FA Project

CHAPTER 1

INTRODUCTION

1 CONCEPT OF INSURANCE

Life has always been an uncertain thing To be secure against unpleasant possibilities

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 man

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 security

cover against risk Further the inherent changing employment risks the prospect of

continual change in the work place with its attendant threats of unemployment and

low pay especially after the adoption of New Economic Policy and the imminent life

cycle risks - a new source of insecurity which includes the changing demands of

family life separation divorce and elderly dependents 1048753 are tormenting the society

Risk has become central to ones life It is within this background life insurance 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 insured

economic support for the dependents It is a measure of social security to livelihood

for the insured or dependents This is to make the right to life meaningful worth

living and right to livelihood a means for sustenance Therefore it goes without

saying that an appropriate life insurance policy within the paying capacity and means

of the insured to pay premium is one of the social security measures envisaged under

the Indian Constitution Hence right to social security protection of the family

economic empowerment to the poor and disadvantaged are integral part of the right to

life and dignity of the person 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

1

family needs and so he has to keep aside something regularly for a rainy day and for

his old age This fundamental need for security for self and dependents proved to be

the mother of invention of the institution of life insurance

What is Insurance

The business of insurance is related to the protection of the economic values of assets Every

asset has a value The asset would have been created through the efforts of the owner The

asset is valuable to the owner because he expects to get some benefit from it The benefit

may be an income or some thing else It is a benefit because it meets some of his needs In the

case of a factory or a cow the product generated by is sold and income generated In the case

of a motor car it provides comfort and convenience in transportation There is no direct

income

Every asset is expected to last for a certain period of time during which it will perform After

that the benefit may not be available There is a life-time for a machine in a factory or a cow

or a motor car None of them will 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 non-functional

In that case the owner and those deriving benefits from there would be deprived of the

benefit and the planned substitute would not have been ready There is an adverse or

unpleasant situation Insurance is a mechanism that helps to reduce the effect of such adverse

situations

Insurance in law and economics is a form of risk management primarily used to hedge

against the risk of a contingent loss Insurance is defined as the equitable transfer of the risk

of a potential loss from one entity to another in exchange for a premium Insurer in

economics is the company that sells the insurance Insurance rate is a factor used 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

2

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 time in 1914 gives

the figure of the total business-in -force as 2244 crore which grew to Rs 298 crore in 1938

In 1914 there were only 44companies transacting insurance business in India and during the

next 25 years their number rose to 176 The total progress on all the primary heads viz life

fund (Rs 5050 crore) premium income (Rs 1050 crore) and new business (Rs 4330 crore)

indicate that Indian Insurance Business had been making a definite headway during this

years The inter-war -years thus saw rapid growth life insurance in India

The promotion of new life insurance companies continued to be almost a craze and insurance

companies mushroomed In this period 176 insurance companies were formed and many of

them failed Thus unhealthy growth was harmful to the interest of the policy holders and

insurance business in India Feeling concerned about it the All India Life Assurance Offices

Association urged upon the Government in 1932 to undertake the insurance legislation to

(a) Compulsorily register all Life Insurance companies

(b) Secure a deposit of Rs2 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

GROWTH OF LIFE BUSINESS IN INDIA 1914-1948

Sr1914 1930 1940 1945 1948

no

1 No of insurers 44 68 195 215 209

(a) Indian 44 68179 200 189(9179) (9302) (9043)

(b) Non-Indian - - 16 15 20

2Total No of

- 748997 1628381 2714000 3016000policies In force

(a) Indian -513925 1371963 2376000 2791000(6861) (8425) (8755) (9015)

(b) Non-Indian - 220703 181247 261000 234000

(c)Indian outside

- 14369 75171 77000 202000India

3

3Total business in

2244 25842 30403 57307 71276force

(a) Indian (Rs Crore) 22448489 22551 45943 56638(3285) (7417) (8017) (7946)

(b) Non-Indian - 6976 6012 9185 10108

(c)Indian outside

- 377 184 2179 453India

4Total life funds

636 2053 6241 1074 15039(Rs Crore)

Note Figures in brackets show percentage of the total

ENTRY OF PRIVATE COMPANIES

Under the IRDA Act private companies can now operate in Indias 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

OVERVIEW OF THE CURRENT INSURANCE MARKET

In the years since the IRDA Act initiated market reforms the insurance sector has

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 benefits and importance of insurance and

reinsurance has generated many more buyers and new distribution channels_

among them brokers bank assurance the Internet and corporate agents_ have

provided additional ways of getting products and services to customers

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 the

net worth required to underwrite large corporate risks without depending almost

4

entirely on reinsurance support However their focus on restructuring is beginning

to put them at a disadvantage against private competitors

Over the next few years the share of the market held by the public insurers is

expected to drop substantially with private 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 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 1048753 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

5

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 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

6

on the basis of past experiences how many persons on an average may suffer losses The

following two examples explain the above concept of insurance

Insurance of lsquoHuman Assetrsquo

A human being is an income generating asset One1048753s 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 one1048753s

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

Insurance of Intangibles

The concept of insurance has been extended beyond the coverage of tangible assets

Exporters run risk of losses if the importers in the other country default in payments or in

collecting the goods They will also suffer heavily due to sudden changes in currency

exchange rates economic policies or political disturbances in the other country These risks

are insured Doctors run the risk of being charged with negligence and subsequent 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

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

7

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

The Business of Insurance

Insurance companies are called insurers The business of insurance is to (a) bring together

persons with common insurance interests (sharing the same risks) (b) collect the share or

contribution (called premium) from all of them and (c) pay out compensation (called 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 general Life

insurance includes all risks related to the lives of human beings and General insurance covers

the rest General insurance has three classifications viz Fire (dealing with all fire related

risks) Marine (dealing with all transport related risks and ships) and Miscellaneous (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 non-life in India

but is classified as life in many other countries

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 to spread risk so

the reluctance of insurance companies to take on high-risk cases (eg 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 house

insurance

policies do not cover damage to garden walls

8

Most insurance companies now use call centre and staff attempt to answer questions

by

reading from a script It is difficult to speak to anybody with expert knowledge

2 GLOBAL INSURANCE INDUSTRY

The global insurance industry is one of the largest sectors of finance It ranges from

consumer to corporate and industrial insurance and even reinsurance or insurance of

insurance

The major insurance markets of the world are obviously the US Europe Japan and South

Korea Emerging markets are found throughout Asia specifically in India and China and are

also in Latin America

With the internet 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 10In 2004 global insurance premiums

amounted to $33 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 $1217 billion while the

European Union generated $1198 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 worlds

population

In contrast the emerging markets that make up 85 of the worlds population produced only

10 of the premiums

The leading global insurance companies are

9

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

10

GLOBAL LIFE INSURANCE DENSITY

ContinentCountry 2001 2002 2003 2004 2005

2006

North America 15086 15638 15657 16172 16863

1731

8

United States 1602 16626 16575 16925 1753217895

Canada 6759 6573 7229 9261 107191204

1

Latin America 263 291 30 372 420

513

Brazil 108 272 358 459 568 725Mexico 532 592 413 502 499 629Uruguay 215 178 154 NA 155 166Argentina 688 197 242 345 354 438Panama 393 446 424 506 472 512Chile 1221 1035 1383 1645 1749 176Colombia 115 125 124 143 168 205

Europe 5732 6204 7269 8481 911811196

United kingdom 25679 26794 26171 31904 32871

51396

Switzerland 27157 30997 34318 32751 307813111

8

Netherlands 1345 12961 15617 19365 195422071

6

France 12682 13495 17679 21502 247462922

5

Belgium 1155 13236 20048 22912 298872427

7

Sweden 1356 12322 16023 17643 210522214

6

Denmark 13644 15749 20375 23105 2489928408

Germany 6743 7367 9304 10213 104211136

1

Italy 7208 9049 12383 14172 144981492

8

Austria 632 6487 811 9553 1095111046

Portugal 3029 4186 6114 7681 111371131

5

Spain 491 588 4886 5719 61586510

Poland 487 507 599 733 10191505

Russia 332 231 339 248 6340

Croatia 253 332 463 587 709 818

Hungary 593 767 991 1173 14821923

Greece 1089 116 1521 1779 21312567

Bulgaria 5 99 55 82 111 132

Ukraine 01 01 03 06 1319

Turkey 55 65 84 12 127 131

Asia 125 1281 1401 1472 14961546

South Korea 7634 8219 8736 10068 121061480

0

Japan 28064 27839 30029 3044 2956328293

Tiwan 7609 9251 10501 14946 1699118000

Hongkong 12497 12379 14839 18843 221322456

Israel 5252 4593 4608 4674 51025326

Malaysia 1295 1187 1398 1673 1881892

Singapore 7132 7301 13002 14839 1591416165

Thailand 341 421 52 508 546 60

11

India 91 117 129 157 183332

China 122 195 251 273 305 341Phillipines 66 87 86 94 106 131UAE 563 74 725 597 747 898

Srilanka 43 45 53 62 6985

Indonesia 36 52 64 75 105 125Oman 136 148 138 142 173 143

Vietnam 21 38 41 73 6161

Iran 11 15 17 23 2226

Kuwait 303 368 369 391 357 409

Pakistan 12 1 11 15 1923

Saudia Arabia 06 17 17 21 0708

Africa 224 215 261 303 307383

South Africa 3772 3605 4765 5455 55836956

Mauritius 9531037 1191 1331 1361

NA

Zimbabwe 124 78 214 NA NANA

Morocco 94 122 12 106 117 147

Kenya 29 3 34 37 4553

Nigeria 05 05 06 07 0508

Egypt 27 24 27 31 447

Algeria 04 05 05 08 0912

Oceania 6975 6687 7507 851 8858963

Australia 10403 10104 11293 12851 136671389

New Zealand 1984 2111 272 318 2197 215

World 235 2473 2671 2915 29953306

Source Swiss Re Sigma volumes Insurance density is measured as ratio of premium to total population Data relates to calenderyears Figure in US$wwwindiainsuranceresearc

12

CHAPTER 2

RESEARCH METHODOLOGY

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

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

13

Growth in number of Policies

Growth in Market share

3 Productivity

Business per Branch

Income per Branch

New Premium per Branch

I have used the Secondary data of last five financial years I have collected data from the

various balance sheet of LIC and other private insurance companies web sites and in some

cases I personally met some employees of some insurance companies I tried to find out most

of the information required to compare the LIC and private insurance companies

In Analysis I have found all the required data and on the basis of performance gave 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 analysis 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 WeightageSize 25A Total Premium 5B Total Income 5C Balance Sheet Size 5

D Total No of Policies 5E Total No of Branches 5

Growth 40A First Premium 10B Growth in Income 10C Increase in No of Policies 10

D Growth in Market Share 10Productivity 15A Business per Branch 5B Income Per Branch 5

C First Premium per Branch 5Grievance Handling 20

LIMITATIONS

14

1 Could reach to a limited number of documents of different insurance companies in

regard to the management and other policies and resultant figures so as to identify

the exact cause of their lag in performance

2 Due to the limited time could not study all the insurance companies original

documents individually

3 Non-Proficiency in technical aspects of insurance companies might have hindered the

best analysis of the findings

SIGNIFICANCE OF THE STUDY

The Detailed Study has been done with the purpose of finding out the relative share of LIC

and Private Insurance in India It is useful for the people associated with the Insurance

Industry and the research associates related to the Insurance Sector in India This study will

acquaint them with the data of all the banks complied at one place along with the findings

conclusion and recommendations

15

CHAPTER 3

ANALYSIS AND INTERPRETATION

16

1 SIZE

(A) TOTAL PREMIUM (Rs In crores)

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC63533 75127 90792 127822 149789

Private3120 7727 15083 28253 51561

Insurers

TOTAL66653 82854 105875 156075 201350

160000PREMIUM OF LIC

149789140000 127822120000100000 90792

7512780000 63533600004000020000

0

FY 03-04FY 04-05FY 05-06FY 06-07FY 07-08

PREMIUM OF PVT INSURERS60000

5156150000

40000

3000028253

20000 15083

10000 31207727

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

17

points after

Avg Premiummultiplying byweightage

( In Crores) Rank points (75)

LIC 101412201 1 75Private Insurance Co 2114880

2 05 375

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

LIC93089 112393 132147 174425 206363

Private4323 9049 18863 24242 52648

Insurers

TOTAL 97412 121442 151010 198667 259011

250000INCOME OF LIC

206363200000 174425

150000 132147

93089112393

100000

50000

0

FY 03-04 FY 04-05FY 05-06FY 06-07FY 07-08

18

INCOME OF PVT INSURERS60000

5156150000

40000

30000 2424218863

200009049

10000 4323

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

points after

Avg Incomemultiplying byweightage

2 05 375

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

19

(C) SIZE OF BALANCE SHEET

(Rs In crores)

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC346022 416910 531390 625956 776904

Private6585 13653 28910 53048 100774

Insurers

TOTAL 352607 430563 560300 679004 877678

BALANCE SHEET SIZE OF LIC1000000

776904800000

625956600000 531390

416910

400000346022

200000

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

BALANCE SHEET SIZE OF PVTINSURERS

120000100774

100000

80000

60000 53048

40000 28910

20000 658513653

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

20

Avg Balance Sheet points afterSize multiplying by( In Crores) Rank points weightage (75)

1 1 75

LIC 53943640Private Insurance co 4059400

2 05 375

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 40594 crores of private insurance companies LIC s average balance sheet size goes to much high as that of 5394364 crores

(D) TOTAL NUMBER OF POLICIES

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC26968069 23978123 31590515 38229292 37612599

Private1658847 2233075 3871410 7922294 13261558

Insurers

TOTAL 28626916 26211198 35462117 46151586 50874157

21

22

TOTAL NUMBER OF POLICIES60000000

5087415750000000 46151586

4000000035462117

30000000 2862691626211198

LICPVTINSURERS

20000000INDUSTRY

10000000

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

points after

Avg number ofmultiplying byweightage

policies Rank points (75)

LIC 31675670 1 1 75

Private Insurance Co 5789437 2 05 375

LIC is an undoubted leader in the field of average number of policies per year in the last five years It is seen that private insurance companies are gaining momentum and are trying to defeat LIC in case of new insurances Main reason behind LIC having such a large number of policies is the trust of a common man LIC being a government agency has got a faith of indian mass People are not yet prepared to give their savings in the hands of private players

23

24

(E) NUMBER OF BRANCHES

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC2196 2197 2220 2301 2522

Private416 804 1645 3072 6391

Insurers

TOTAL 2612 3001 3865 5373 8913

100008913

9000

8000

7000 6391

6000 5373LIC

5000PVT INSURERS

40003865

30723001 INDUSTRY3000 2612 2522

2197 2220 23012196

2000 1645

1000 416804

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

growth inpoints aftermultiplying by

number of weightagebranches Rank points (75)

LIC 148 2 05 375

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

25

2 GROWTH sect (A) FIRST PREMIUM

LIC17347 20653 28515 55934 59996

Private2440 5564 10270 19425 33715

Insurers

TOTAL 19787 26217 38785 75359 93711

FIRST PREMIUM OF LIC70000

5999660000 55934

50000

40000

30000 28515

2000017347

10000

0

20653

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

FIRST PREMIUM OF PVTINSURERS

4000033715

350003000025000 194252000015000 1027010000

24405564

50000

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

26

Growth inGrowth in First points afterPremium multiplying

First Premium (in Absoute by(in Percentage Terms) (in weightageTerms) crores) Rank points (10)

LIC 24585 426492 05 5Private Insurance Co 128176 31275

1 1 10

Though LIC has attained more growth in absolute terms ie Rs42649 crores but private players being so less in number five years back has achieved a dream come true growth of 128176 which is certainly a matter of pride for them

(B) GROWTH IN INCOME

LIC12101 19303 19754 42277 31988

Private2692 4725 9814 5379 28406

Insurers

TOTAL 14793 24028 29568 47656 60394

GROWTH IN INCOME

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC149 207 175 32 183

Private165 1093 1084 285 117

Insurers

TOTAL 178 246 243 315 303

27

180 165160

140117

120 1093 1084

100 LIC

80 PVT INSURERS

6032 315 303

INDUSTRY

40178 207 246 175 243

285

18320 149

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

Growth inGrowth in points afterIncome multiplying

Income (in Absoute by(in Percentage Terms) (in weightageTerms) crores) Rank points (10)

1 1 10

Here LIC has neither attained more growth in absolute terms ie Rs19887 crores as compared to 25714 crores of private players nor has got more growth in terms of percentagethis shows that private players are doing great job in enhancing their business

(C) INCREASE IN NUMBER OF POLICIES

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC1475992 -2989946 7632584 6638585 -616693

Private804696 574228 1638335 4050884 5339264

Insurers

TOTAL 2280688 - 9270919 10689469 47225712415718

28

INCREASE IN NUMBER OF POLICIES

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC579 -1109 3175 2101 -16

Private9421 3462 7337 10464 674

Insurers

TOTAL 86 -84 353 301 102

GROWTH IN NO OF POLICIES120

10464

100 9421

80 7337674

60 LIC

403462

3175 353

PVT INSURERS

301 INDUSTRY2101

2086

102579

0FY 03-04 FY 04-05 FY 05-06 -16

FY 06-07 FY 07-08

-20 -1109 -84

Growth in Growth in points afternumber of number of multiplyingpolicies policies by(in Percentage (in Absoute weightageTerms) Terms) Rank points (10)

1 1 10

Private players are doing extremely well as they are increasing their customer base rapidly

29

(D) MARKET SHARE

261FY 07-08 739

FY 06-07258

742

FY 05-06265

PVT INSURERS735

LIC

FY 04-05212

788

FY 03-04123

877

0 20 40 60 80 100

LIC is still the market leader in insurance industry with 739 share But we cannot forget that in last five years market share of LIC has decreased It was 877 in year 2003-04 which came down to 739 in 2007-08

30

31

(A) BUSINESS PER BRANCH

LIC2893 3420 409 5555 5920

Private75 961 917 92 807

Insurers

BUSINESS PER BRANCH70

59260 5555

50

40940

342LIC

30 2893PVT INSURERS

20

10 75961 917 92

807

0

FY 03-04FY 04-05 FY 05-06 FY 06-07 FY 07-08

Avg Businesspoints aftermultiplying by

Per Branch (In weightagecrores) Rank points (5)

LIC 437561 1 5Private Insurance

Co 871 2 05 25

Avg business per branch of LIC is much higher than that of whole private insurance companies

32

(B) INCOME PER BRANCH

(Rs In crores)

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC4239 5116 5952 7580 8180

Private1041 1125 1147 789 823

Insurers

INCOME PER BRANCH90

81880 758

70

605952

511650 4239

40LIC

PVT INSURERS30

201041 1125 1147

82310 789

0

FY 03-04 FY 04-05 FY 05-06FY 06-07 FY 07-08

Avg Income Per points afterBranch (In multiplying bycrores) Rank points weightage (5)

2 05 25

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

33

(C) NEW PREMIUM PER BRANCH

(Rsin crores)FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC790 940 1284 2430 2378

Private586 692 624 632 528

Insurers

NEW PREMIUM PER BRANCH30

243 237825

20

15 1284 LIC

1094

PVT INSURERS

79692

624 632586 5285

0

FY 03-04FY 04-05 FY 05-06 FY 06-07 FY 07-08

Avg NewPremium Per points afterBranch (In multiplying bycrores) Rank points weightage (5)

LIC 156441 1 5Private Insurance Co 61242 05 25

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

34

4 GRIEVANCE HANDLING

TOTAL NUMBER OF GRIEVANCES

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC474 704 851 354 651

Private45 195 540 507 1406

Insurers

NUMBER OF GRIEVANCES RESOLVED

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC39 123 215 313 80

Private26 83 216 450 1103

Insurers

OF GRIEVANCES RESOLVED

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC82 175 253 884 122

Private577 426 400 887 784

Insurers

35

GRIEVANCES IN LIC800 704

651700540600 507

500 474 450

400 TOTAL300 216

RESOLVED200 12380

100 390

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

GRIEVANCES IN PVT COMPANIES1600 14061400

1200 1103

1000

800540 507

TOTAL

600 450 RESOLVED400 195 216200 45

26 83

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

OF GRIEVANCES RESOLVED100

88884790

78480

70

60 577

50 426 40 LIC40

253PVT INSURERS

30

20 175122

8210

0

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

36

points after

Grievancesmultiplying byweightage

resolved Rank points (75)

1 1 75

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 2537 of cases brought in front of them while the percentage of cases resolved in case of private players is 697

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

37

TOTAL POINTS TABLE

PrivateInsurance

Factors LIC Companies

Size

A Total Premium75 375

75 375B Total Income

75 375C Balance Sheet Size

75 375D Total No of Policies

375 75E Total No of Branches

Growth

A First Premium5 10

5 10B Growth in Income

5 10C Increase in No of Policies

10 5D Market Share

Productivity

A Business per Branch5 25

5 25B Income Per Branch

5 25C First Premium per Branch

Grievance Handling 375 75

Total Score 7775 7275

38

39

CHAPTER 4

FINDINGS amp CONCLUSIONS

LIC is the giant of the insurance sector The overall size of LIC is much more than

that of all private insurance companies Private insurers are in expansion mode and

are increasing their size but are still much behind LIC Total premium deposits in

LIC is much higher than the private insurance companies Total premium of LIC in

FY 07-08 was 149789 crores which three 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 4824414 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 companies

If we see the total number of policies issued by LIC and private insurance companies

we find that there is a huge gap between them No doubt that LIC is a well established

player in the field of insurance and many private companies have just started their

business Hence it is obvious that LIC is having large number of policyholders

Number of branches of private insurance companies is increasing as the new players

are entering in this market Also the established players are in expansion phase and

hence are expanding there business There are many private insurance companies and

hence there total number of branches has gone past LIC in the last financial year 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

40

We see that due to excellent service quality and attractive offers private insurance

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 with

LIC but then also the pace with which they are increasing their income is tremendous

Private insurance companies are expanding their business and will certainly going to

give a tough competition to LIC in the coming days

LIC is certainly having a large customer base Private insurance companies are not

having that much number of customer base but they are increasing it rapidly They

have registered a decent growth of 10464 in number of new policies in the year

2006-07 Last year also their growth rate was 674

64

LIC being the oldest player in the existing insurance market has the biggest market

share of 739 which was 873 five years earlier We see that private insurance

companies are penetrating in the customer base of LIC

Overall we can see that private insurance companies are giving a tough

competition to the LIC and will certainly create a good business for themselves

in the coming days

There are many new entrants in this sector There are many private insurance

companies who have reported loss in this and previous years This is the main reason

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 private

insurance companies in this field They are undoubted champions in insurance when 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 they are

ahead of private insurance companies though not by very large margin

Customer base of LIC is very strong and still business per branch profit per

branch or premium per branch they are leading much ahead of private

insurance companies

41

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 nearly

70 cases This is a matter from where customer shift starts We have seen the rapid

increase in customer base of private insurance companies which can be very much

affected by this factor

Overall we have seen that still LIC is very famous but private insurance companies are

growing at exceptionally fast pace Private companies show due concern in grievance

management and brings innovative schemes to attract the customers Right now they

are giving good competition to LIC and very soon they will give very tough competition

to Life Corporation of India

42

CHAPTER 3
PREMIUM OF PVT INSURERS
INCOME OF PVT INSURERS
BALANCE SHEET SIZE OF LIC
800000
BALANCE SHEET SIZE OF PVT
INSURERS
TOTAL NUMBER OF POLICIES
FIRST PREMIUM OF PVT
INSURERS
NEW PREMIUM PER BRANCH
GRIEVANCES IN LIC
GRIEVANCES IN PVT COMPANIES
TOTAL POINTS TABLE