companies have shot up by 90% to Rs 19,471.83 crore in 20 06-07 from Rs 10, 252 crore. LIC with a total premium mobilization of Rs 55,934 crore has been able retain a market share of 74.26 % during the reporting period. In total the life insurance indust ry in first year premium has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07 performance has thrown a few surprises in the ranking among the private sector l ife insurance companies. New entrants like Reliance Life and SBI Life had shown a hu ge growth of over 381% and 210% respectively during the year. Reliance Life which h as become one of the top five companies ended the year with a premium of Rs 930 cro re during the year.

Though ICICI Prudential Life Insurance remained as the No 1 private sector life insurance company during the year Bajaj Allianz overtook ICICI Prudential in ter ms of monthly market share in March, for the first time ever. Bajaj's market share amo ng private players in non-single premium for March stood at 29.1% vs. ICICI Prudent ial's 23.8%. Bajaj gained 4.6 percentage point market share among private sector playe rs for FY07. Among other private players, SBI Life and Reliance Life continued to do well, ea ch gaining 4% market share in FY07. SBI Life's growth was driven by increasing contribution from ULIP premiums. Another notable development of the 2006-07 performance has been the expansion of retail markets by the life insurance comap nies. Bajaj Allianz Life insurance has added 20 lakh policies while ICICI Prudential h as expanded over 19 lakh policies during the year. 31

Building a Vibrant Insurance Market in India : India's insurance industry is an example of the positive effects of competition and new investors in the marketplace. As we know, India opened its insurance market to t he private sector in 1999 when parliament passed a new law establishing an independ ent regulatory body to oversee the insurance market. The law opened the door for participation of private insurance companies and a limited participation of fore ign insurance companies through joint ventures with Indian companies. The law also c harged insurance companies to make available insurance products and services to the hug e segment of the population that are vulnerable and not necessarily part of the fo rmal economy. The results of the liberalization are there for everyone to see. The insurance m arkets -both life and non-life -- have grown impressively. IRDA is working on a regulatory framework that helps level the playing field for all types of insurance companie s, irrespective of their ownership. Since 1999, IRDA has licensed 22 new private In dian insurance companies, an overwhelming number of which have global insurance companies as their partners. To date, the industry has attracted foreign direct investment of $235 million. In 2006, Indian insurance companies mobilized over $29 billion, nearly four time s as much as in 1999 ($8 billion). In other countries, this kind of capital mobilizat ion provides crucial resources for investment in infrastructure, corporate businesses, long-t erm bonds, and municipal projects. Once India does more to free insurance companies to inve st in such important sectors, it too can gain benefit from this long-term financial re source. Other improvements are occurring as well. New insurance products such as product liability insurance, professional liability insurance, small/medium size enterpr ise insurance, weather insurance, and group health insurance for the poor have been launched. Private insurance companies are also using banks, microfinance institu tions and cooperatives to increase their market share and compete with well-entrenched sta teowned insurance companies. The marketplace is getting competitive, but the market share of private insuranc e companies remains very low in the 10-15 percent range. The heavy hand of governm ent still dominates the market, with price controls, limits on ownership, and other restraints. We have seen what happens in India when a market is truly opened up. We saw it i n the

IT sector, we saw it in the telecom sector, and we are seeing it in the aviation sector. Why can't insurance be next? India's insurance market remains very small compared wi th some of the major emerging markets. South Africa and South Korea, with a fraction (on etwentieth) of India's population, do at least twice as much insurance business as Indian companies did in 2004. This is a major missed opportunity for India's economy. A vibrant insurance market can support the economy by providing long-term capital -- equit y and debt -- to the private sector. For example, in the U.S. over two-thirds of finan cial assets of insurance companies are in corporate bonds and equities, municipal securities an d commercial mortgages. Insurance also shields households and businesses from irrecoverable loss, such a s from major natural disasters, illness and death. In India, 80 percent of health care is privately provided, yet only 10 percent of the population has access to health insurance. Therefore, many individual households have to pay the full out-of-pocket costs for health t reatment. What will expand the insurance industry and help it contribute to the economy? M ajor policy and institutional issues have to be addressed and changed. 32

Insurance is a capital-intensive industry. It is also a long-gestation business. India's insurance industry needs capital, and a major source of capital would be from fo reign investors, who are now limited to 26 percent ownership. India needs to raise the cap on Foreign Direct Investment (FDI) to attract capital for the industry. For some ti me there has been an understanding that the FDI cap will be raised to 49 percent, and man y companies entered the Indian market with this expectation. Failure to follow thr ough in raising the cap is increasingly seen by investors as a breach of faith. This promise needs to be delivered, not 5 years from now, but soon, if India wis hes to regain its credibility in the eyes of foreign investors. Increasing the cap on F DI will both enhance the growth of the insurance industry and improve global confidence in In dia as a business and investment destination. The cap should be raised above 50 percent within a short period so that foreign investors would have management control commensurate with their investment and the flow of FDI to the sector will increase. Leading foreign companies bring more than capital t o the insurance industry. They also bring generations of successful experience in mana ging and growing the industry. The benefit of the long-term capital that the insurance industry mobilizes is al so being lost as a source of long-term capital. In India, over 60 percent of the insuranc e industry's financial assets are locked in government securities. Investment guidelines for insurance companies prescribed by the regulator must be changed to allow and promote acces s to insurance funds by the corporate sector and infrastructure projects. There is also a strong case for raising the FDI cap for reinsurance and auxiliar y insurance services, such as brokerage and actuarial services. Major lines of non-life insurance business such as fire and car continue to be g overned by a pricing regime that is administered and not risk-based. This distorts the mark et and makes it inefficient. It has prevented the emergence of a culture of underwritin g in insurance companies. The IRDA needs to dismantle this regime to make these segme nts of the market truly competitive. The IRDA should also seek to create a regulatory regime that promotes the most e fficient use of capital, eliminates avoidable micro-management of business practices, all ows

companies to price their products prudentially, and levels the playing field bet ween private and state-owned insurance companies. When markets are competitive and responsive to consumer demand and preference, it is the consumer that benefits i n terms of lower cost and increased ability to manage risks. Health is an area that is underserved by the insurance industry. India as an eco nomy has high health spending but poor health outcomes. With no pooled risk sharing from insurance policies and a health care system that is primarily private, the cost to individuals becomes a major economic burden. For this reason, many microfinance institutions are finding that a primary use of micro loans to the poor is to pay medical bills. The current minimum capital requirement of $22 million capital for setting up a health insurance company is a significant barrier to entry, particularly when FDI is re stricted to 26 percent. The lack of data from both health providers and from existing claims makes risk-based pricing of health insurance products difficult. The absence of an app ropriate regulatory framework that enforces a minimum level of service and hygiene standa rds is 33

34 an important reason the health insurance market in India is so underdeveloped. I t is not surprising that not a single health insurance company is among the 22 new privat e insurance companies licensed since 1999. Clearly, the IRDA and the Ministry of H ealth need to work in tandem to solve these problems. Another area where the insurance industry is not doing its job is helping mitiga te the risks for personal and business loss from natural catastrophes. In the past decade, In dia and China accounted for one-fourth of the global economic losses from natural disast ers. Insurance availability in India for natural catastrophes is almost negligible. A s we have seen with the Indian Ocean tsunami, the absence of a "safety net" for property l ost in a disaster has led to substantial personal loss and slowed economic recovery. Insurance Sector Reforms in India: Challenges and Opportunities : Insurance in India started without any regulations in the nineteenth century. It was a typical story of a colonial era: a few British insurance companies dominating th e market serving mostly large urban centers. After the independence, the Life Insurance C ompany was nationalized in 1956, and then the general insurance business was nationaliz ed in 1972. Only in 1999 private insurance companies were allowed back into the busine ss of insurance with a maximum of 26 per cent of foreign holding (World Bank Economic Review 2000). The entry of the State Bank of India with its proposal of bank ass urance brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and Development Authority bill was passed to protect the interest of the policyholde rs from private and foreign players. The following companies are entitled to do insuranc e business in India. The private insurance joint ventures have collected the premium of Rs.1019.09 cr ore with the investment of just Rs.3,000 crore in three years of liberalization. The priv ate insurance players have significantly improving their market share when compared to 50 years Old Corporation (i.e. LIC). As per the figures compiled by IRDA, the Life Insurance Industry recorded a total premium underwritten of Rs. 10,707.96 crore for the period under review. Of this, private players contributed to Rs.1, 019.09 crore, accounting for 10 percent. Life Insurance Corporation of India (LIC), the public sector gia nt, continued to lead with a premium collection of Rs.9,688.87 crore, translating in to a market share of 90 per cent. In terms of number of policies and schemes sold, pr ivate sector accounted for only 3.77per cent as compared to 96.23 per cent share of LI C (The Economic Times, 21March..04).

he ICICI Prudential topped among the private players in terms of premium collect ion. It recorded a premium of Rs. 364.9 crore and a market share of 25 per cent, followe d by Birla Sun Life with a premium under- written Rs.170 crore and a market share of 15 percent, HDFC Standard with 132.7 crore and Max New York Life with Rs.76.8 crore with a market share of approximately 15 per cent each. Unlike their counterpart in the life insurance business, private non-life insurance companies have not yet started ad dressing the retail market. All is set to change in the coming years. Like in the banking sector, nonlife insurance companies will soon have no choice but to focus on individual buyers. The latest series of bomb attacks, attack on parliament, attack on Ayodhya, atta cks of the Maoists, nature calamities like tsunami, floods and drought, ragging are prevail ed in the country and need not to say about the farmer who has been insecure about rains, seeds, crops and suitable price for his crop. In developed countries, the owners have i nsured

35 even pet dogs. Whereas in India about 80 percent of human beings and major natur al resources have not been insured in globalization era. It is, therefore, an urgent need to explore the challenges and opportunities fac ed by the insurance sector in India. India s Insurance Industry Likely To Jump By 500% In 2010: ASSOCHAM : The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected about 500% hike in the size of domestic insurance business which will grow to US$ 60 billion by 2010 from the current size of around US$ 10 billion as the gro wing competitive age is developing a larger appetite among people for wider insurance coverage. The projections of the Chamber are based on feedback that it received from its v arious constituents, engaged in the insurance business, highlighting that India..s life insurance premium as a percentage of GDP is currently estimated at 1.8% against 5.2% in US , 6.5% in UK and about 8% in South Korea. Releasing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that rur al and semi-urban India will contribute US $35 billion to the Indian insurance indu stry by 2010, including US $20 billion by way of life insurance and the rest US $15 bill ion through non-life insurance schemes. ..A large part of rural India is still untapped due to poor distribution, large distances and high costs relative to returns. Urban sector insurance is estimated to reach US $25 billion by 2010, life insurance US $15 billion and non-life insurance US $10 billion.., added Mr. Dhoot. ASSOCHAM findings reveals that in the coming years the corporate segment, as a w hole will not be a big growth area for insurance companies. This is because penetrati on is already good and companies receive good services. In both volumes and profitabil ity therefore, the scope for expansion is modest. ASSOCHAM has suggested that insurer..s strategy should be to stimulate demand in areas that are currently not served at all. Insurance companies mostly focus on manufa cturing sector; however, the services sector is taking a large and growing share of Indi a..s GDP. This offers immense opportunities for expansion opportunities. To understand the prospects for insurance companies in rural India, it is very i mportant to understand the requirements of India's villagers, their daily lives, their pecul iar needs and their occupational structures. There are farmers, craftsmen, milkmen, weavers, c asual labours, construction workers and shopkeepers and so on. More often than not, th

ey are into more than one profession. The rural market offers tremendous growth opportunities for insurance companies and insurers should develop viable and cost-effective distribution channels; build c onsumer awareness and confidence. The Paper found that there are a total 124 million rur al households. Nearly 20% of all farmers in rural India own a Kissan Credit cards. The 25 million credit cards used till date offer a huge data base and opportunity for i nsurance companies. An extensive rural agent network for sale of insurance products could be

36 established. The agent can play a major role in creating awareness, motivating p urchase and rendering insurance services. There should be nothing to stop insurance companies from trying to pursue their own unique policies and target whatever needs that they want to target in rural Indi a. ASSOCHAM suggests that insurance needs to be packaged in such a form that it app ears as an acceptable investment to the rural people. In the near future, when we..ll see more innovations in agriculture in the form of corporatization or a more professional approach from the farmers.. side, insurance will definitely be one option that the rural Indian is going to accept. ASSOCHAM believes that insurers should enter into tie-ups or understandings with government agencies to ensure the success of the insurance schemes. The need of the hour is to have innovative policies that have explicit benefits for the people t o observe, understand and measure. Indian Insurance Industry: New Avenues for Growth 2012 : Description: 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 h uge. Total value of the Indian insurance market (2004-05) was estimated at Rs. 450 billion (US$10 billion). According to government sources, the insurance and banking services.. contribution to the country's gross domestic product (GDP) is 7% out of which th e gross premium collection forms a significant part. The funds available with the stateowned Life Insurance Corporation (LIC) for investments are 8% of GDP. Till date, only 20% of the total insurable population of India is covered under various life insurance schemes, the penetration rates of health and other non-life insurances in India is also w ell below the international level. These facts indicate the of immense growth potential of the insurance sector. The year 1999 saw a revolution in the Indian insurance sector, as major structur al changes took place with the ending of government monopoly and the passage of the Insuran ce Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limit s on direct foreign ownership. Though, the existing rule says that a foreign partner can hol d 26% equity in an insurance company, a proposal to increase this limit to 49% is pend ing with the government. Since opening up of the insurance sector in 1999, foreign invest ments of

Rs. 8.7 billion have poured into the Indian market and 21 private companies have been granted licenses. Innovative products, smart marketing, and aggressive distribution have enabled f ledgling private insurance companies to sign up Indian customers faster than anyone expec ted. Indians, who had always seen life insurance as a tax saving device, are now sudd enly turning to the private sector and snapping up the new innovative products on off er. The life insurance industry in India grew by an impressive 36%, with premium inc ome from new business at Rs. 253.43 billion during the fiscal year 2004-2005, bravin g stiff competition from private insurers. This report, ..Indian Insurance Industry: New Avenues for Growth 2012.., finds that the market share of the state behemoth, LIC, has c locked 21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new polici es in

2004-05. But this was still not enough to arrest the fall in its market share, a s private players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billi on in 2003-04. Though the total volume of LIC's business increased in the last fiscal year (2004-2005) compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers increased their market share from about 13% to a bout 22% in a year's time. The figures for the first two months of the fiscal year 20 05-06 also speak of the growing share of the private insurers. The share of LIC for this pe riod has further come down to 75 percent, while the private players have grabbed over 24 percent. There are presently 12 general insurance companies with four public sector compa nies and eight private insurers. According to estimates, private insurance companies collectively have a 10% share of the non-life insurance market. Though the focus of this market research report is on the potential growth on the Indian Insurance Sector , it also talks about the market size, market segmentation, and key developments in the ma rket after 1999. 37

CHAPTER 2 RESEARCH METHODOLOGY 38

RESEARCH OBJECTIVES: 1. To compare the performance of LIC and private insurance companies in India. 2. To find out the performances of LIC and private insurance companies in each category (size. growth, productivity and efficiency) 3. To compare grievance management of LIC and private insurance companies. RESEARCH DESIGN : a. Type of research design : Analytical Research b. Data collection : Secondary Sources c. Statistical Tools : Ratio Analysis Bar Graph RESEARCH PROCESS In this research my research objective was to compare the performance of LIC and Private insurance companies. For this purpose I decided the four broad categories under which I have compared the LIC and Private insurance companies. These are: 1. Size 2. Growth 3. Productivity 4. Grievance Handling Under these Broad Categories I have analyzed 13 factors which are: 1. Size Total Premium Total Income Size of Balance Sheet Total number of Policies Total number of Branches 2. Growth Growth in Premium Growth in Income 39

Growth in number of Policies Growth in Market share 3. Productivity Business per Branch Income per Branch New Premium per Branch 4. Grievance Handling I have used the Secondary data of last five financial years. I have collected da ta from the various balance sheet of LIC and other private insurance companies, web sites an d in some cases I personally met some employees of some insurance companies. I tried to fi nd out most of the information required to compare the LIC and private insurance companies. In Analysis I have found all the required data and on the basis of performance g ave the rank to LIC and Private Insurance Companies on each factor and then points. Now these Points have been multiplied with the weightage of that factor. And then after the analy sis of each factor a consolidated point table has been prepared to know that which sector is performing better than other. The Weightage for different categories are: Factors Size A. Total Premium B. Total Income C. Balance Sheet Size D. Total No. of Poli ciesE. Total No. of Branches Growth A. First Premium B. Growth in Income C. Incr ease in No. of Policies D. Growth in Market Share Productivity A. Business per B ranch B. Income Per Branch C. First Premium per BranchGrievance Handling Weightage 25% 5%5% 5% 5%5% 40% 10% 10% 10%10% 15%5% 5% 5% 20% 40

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

CHAPTER 3 ANALYSIS AND INTERPRETATION 42

1. SIZE : (A) TOTAL PREMIUM : (Rs. In crores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 63533 75127 90792 127822 149789 Private Insurers 3120 7727 15083 28253 51561 TOTAL 66653 82854 105875 156075 201350 43

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

Avg. Income ( In Crores) Rank points points after multiplying by weightage (7.5%) LIC 143683.40 1 1 7.5 Private Insurance Co. 21825.00 2 0.5 3.75 All over income of LIC is much more than than of private players. It is due to the fact that LIC being a government agency is being trusted by lot of companies and has large number of shares in big corporates. 45

(C) SIZE OF BALANCE SHEET : (Rs. In crores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 346022 416910 531390 625956 776904 Private Insurers 6585 13653 28910 53048 100774 TOTAL 352607 430563 560300 679004 877678 46

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

Avg. number of policies Rank points points after multiplying by weightage (7.5%) LIC 31675670 1 1 7.5 Private Insurance Co. 5789437 2 0.5 3.75 LIC is an undoubted leader in the field of average number of policies per year in the last five years. It is seen that private insurance companies are gaining momentum and are trying to defeat LIC in case of new insurances. Main reason behind LIC having such a large number of policies is the trust of a common man. LIC being a government agency has got a faith of indian mass. People are not yet prepared to give their savings in the hands of private player s. 48

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

o 2. GROWTH : (A) FIRST PREMIUM : (Rs. In crores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 17347 20653 28515 55934 59996 Private Insurers 2440 5564 10270 19425 33715 TOTAL 19787 26217 38785 75359 93711 50

Growth in First Premium (in Percentage Terms) Terms) Growth in First Premium (in Absoute Terms) (in crores) Rank points points after multiplying by weightage (10%) LIC 245.85 42649 2 0.5 5 Private Insurance Co. 1281.76 31275 1 1 10 Though LIC has attained more growth in absolute terms i.e. Rs.42649 crores but private players being so less in number five years back has achieved a dream come true growth of 1281.76 % which is certainly a matter of pride for them. (B) GROWTH IN INCOME : (Rs. In crores) FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 12101 19303 19754 42277 31988 Private Insurers 2692 4725 9814 5379 28406 TOTAL 14793 24028 29568 47656 60394 % GROWTH IN INCOME : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 14.9 20.7 17.5 32 18.3 Private Insurers 165 109.3 108.4 28.5 117 TOTAL 17.8 24.6 24.3 31.5 30.3 51

52 Growth in Income (in Percentage Terms) Growth in Income (in Absoute Terms) (in crores) Rank points points after multiplying by weightage (10%) LIC 164.34 19887 2 0.5 5 Private Insurance Co. 955.20 25714 1 1 10 Here LIC has neither attained more growth in absolute terms i.e. Rs.19887 crores as compared to 25714 crores of private players nor more growth in terms of percentage.this shows that private players great job in enhancing their business. (C) INCREASE IN NUMBER OF POLICIES : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 1475992 -2989946 7632584 6638585 -616693 Private Insurers 804696 574228 1638335 4050884 5339264 TOTAL 2280688 2415718 9270919 10689469 4722571 Growth in Income (in Percentage Terms) Growth in Income (in Absoute Terms) (in crores) Rank points points after multiplying by weightage (10%) LIC 164.34 19887 2 0.5 5 Private Insurance Co. 955.20 25714 1 1 10 Here LIC has neither attained more growth in absolute terms i.e. Rs.19887 crores as compared to 25714 crores of private players nor more growth in terms of percentage.this shows that private players great job in enhancing their business. (C) INCREASE IN NUMBER OF POLICIES : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 1475992 -2989946 7632584 6638585 -616693 Private Insurers 804696 574228 1638335 4050884 5339264 TOTAL 2280688 2415718 9270919 10689469 4722571

has got are doing

has got are doing

% INCREASE IN NUMBER OF POLICIES : FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 LIC 5.79 -11.09 31.75 21.01 -1.6 Private Insurers 94.21 34.62 73.37 104.64 67.4 TOTAL 8.6 -8.4 35.3 30.1 10.2 Growth in number of policies (in Percentage Terms) Growth in number of policies (in Absoute Terms) Rank points points after multiplying by weightage (10%) LIC 39.47 10644530 2 0.5 5 Private Insurance Co. 699.44 11602711 1 1 10 Private players are doing extremely well as they are increasing their customer base rapidly. 53

(D) MARKET SHARE : LIC is still the market leader in insurance industry with 73.9 % share. But we cannot forget that in last five years market share of LIC has decreased. It was 87.7 % in year 2003-04 which came down to 73.9 % in 2007-08. 54

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

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

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

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

59

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

TOTAL POINTS TABLE: Factors SizeA. Total Premium B. Total Income C. Balance Sheet SizeD. Total No. of Polici es LIC 7.5 7.5 Private Insurance Companies 3.75 3.75 E. Total No. of Branches GrowthA. First Premium B. Growth in Income C. Increase in No. of Policies 3.75 5 7.5 7.5 5 7.5 10 3.75 3.75 10 D. Market ShareProductivityA. Business per BranchB. Income Per Branch 105 5 5 2.5 10 C. First Premium per BranchGrievance Handling Total Score 53.75 5 77.75 2.5 7.5 2.5 72.75 61

CHAPTER 4 FINDINGS & CONCLUSIONS 62

FINDINGS & CONCLUSIONS: LIC is the giant of the insurance sector. The overall size of LIC is much more t han that of all private insurance companies. Private insurers are in expansion mode and are increasing their size but are still much behind LIC. Total premium deposits in LIC is much higher than the private insurance companies. Total premium of LIC in FY 07-08 was 149789 crores which three times more than that of private insurance companies. Income of LIC is much greater than private insurance companies. Last year total income from investments of LIC was 48244.14 crores which was nearly equal to the total income of the all private insurance companies. By this we can imagine how big the LIC is. Size of balance sheet of private insurance companies are lagging much behind LIC . Balance sheet of LIC is seven times bigger than that of private insurance compan ies. If we see the total number of policies issued by LIC and private nies, we find that there is a huge gap between them. No doubt that LIC lished player in the field of insurance and many private companies have eir business. Hence it is obvious that LIC is having large number of insurance compa is a well estab just started th policyholders.

Number of branches of private insurance companies is increasing as the new playe rs are entering in this market. Also the established players are in expansion phase and hence are expanding there business. There are many private insurance companies a nd hence there total number of branches has gone past LIC in the last financial yea r. But offices of private insurance companies are mostly in urban areas and still it is LIC which covers most of the area. Hence we see that LIC is leading when it comes to size. It is giant in insurance sector having huge network and customer base. We see that due to excellent service quality and attractive offers private insur ance companies have started getting a number of customers. They are growing rapidly. Though LIC is also increasing its customer base but private insurance companies are moving at a fast pace. Though the income of private insurance companies is negligible when compared wit

h LIC but then also the pace with which they are increasing their income is tremen dous. Private insurance companies are expanding their business and will certainly goin g to give a tough competition to LIC in the coming days. LIC is certainly having a large customer base. Private insurance companies are n ot having that much number of customer base but they are increasing it rapidly. The y have registered a decent growth of 104.64 % in number of new policies in the yea r 2006-07. Last year also their growth rate was 67.4 %. 63

LIC, being the oldest player in the existing insurance market, has the biggest m arket share of 73.9 % which was 87.3% five years earlier. We see that private insuranc e companies are penetrating in the customer base of LIC. Overall we can see that private insurance companies are giving a tough competition to the LIC and will certainly create a good business for themselves in the coming days. There are many new entrants in this sector. There are many private insurance companies who have reported loss in this and previous years. This is the main re ason why private insurance companies lag behind LIC in case of business per branch. There is a big difference between them. Same is the case when it comes to income per branch. LIC is much ahead of privat e insurance companies in this field. They are undoubted champions in insurance whe n it comes to profit earning. New business is increasingly going towards private insurance companies but still the customer base of LIC is very strong. In issuing new policies per branch also, th ey are ahead of private insurance companies though not by very large margin. Customer base of LIC is very strong and still business per branch, profit per branch or premium per branch, they are leading much ahead of private insurance companies. LIC has not shown their good concern when the matter of grievance handling comes . Private insurance companies are far ahead in this matter. LIC has just resolved 25% cases in the last five years while private insurance companies have resolved nea rly 70% cases. This is a matter from where customer shift starts. We have seen the r apid increase in customer base of private insurance companies which can be very much affected by this factor. Overall we have seen that still LIC is very famous but private insurance compani es are growing at exceptionally fast pace. Private companies show due concern in grieva nce management and brings innovative schemes to attract the customers. Right now the y are giving good competition to LIC and very soon they will give very tough compe tition to Life Corporation of India. 64

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