A Dissertation on Comparative and Competitive analysis of Private Life Insurance Companies in India since their entry

Submitted to: Parikshit Vaid

By:

Pooja Chauhan

9128

PGP1

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Table of ContentssIntroduction:...............................................................................................................................................3

History of Insurance................................................................................................................................3

NEED OF INSURANCE...............................................................................................................................4

How Insurance Works?................................................................................................................................4

Insurance of ‘Human Asset’.........................................................................................................................6

Advantages of Life Insurance:......................................................................................................................6

Role of Insurance in Economic Development:.............................................................................................7

Insurance in India:.......................................................................................................................................8

Overseas Insurers:.......................................................................................................................................9

Birth of Indian Insurers:...............................................................................................................................9

Growth of Insurance Business:..................................................................................................................10

INSURANCE ACT, 1938...............................................................................................................................10

Nationalization..........................................................................................................................................11

THE LIFE INSURANCE CORPORATION OF INDIA: 1956...........................................................................11

Liberalization:........................................................................................................................................13

ENTRY OF PRIVATE COMPANIES:...........................................................................................................13

LIFTING OF BARRIERS TO FOREIGN INVESTMENT:.................................................................................13

GLOBAL INSURANCE INDUSTRY:................................................................................................................15

List of Life Insurance Companies since their entry:...................................................................................15

`Snapshot of Indian Life Insurance Industry:.............................................................................................17

GROWTH:..................................................................................................................................................25

India’s Insurance Industry Likely To Jump By 500% In 2010: ASSOCHAM:................................................26

FRESH RESULTS OF THE CONDITION OF LIFE INSURANCE SECTOR IN INDIA:.............................................27

MARKET SHARE OF LIFE INSURERS:...........................................................................................................28

SOURCES:...................................................................................................................................................33

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Introduction:

History of Insurance:

In layman terms we can say that insurance appeared simultaneously along with the civilization of human society .In earlier times we could say that insurance was a form of helping each other in bad times. For example if a house is burned then people of the whole community try to build a new one. It was a gesture of helping your neighbors in bad times as they will do the same if time comes. Insurance as a method was started as a way of transferring or distributing risk associated in trading and was practiced by Chinese and Babylonian traders since 3rd and 2nd BC respectively. Chinese merchants travelling through rivers and forests would distribute their goods in many vessels to reduce the risk of being robbed of the whole cargo. The Babylonians developed a system that was recorded in the famous code of Hammurabi c. 1750 BC, and practices by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for lender’s guarantee to cancel the loan in case the shipment gets stolen.

Greek monarchs were first to insure their people and made it official by registering the process in the government offices. They invented the concept of “general average”. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse in case any merchant loses his goods in case of certain unavoidable circumstances like storm or sinking of a vessel in the sea.

The Greek and Romans introduced concepts of health and life insurance in600AD when they organized certain societies as an act of philanthropy called “benevolent societies” which cared for families and paid funeral expenses of a family in case of death. Before insurance as a name was established in the 17th century, “friendly societies” existed in England in which people donated money that could be used in case of emergency situations.

Insurance contracts were invented by Greek rulers in the 14th century; these contracts separated insurance from investments. Insurance became more visible after the renaissance period in Europe and varieties were developed. Insurance can be looked in past when Great Fire of London Happened in 1666AD and 13200 houses were destroyed after this Nicholas Barbon opened an office to insure buildings and in 1680 he established first fire insurance company “The Fire Office” to insure brick and frame homes.

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The first insurance company in United States underwrote fire insurance and was formed in Charles Town(Charleston), South Carolina in 1732.

NEED OF INSURANCE:

Assets are insured, because they are likely to be destroyed through accidental occurrences. Such possible occurrences are called perils. Fire, floods, breakdowns, lightening, earthquakes, etc, are perils. If such perils can cause damage to the asset, we say that the asset is exposed to that risk. Perils are the events. Risks are the consequential losses or damages. The risk to a owner of a building, because of the peril of an earthquake, may be a few lakhs or a few crores of rupees, depending on the cost of the building and the contents in it. The risk only means that there is a possibility of loss or damage. The damage may or may not happen. Insurance is done against the contingency that it may happen. There has to be an uncertainty about the risk. Insurance is relevant only if there are uncertainties. If there is no uncertainty about the occurrence of an event, it cannot be insured against. In the case of human being, death is certain, but the time of death is uncertain. In the case of person who is terminally ill, the time of death is not uncertain, though not exactly known. He cannot be insured. Insured does not protect the asset. It does not prevent its loss due to peril. The peril cannot be avoided through insurance. The peril can sometimes be avoided through better safety and damage control management. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It only compensates the losses and that too, not fully. Only economic consequences can be insured. If the loss is not financial, insurance may not be possible. Example of non-economic losses are love and affection of parents, leadership of managers, sentimental attachments to family heirlooms, innovative and creative abilities, etc.

How Insurance Works?

The mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of them suffers a loss, the others will share the loss and make good to the person who lost. All people who send goods by ship are exposed to the same risks, 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 kinds of risks like, fire, hailstorms, earthquake, lightning, burglary, etc. Like this, different kinds of risks can be identified and separate groups made, including those exposed to such risks. By this method, the heavy loss that any one of them may suffer (all of them may not suffer such losses at the same time) is divided into bearable small losses by all. In other words, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all.

If a Jumbo Jet with more than 350 passengers crashes, the loss would run into several crores of rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jets will

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crash at same time. If 100 airline companies flying Jumbo Jets, come together 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 business of sharing . There are certain principles, which make it possible for insurance to remain a fair arrangement. The first is that it is difficult for any one individual to bear the consequences of the risks that he is exposed to. It will become bearable when the community shares the burden. The second is that the perils should occur in an accidental manner. Nobody should be in a position to make the risk happen. In other words, none in the group should set fire to his assets and ask others to share the costs of damage. This would be taking unfair advantage of an arrangement put into place to protect people from risks they are exposed to. The occurrence has to be random, 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 may be proportional to the risk that each person is exposed to. This would be indicative 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 time of admission to the group. Insurance companies collect in advance and create a fund from which the losses are paid. The collection to be made from each person in advance is determined on assumptions. While it may not be possible to tell beforehand, which person will suffer, it may be possible to tell, on the basis of past experiences, how many persons, on an average, may suffer losses. Here are some examples to understand the process.

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 owners come together and contribute Rs. 200 each, the common fund would be Rs. 80000. this is enough to pay Rs. 20000 to each of the 4 owners whose houses got burnt. Thus, the risk of 4 owners is spread over 400 house-owners of the village.

Example 2

There are 1000 persons who are all aged 50 and are healthy. It is expected that of these, 10 persons may die during the year. If the economic value of the loss suffered by the family of each dying person is taken to 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 who die. Thus, the risks in the case of 10 persons, are shared by 1000 persons.

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Insurance of ‘Human Asset’A human being is an income generating asset. One s manual labour, professional skills and business acumen are the assets. This asset also can be lost through unexpectedly early death or through sickness and disabilities caused by accidents. Accidents may or may not happen. Death will happen, but the timing is uncertain. If it happens around the time of one s retirement, when it could be expected that the income will normally cease, the person concerned could have made some other arrangements to meet the continuing needs. But if it happens much earlier when the alternate arrangements are not in place, there can be losses to the person and dependents. Insurance is necessary to help those dependent on the income. A person, who may have made arrangements for his needs after his retirement, also would need insurance. This is because the arrangements would have been made on the basis of some expectations like, likely to live for another 15 years, or that children will look after him. If any of these expectations do not become true, the original arrangement would become inadequate and there could be difficulties. Living too long can be as much a problem as dying too young. Both are risks, which need to be safeguarded against. Insurance takes care.

Advantages of Life Insurance:

Life insurance has no competition from any other business. Many people think that life insurance is an investment or a means of saving. This is not a correct view. When a person saves, the amount of funds available at any time is equal to the amount of money set aside in the past, plus interest. This is so in a fixed deposit in the bank, in national savings certificates, in mutual funds and all other savings instruments. If the money is invested in buying shares and stocks, there is the risk of the money being lost in the fluctuations of the stock market. Even if there is no loss, the available money at any time is the 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 the savings period (which is the next 20 or 30 years). The final fund is secured from the very beginning.

One is paying for it later, out of the savings. One has to pay for it only as long as one lives or for a lesser period if so chosen. There is no other scheme which provides this kind of benefit. Therefore life insurance has no substitute. Even so, a comparison with other forms of savings will show that life insurance has the following advantages.

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In the event of death, the settlement is easy. The heirs can collect the moneys 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 and 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. Such 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 insurance can preserve it. Life insurance is not surpassed by many other savings or investment instrument, in terms of security, marketability, stability of value or liquidity. Insurance, including life insurance, is essential for the conservation of many 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.

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 of people, particularly from the middle and lower income groups. These savings are channeled into investments for economic growth. As on 31.3.2002, the total investments of the LIC exceeded Rs. 245000 crores, of which more than Rs. 130000 crores were directly in Government (both State and Centre) related securities, more than Rs. 12000 crores in the State Electricity Boards, nearly Rs. 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 economic well-being. A life insurance company will have large funds. These amounts are collected by way of premiums. Every premium represents a risk that is covered by that premium. In effect, therefore, these vast amounts represent pooling of risks. The funds are collected and held in trust for the benefit of the policyholders. The management of life insurance companies are required to keep this aspects in mind and make all its decisions in ways that benefit the community. This applies also to its investments. That is why successful insurance companies would not be found

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investing in speculative ventures. Their investments, as in the case of the LIC, benefit the society at large. Apart from investments, business and trade benefit through insurance. Without insurance, trade and commerce will find it difficult to face the impact to major perils like fire, earthquake, floods, etc. Financiers, like banks, collapse if the factory, financed by it, is reduces to ashes by terrible fire. Insurers cover also the loss to financiers, if their debtors default.

Insurance in India:

Insurance has never been an entirely new concept for India we have it since ancient times and it has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashashtra), and Kautilya (Arthashashtra). There it is a concept of joining resources that could be redistributed in times of calamities like floods, famines, fire etc. The Sanskrit term “Yogakshema” in Rig Veda meant some kind of insurance practiced by Aryans some 3000 years ago. During Mughal period insurance became much popular as there have been references to the cover against war risks. Loses due to the passage of royal soldiers through farms were compensated by the state as a gesture of goodwill.

The first life insurance company in India was established in 1818 in Kolkata known as the Oriental Life Insurance Society to afford relief to distressed relatives of Europeans. The venture was not a successful beginning and the company was reformed in 1829 but again got in trouble in 1833 when Agency House of Calcutta a firm having the same partners was dissolved.

Prince Dwarkanath Tagore was the only solvent partner left and he was the one responsible to carry forward the institution. In January 1834 government set up a Public Insurance Company & a Committee was also set up. The Oriental Insurance Company now again got a name as “New Oriental Company” two other people were also associated with it one was Ramtanu Lahiri and other Rustamjii Cowasjee. He was already known to the government as a wealthy Parsi merchant and was in insurance business since 1828. He was associated with companies like Sun Life Office, New Oriental, Universal Life, New Laudable and Indian Laudable and was also a member of Union Insurance Company formed by a group of five persons. Rustamjee and Dwarkanath Tagore were the first Indians to join in Partnership business with the Europeans & they were pioneers in the field of Insurance in India.

In 1823 in Bombay there was started a Bombay Life Assurance Company but was not much successful and soon was liquidated, in 1829 Madras Equitable was formed was stopped functioning due to the financial difficulties after the First World War. An insurance company at government level was also could not be established because of the objection from private operators and most of the earlier attempts were made in the province of Bengal.

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Overseas Insurers:

Life Offices were established in large numbers in Britain, they issued policies to British residents in India. Premiums collected were credited to England largely for British beneficiaries; business was profitable as it was under short term policies. Insufficient mortality data of Englishmen in India made premiums heavier. Insurance was denied to natives even if they wanted because their lives were always considered risky and most of the times valueless. In some special cases charges were much heavier than Englishmen.

Some companies came to India in this period were “Medical Invalid and General” incorporated in London in 1841. After sometime the Medical extended its area of operations and got the “Agra Life” in 1835 and acquired the “New Oriental” P.M.Tate was the manager at that time of “Medical” and was a good business man known as very influential he along with W.F.Ferguson manager of “New Oriental” did a good business in India less affected by the 1857 “Sepoy Mutiny”.

The Universal Life Insurance Company established in England in 1836 established its Indian branch in 1840 and had a long period of successful operations until it was taken over by “North British” in May 1901. Insurance exceeding rupees 10 crore was issued in India during this period. Another insurance company operating this time was the Colonial Life Assurance Company established in 1846 under the auspices of Standard Life Assurance Company. It was later taken over by Standard Life and ceased operations in 1938.

The oldest Life Policy in India appears to be Royal Insurance started in 1845. In the year 1853 Liverpool and London and Globe Insurance Company started in 1836 in England started business in India. Sir Charles Forbes was its first agent it accepted only European lives and started insuring Indian lives only after 1929. The North British and Mercantile was the next company to appear on the Indian soil and started fire insurance in 1861 and life insurance in 1864.

On 3rd December 1870, seven earnest men of Bombay with just seven rupees of initial investment started a plan of offering insurance to public without the risk of ruin and the “Bombay Mutual Life Assurance Society” came into existence followed by “Oriental Life Assurance Company” in 1874, the Bharat in 1896 and the Empire of India in 1897.

Birth of Indian Insurers:The Swadeshi movement of 1905-1907 gave rise to more insurance companies in India. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore in 1906. In 1907 Hindustan Co-operative Insurance was established and the

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same year The Indian Mercantile was started in Bombay, General Assurance in 1908 in Ajmer, and the Swadeshi Life in Bombay in 1908.

End of First World War started a boom of insurance companies in India by famous Indian Business Houses like Industrial and Prudential Bombay, Western India, companies like Jupiter General, New India and Vulcan Insurance Company came into picture.

Growth of Insurance Business: The growth of Life Insurance business can be said to have undergone during the first two decades of the 20th century when a large number of companies were founded. They grew in terms of the numbers, number of policies and their total life fund. The Indian Insurance Year Book published in 1914 gives a figure of total business of 22.44 crore which grew up to 298 crore in 1938. In 1914 there were only 44 companies and within the time span of 25 years the number rose to 176. Many companies were also failed during this time so to restrict this All India Life Assurance Offices Association urged the Government in 1932 to have legislation in place.

(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.

INSURANCE ACT, 1938

The Insurance Act, 1938, was the first comprehensive legislation governing not only life but also non- life branches of insurance to provide strict state control over insurance 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 filing of returns of investment and financial conditions.

(C) Provisions for deposit, to prevent insurers of inadequate financial resources of speculative concerns for commencing business.

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(D) Provisions that 55% of the net life fund of an Indian or non- Indian insurer should invested in Indian Government and approved securities with at least 25% in Indian Government Rupee securities.. All other companies, i.e., foreign companies must invest 100% of their Indian liabilities in Indian Government and approved securities, 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 the renewal premium in respect of life assurance business. The agent must be licensed, to improve the status of the profession.

(F) Periodical valuation of Indian Insurance business of foreign companies and the business of Indian companies.

(G) Provision for policyholders' directors, making it possible for the representatives 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 initial deposit for life insurance business was raised from Rs. 25000 in Government securities to Rs. 50000 in cash approved securities, which was subsequently to be raised by installments to Rs. 2 lakh within a specified time limit.

Nationalization

THE LIFE INSURANCE CORPORATION OF INDIA: 1956 This was the first step taken towards the nationalization of life insurance business in India. On 20th January, 1956 all life insurance companies were taken over by 43 nominated custodians. The custodians were experienced senior executives of private insurance companies, reporting directly to the Finance Ministry. From the word go, the complex task of running the industry on a permanent basis and continuing the services to policy holders without interruption were their major concerns. The actual work of integration had 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, 16 non Indian insurers and 75 provident societies. These arrangements were designed to ensure that no inconvenience whatsoever was caused to the policy holders. With the Government take over the management aimed towards the evolution of a common uniform premium rate, policy conditions and service and working procedures and above all to help promote team spirit. The corporation, a body corporate shall consist of not more than 15 members appointed by the Central Government, one of them being appointed by the government as chairman. The capital of the corporation was at Rs 5 crore provided by the central

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government. INSURANCE SECTOR REFORMS In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian Insurance industry and recommended its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the over all financial system where it was necessary to address the need for similar reforms...". In 1994, the committee submitted the report and some of the key recommendations included:

1) STRUCTURE:

Government stake in the Insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate.

(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 made independent

(4) INVESMENTS:

Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this 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 out in the insurance industry.

The committee emphasized that in order to improve the customer service and increase the coverage of insurance industry should opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin

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the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs. 100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.

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 of 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 that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 14 life insurance 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 Indian 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

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$ 20 million, and their investment in such company is capped at 26 percent. Thus, to participate in the market, they must form a joint venture with an 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.

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 percent. In addition, global companies are pushing for the right to establish branch offices in India. These changes are likely to substantially increase the presence of international insurers, reinsurers, and brokers in India. The IRDA Insurance Brokers Act in India 2002 permitted overseas insurance and reinsurance brokers to enter the market, but with the same equity cap as that governing the operations of foreign insurers and reinsurers. Thus, foreign brokers must also form a joint venture with an Indian partner in order to establish an Indian broking house. The 2002 IRDA legislation established four broker categories, one of which brokers must select when applying for a license:

. Category

1A: Direct General Insurance Broker Category

1B: Direct Life Insurance Broker Category

2: Reinsurance Broker Category

3: Composite Broker Category

4: Others, for example Insurance Consultants and Risk Management Consultants.

Each category has different solvency margins and capital adequacy ratios, and all 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 insurance and reinsurance decisions.

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GLOBAL INSURANCE INDUSTRY:

The global insurance industry is one of the largest sectors of finance. It ranges from consumer to corporate and industrial insurance, and even reinsurance, or insurance of insurance. The major insurance markets of the world are obviously the US, Europe, Japan, and South Korea. Emerging markets are found throughout Asia, specifically in India and China, and are also in Latin America. With the internet and other forms of high-speed communication, companies and individuals are now able to purchase insurance and related financial products from almost anywhere in the world. Increasing affluence, especially in developing countries, and a rising understanding of the need to protect wealth and human capital has led to significant growth in the insurance industry. Given the evolving and growing socio-economic conditions worldwide, insurance companies are increasingly reaching out across borders and are offering more competitive and customized products than ever before. Over the past ten years, global insurance premiums have risen by more than 50%, with annual growth rates ranging between 2 and 10%.In 2004, global insurance premiums amounted to $3.3 trillion. The majority of insurance comes from developed nations such as most of Europe, the US, and Japan. In 2004, premiums in North American amounted to $1,217 billion, while the European Union generated $1,198 billion, and 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 world s population. In contrast, the emerging markets that make up 85% of the world s population produced only 10% of the premiums. The leading global insurance companies are:

List of Life Insurance Companies since their entry:

Sl. No.

Insurers Foreign Partners Regn. No.

Date of Registration

Year of Operation

1. HDFC Standard Life Insurance Co. Ltd.

Standard Life Assurance, UK

101 23.10.2000 2000-01

2. Max New York Life Insurance Co. Ltd.

New York Life, USA 104 15.11.2000 2000-01

3. ICICI-Prudential Life Insurance Co. Ltd.

Prudential , UK 105 24.11.2000 2000-01

4. Om Kotak Life Insurance Co. Ltd.

Old Mutual, South Africa

107 10.01.2001 2001-02

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Sl. No.

Insurers Foreign Partners Regn. No.

Date of Registration

Year of Operation

5. Birla Sun Life Insurance Co. Ltd.

Sun Life, Canada 109 31.01.2001 2000-01

6. Tata-AIG Life Insurance Co. Ltd.

American International Assurance Co., USA

110 12.02.2001 2000-01

7. SBI Life Insurance Co. Ltd.

BNP Paribas Assurance SA, France

111 29.03.2001 2001-02

8. ING Vysya Life Insurance Co. Ltd.

ING Insurance International B.V., Netherlands

114 02.08.2001 2001-02

9. Allianz Bajaj Life Insurance Co. Ltd.

Allianz, Germany 116 03.08.2001 2001-02

10. Metlife India Insurance Co. Ltd.

Metlife International Holdings Ltd., USA

117 06.08.2001 2001-02

11. Reliance Life Insurance Co. Ltd. (Earlier AMP Sanmar Life Insurance Company from 3.1.02 to 29.9.05)

--- 121 03.01.2002 2001-02

12. AVIVA Aviva International Holdings Ltd., UK

122 14.05.2002 2002-03

13. Sahara Life Insurance Co. Ltd.

--- 127 06.02.2004 2004-05

14. Shriram Life Insurance Co. Ltd.

Sanlam, South Africa 128 17.11.2005 2005-06

15. Bharti AXA Life Insurance Co. Ltd.

AXA Holdings, France 130 14.07.2006 2006-07

16. Future Generali India Life Insurance Company Ltd.

Pantaloon Retail Ltd.; Sain Marketing Network Pvt. Ltd. (SMNPL), Generali, Italy

133 04.09.2007 2007-08

17. IDBI Fortis Life Insurance Company Ltd.

Fortis, Netherlands 135 19.12.2007 2007-08

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Sl. No.

Insurers Foreign Partners Regn. No.

Date of Registration

Year of Operation

18. Canara HSBC OBC Life Insurance Company Ltd.

HSBC, UK 136 08.05.2008 2008-09

19. Aegon Religare Life Insurance Company Ltd.

Religare, Netherlands 138 27.06.2008 2008-09

20. DLF Pramerica Life Insurance Co. Ltd.

Prudential of America, USA

140 27.06.2008 2008-09

21. Life Insurance Corporation of India

512

`Snapshot of Indian Life Insurance Industry:

Parameter FY00 FYO7 FY08 FY09

No. of players 1 16 18 22

Capital deployed (rs.crore)

5 9485 16235 24838

Branches 2048 5373 8913 11720

Employess (in lacs)

1.23 1.87 2.54 2.85

Individual agents (in lacs)

7.14 19.93 25.20 29.06

FDI (rs. Crore) 1809 2821

New Business Premium (Rs.Cr)

8,299 75649 93713 86866

Renewal 17951 80427 107638 133318

17

premiums (Rs. Cr)

Total Premium (Rs. Cr)

26250 156076 201351 220184

Expenses of management – Commission (Rs.Cr)

3171 12283 14670 15337

Expenses of Management-operating expenses (Rs. Cr)

3756 13585 20341 23014

New Business Policies (In Cr)

1.69 4.61 5.08 5.09

In force Policies (In Cr)

10.14 22.70 25.93 29.0

Rural Policies (In Cr)

1.26 1.54

Investment in Social and Infrastructure Sector (Rs.Cr)

24887 69837 68600

18

Government Securities (Rs.Cr)

47512 275099 297533

Government and other approved securities (Rs.Cr)

52524 335187 381101

Benefits Paid 14036 55765 62728 57383

Death Claim paid 4445 5857 6629

Number of Life Insurance Offices Company wise

(as on March 31st )

Insurer 2008 2007 2006 2005 2004 2003 2002 2001Aviva 213 140 110 50 22 12 3 _Bajaj alliance

1007 877 567 153 49 33 17 1

Bharti axa

77 16 1 - - - - -

Birla sun life

538 148 97 53 41 29 19 2

Future generali

9

HDFC Std

569 448 190 90 26 18 4 -

ICICI Pru

1958 583 175 109 69 29 14 6

IDBI Fortis

2

ING Vyasya

265 183 68 38 26 16 4 -

Kotak Mahindra

151 75 46 43 39 28 9 -

MaxNew York

194 118 84 64 33 23 15 -

Met life 94 53 43 35 16 8 3 -

19

Reliance 745 159 157 80 48 35 17 -Sahara 33 33 18 18 2 - - -SBI Life 200 138 46 31 19 10 5 1Shriram 53 12 11 - - - - -TATA AIG

283 89 72 40 26 13 6 3

On observing the data mentioned above it is clearly understood that Bajaj Alliance, ICICI Prudential and Reliance Life are ahead of their competitors were ICICI has the maximum penetration when it comes to offices in the country Reliance has a great jump from 2007 to 2008.

Private vs. LIC:

Insurers 2008 2007 2006 2005 2004 2003 2002 2001Private total

6391 3072 1645 804 416 254 116 13

LIC 2522 2301 2220 2197 2196 2191 2190 2186Industry total

8913 5373 3865 3001 2612 2445 2306 2199

20

2008 2007 2006 2005 2004 20030

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

PRIVATELICINDUSTRY

TOTAL PREMIUM:

INSURER 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02LIC 149789.9

9127822.84

90792.22 75127.29

63533.43

54628.49

49821.91

PRIVATE 51561.42 28253.00 15083.54 7727.51 3120.33 1119.06 272.55

INDUSTRY

201351.41

156075.84

105875.76

82854.80

66653.75

55747.55

50094.46

21

2002-03 2003-04 2004-05 2005-06 2006-07 2007-080

50000

100000

150000

200000

250000

LICPRIVATEINDUSTRY

AVERAGE PREMIUM:

Private: 15305.26

LIC: 252788.011

PERCENTAGE CHANGE ON PREMIUM:

INSURER 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02LIC (17.19) (40.79) (20.85) (18.25) (16.30) (9.65) (42.79)

PRIVATE (82.50) (87.31) (95.19) (147.65) (178.83) (310.59) (4124.31)

INDUSTRY

(29.01) (47.38) (27.78) (24.31) (19.56) (11.28) (43.54)

22

2002-03 2003-04 2004-05 2005-06 2006-07 2007-080

50

100

150

200

250

300

350

LICPRIVATEINDUSTRY

TOTAL INCOME:

2003-04 2004-05 2005-06 2006-07 2007-08LIC 93089 112393 132147 174425 206363PRIVATE 4323 9049 18863 24242 52648INDUSTRY 97412 121442 151010 198667 259011

2003-04 2004-05 2005-06 2006-07 2007-080

50000

100000

150000

200000

250000

300000

LICPRIVATETOTAL

23

Average Income (in crores):

Private: 21825.00

LIC: 143683.40

All over income of LIC is much more 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 corporate.

Total number of policies:

2003-04 2004-05 2005-06 2006-07 2007-08LIC 26968069 23978123 31590515 38229292 37612599PRIVATE 1658847 2233075 3871410 7922294 13261558TOTAL 28626916 26211198 35462117 46151586 50874157

2003-04 2004-05 2005-06 2006-07 2007-080

10000000

20000000

30000000

40000000

50000000

60000000

LICPRIVATETOTAL

Average no. of policies:

Private: 5789437

LIC: 31675670

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

24

LIC in case of new insurances. Main reason behind LIC having such a large number of policies is the trust of a common man. LIC being a government agency has got a faith of Indian mass. People are not yet prepared to give their savings in the hands of private players.

GROWTH:2003-04 2004-05 2005-06 2006-07 2007-08

LIC 17347 20653 28515 55934 59996PRIVATE 2440 5564 10270 19425 33715TOTAL 19787 26217 38785 75359 93711

2003-04 2004-05 2005-06 2006-07 2007-080

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

LICPRIVATETOTAL

Growth in 1st premium % terms:

LIC: 245.85

Private: 1281.76

In absolute terms (in crores)

LIC: 42649

Private: 31275

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.

25

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 growing 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 various constituents, engaged in the insurance business, highlighting that India s life insurance premium as a percentage of GDP is currently estimated at 1.8% against 5.2% in US, 6.5% in UK and about 8% in South Korea. Releasing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that rural and semi-urban India will contribute US $35 billion to the Indian insurance industry by 2010, including US $20 billion by way of life insurance and the rest US $15 billion 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 whole will not be a big growth area for insurance companies. This is because penetration is already good and companies receive good services. In both volumes and profitability therefore, the scope for expansion is modest. ASSOCHAM has suggested that insurer s strategy should be to stimulate demand in areas that are currently not served at all. Insurance companies mostly focus on manufacturing sector; however, the services sector is taking a large and growing share of India s GDP. This offers immense opportunities for expansion opportunities. To understand the prospects for insurance companies in rural India, it is very important to understand the requirements of India's villagers, their daily lives, their peculiar needs and their occupational structures. There are farmers, craftsmen, milkmen, weavers, casual labours, construction workers and shopkeepers and so on. More often than not, they are into more than one profession. The rural market offers tremendous growth opportunities for insurance companies and insurers should develop viable and cost-effective distribution channels; build consumer awareness and confidence. The Paper found that there are a total 124 million rural 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 insurance companies. An extensive rural agent network for sale of insurance products could be established. The agent can play a major role in creating awareness, motivating purchase and rendering insurance services. There should be nothing to stop insurance companies from trying to pursue their own unique policies and target whatever needs that they want to target in rural India. ASSOCHAM suggests that insurance needs to be packaged in such a form that it appears as an acceptable investment to the rural people. In the near future, when we ll see more innovations in agriculture in the form of corporatization or a more 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

26

insurance schemes. The need of the hour is to have innovative policies that have explicit benefits for the people to observe, understand and measure.

FRESH RESULTS OF THE CONDITION OF LIFE INSURANCE SECTOR IN INDIA:The life insurers underwrote a premium of Rs.14320.20 crore during the first quarter in the current financial year as against Rs.12511.80 crore in the comparable period of last year recording a growth of 14.45 per cent. Of the total premium underwritten, LIC accounted for Rs.7524.56 crore and the private insurers accounted for Rs. 6795.64 crore. The premium underwritten by LIC declined by 12.31 per cent while, that of private insurers increased by 72.88 per cent, over the corresponding period in the previous year. The number of policies written at the industry level declined by 7.78 per cent. While the number of policies written by LIC declined by 23.36 per cent, in the case of private insurers they grew by 44.00 per cent. Of the total premium underwritten, individual business accounted for Rs.10995.90 crore and group business for Rs.3324.30 crore. In respect of LIC, individual business was Rs.5275.71 crore and group business was Rs.2248.85 crore. In the case of private insurers, they were Rs.5720.19 crore and Rs.1075.45 crore respectively. The market share of LIC was 52.55 per cent in the total premium collection and 63.88 percent in number of polices underwritten, lower than 68.58 percent and 76.87 per cent respectively reported in the previous year. Under the group scheme 56.13 lakh lives were covered. recording a growth of 8.51 per cent over the previous period. Of the total lives covered under the group scheme, LIC accounted for 38.96 lakh and private insurers 12.77 lakh. The life insurers covered 12.50 lakh lives in the social sector with a premium of Rs.17.10 crore and underwrote 13.53 lakh policies with a premium of Rs.1275.78 crore in the rural sector.

27

MARKET SHARE OF LIFE INSURERS:

74%

1%

5%

0%2%0%

2%

7%0%

1%1% 1% 1%2% 0%

3%

0%1%LIC AVIVABAJAJ ALLIANZ BHARTI AXA BSLI FUTURE GENERALI LIFE HDFC STD LIFE ICICI PRU IDBI FORTIS ING VYSYA KOTAK LIFEMET LIFE MNYL RELIANCE LIFE SAHARASBI-LIFESHRIRAM LIFE TATA AIG

From the figure it is observed that LIC is still the market leader with 74% market share of the industry apart from that ICICI Prudential among the private companies is growing and as the lead from their group after that 5% is the share of Bajaj Alliance we can give credit to their good marketing for their success as well as better operations in terms of customer handling. Reliance is growing at a very rapid speed we can give credit to their aggressive nature when they come into any business but their image of only aggression is sometimes not trusted by the common man. TATA as brand is most trusted in India and it may be the reason for its success.

MARKET SHARE POLICY WISE:

28

0.76

7.360.15 0.00

0.151.87

5.73

0.010.71

0.621.720.462.110.211.820.210.98

73.93

Aviva Bajaj Allianz Bharti Axa Birla Sunlife Future Generali HDFC Std ICICI Pru IDBI Fortis ING Vysya Kotak Mahindra MaxMet Life Reliance Life Sahara SBI Life Shriram Tata AIG LIC

LIC is again the leader here apart from it Bajaj Alliance is doing well in this case and after it ICICI Prudential is gaining momentum so we can conclude when it comes to private companies ICICI, BAJAJ ,HDFC and RELIANCE are becoming the major players and gaining market share gradually.

GROWTH OF PRIVATE PLAYERS:

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-080

10000

20000

30000

40000

50000

60000

272.5500000000031119.060000000013120.35

7727.51

15083.55

27207.5199999999

51561.4249

Series1Polynomial (Series1)

29

We can clearly see from this data that private are gaining momentum and have drastic growth in terms of their income the highest is from 2004-05 to 2005-06, it is growing business and is giving employment to a lot of young population and also is creating rigorous competition among the private players.

DECREASE OF LIC IN MARKET SHARE:

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-090

20

40

60

80

100

120

99.46 97.99 95.3290.67

85.7582.45

74.39

61.00Series1Linear (Series1)

This figure shows that there is a decrease in market share of the only government player in India there can be many reasons like the usual lethargy of the government institutions and various marketing strategies adopted by the private players but it is still on the safer side being a government enterprise as people trust it because of being a government institution so it has both its merits and demerits of being a government organization.

PRIVATE AGENTS:

30

3%

19%

1%

8%

0%11%

23%

0%

4%

3%3%

3%

14%

1%3% 1%

4%

Private Agents AvivaBajaj AllianzBharti AxaBirla Sunlife Future GeneraliHDFC Std ICICI PruIDBI FortisING VysyaKotak Mahindra Max NewYorkMetLifeReliance LifeSaharaSBI LifeShriramTata AIG

ICICI Prudential has maximum number of agents this shows their marketing after which comes Bajaj Alliance with 19%, Reliance comes after that and HDFC later these companies are the major players currently in the insurance market.

SOLVENCY RATIO OF INSURERS:

S.no Insurer 2008 2007 20061 AVIVA 4.29 6.31 2.80

2 BAJAJ ALLIANZ 2.34 2.45 2.80

3 BHARTI AXA 2.73 1.96 NA

4 BIRLA SUN 2.37 1.80 2.00

5 FUTURE GENERALI

2.94 NA NA

6 HDFC STANDARD

2.38 2.05 2.90

7 ICICI PRUDENTIAL

1.74 1.53 1.60

8 IDBI FORTIS 3.45 NA NA

9 ING VYSYA 2.36 2.87 2.30

31

10 MAX NEW YORK 2.25 2.08 2.00

11 MET LIFE INDIA 1.70 1.73 1.70

12 OM KOTAK MAHINDRA

2.41 1.64 1.80

13 RELIANCE 1.65 1.62 2.00

14 SAHARA INDIA 4.32 2.68 2.70

15 SBI LIFE 3.30 1.78 2.90

16 SHRIRAM 2.85 2.74 2.20

17 TATA AIG 2.50 2.59 2.70

18 LIC OF INDIA 1.52 1.50 1.30

Solvency ratio is the debt equity ratio it decides the liquidity of a firm the lesser it is the more it is beneficial for the firm. From the table we can suggest that AVIVA is not good on solvency Reliance has also decreased its solvency ratio from 2006 to 2008 which means it is improving Met Life is stable in terms of its solvency Sahara India is not doing well from its past performance it has increased this number LIC is doing well and is performing better than any other company.

RECENT DEVELOPMENTS:

The life insurers underwrote a premium of Rs.14320.20 crore during the first quarter in the current financial year as against Rs.12511.80 crore in the comparable period of last year recording a growth of 14.45 per cent. Of the total premium underwritten, LIC accounted for Rs.7524.56 crore and the private insurers accounted for Rs. 6795.64 crore. The premium underwritten by LIC declined by 12.31 per cent while, that of private insurers increased by 72.88 per cent, over the corresponding period in the previous year. The number of policies written at the industry level declined by 7.78 per cent. While the number of policies written by LIC declined by 23.36 per cent, in the case of private insurers they grew by 44.00 per cent. Of the total premium underwritten, individual business accounted for Rs.10995.90 crore and group business for Rs. 3324.30 crore. In respect of LIC, individual business was Rs. 5275.71 crore and group business was Rs.2248.85 crore. In the case of private insurers, they were Rs.5720.19 crore and Rs.1075.45 crore respectively. The market share of LIC was 52.55 per cent in the total premium collection and 63.88 percent in number of polices underwritten, lower than 68.58

32

percent and 76.87 per cent respectively reported in the previous year. Under the group scheme 56.13 lakh lives were covered recording a growth of 8.51 per cent over the previous period. Of the total lives covered under the group scheme, LIC accounted for 38.96 lakh and private insurers 12.77 lakh. The life insurers covered 12.50 lakh lives in the social sector with a premium of Rs.17.10 crore and underwrote 13.53 lakh policies with a premium of Rs.1275.78 crore in the rural sector.

SOURCES:www.irdaindia.org

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/

33