Insurance Industry RM1

A study on Indian Insurance Industry

2011 Page 1

1. Executive Summary

The report tells us about the different aspects of the life insurance sector like the influence of

political, social, economical and technology on the growth of Life Insurance Company. It

talks about the current scenario and future trend or prospective of the life insurance company.

Comparative study with US and other countries is done to get a view of the Indian insurance

sector. The different promotional strategies of the companies such as their investment in

advertisements, marketing expenses etc are mentioned below in the report. We have also

analysed what are the different mergers and acquisitions that the foreign companies have

adopted in order to enter into the Indian market. We have analysed the market share of Indian

companies in life insurance sector and their competitive strategies these companies applying

to gain the market competing with huge market share holder public company LIC. The

Porter’s five force model is also related to know the threats resisting the growth of the

companies. Overall it the reports portrays the situation analysis of the life insurance

companies in insurance sector.


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2. Industry overview

2.1. Introduction

The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance

Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972,

Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts.

Life insurance was first introduced in 1818 during British rule when Oriental Life Insurance

Company began its operation in India and general insurance was introduced only in the 1850

after the entry of Triton Insurance Company. Indian Insurance sector history can be broadly

classified as Pre-Nationalisation, Nationalisation, and Post Nationalisation.

Life insurance was the first to be nationalized in 1956 by the formation of Life Insurance

Corporation which consolidates the operations of various insurance companies existed at that

time. Followed by General insurance was nationalized in 1973. General Insurance

Corporation of India was set up as the controlling body with New India, United India,

National and Oriental as its subsidiaries. In 1991 government initiated the process of opening

up the insurance sector by forming Malhotra Committee. This committee submitted its report

in 1994 and in 1999 Insurance Regulatory Development Act was passed resulting in opening

up the market for Public and Private Insurance companies to effectively started operations in

2001. Insurance Regulatory Development Authority (IRDA) was formed as a part of

Insurance Regulatory Development Act to regulate the insurance industry and have a control

over the market and the players in it.

Since opening up, the number of participants in the industry has gone up from six insurers

(including Life Insurance Corporation of India, four public sector general insurers and

General Insurance Corporation as the national reinsurer) in the year 2000 to 48 insurers

operating in the life, non-life and reinsurance segments (including specialised insurers, viz.,

ExportCredit Guarantee Corporation and Agriculture Insurance Company). Three of the non-

life insurance companies, viz., Star Health and Alliance Insurance Company, Apollo Munich

Health Insurance Company and Max Bupa Health Insurance Company function as standalone

health insurance companies. Of the twenty two insurance companies which have set up

operations in the life segment post opening up of the sector, twenty are in joint venture with


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foreign partners. Of the seventeen insurers (including health insurers) who have commenced

operations in the non-life segment, sixteen are in collaboration with the foreign partners. The

three standalone health insurance companies have been set up in collaboration with foreign

joint venture partners. Thus, as on date, thirty six insurance companies in the private sector

are operating in the country in collaboration with established foreign insurance companies

across the globe.

Table 2.1: milestone’s in the life insurance business in India

Year Milestones in the life insurance business in India

1912 The Indian Life Assurance Companies Act enacted as the first statute to regulate the

life insurance business

1928 The Indian Insurance Companies Act enacted to enable the government to collect

statistical information about both life and non-life insurance businesses

1938 Earlier legislation consolidated and amended to by the Insurance Act with the

objective of protecting the interests of the insuring public.

1956 245 Indian and foreign insurers and provident societies taken over by the central

government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act,

1956, with a capital contribution of Rs. 5 crore from the Government of India.

Source: IRDA website www.irda.gov.in

The General insurance business in India, on the other hand, can trace its roots to the Triton

Insurance Company Ltd., the first general insurance company established in the year 1850

in Calcutta by the British. Some of the important milestones in the general insurance business

in India are given in the table 2.


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Table 2.2: Milestones in the general insurance business in India

Year Milestones in the general insurance business in India

1907 The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes

of general insurance business

1957 General Insurance Council, a wing of the Insurance Association of India, frames a

code of conduct for ensuring fair conduct and sound business practices

1968 The Insurance Act amended to regulate investments and set minimum solvency

margins and the Tariff Advisory Committee set up.

1972 The General Insurance Business (Nationalization) Act, 1972 nationalized the general

insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National

Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental

Insurance Company Ltd. and the United India Insurance Company Ltd. GIC

incorporated as a company.

Source: IRDA Website www.irda.edu.in

2.2. Types of Insurance

On the basis of the risk they cover, insurance policies can be classified into two categories:

• Life Insurance Policies

• General Insurance Policies

2.2.1. Life Insurance

Life is very fragile and death is a certainty. We cannot control the uncertainties of life. But,

we can cover the risks surrounding us. Life insurance, simply put, is the cover for the risks

that we run during our lives. It protects us from the contingencies that could affect us.

Life insurance is not for the person who passes away, it for those who survive. It is the

responsibility of every bread earner to guard against the events that could affect the family in

the unfortunate circumstance of his / her demise. Thus, having a life insurance policy is very


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vital. Before going for a life insurance policy it is imperative that you know about various

types of life insurance policies. Major among them are:

• Term Life Insurance Policy

As its name implies, term life insurance policy is for a specified period. It lets you select

the length of time for which you want coverage, up to a period of 35 years. It has one of

the lowest premiums among insurance plans and also carries an added advantage of fixed

payments that do not increase during your term. In case of the policy holder's untimely

demise, the benefit amount specified in the insurance agreement goes to the nominees.

• Whole Life Insurance Policy

Whole life insurance policies do not have any fixed term or end date and is only payable

to the designated beneficiary after the death of the policy holder. The policy owner does

not get any monetary benefits out of this policy. Because this type of insurance involves

fixed known annual premiums, it's a good option if you want to ensure guaranteed

financial benefits for surviving family members.

• Money Back Plan

With a money back plan, you receive periodic payments, which are a percentage of the

entire amount insured, during the lifetime of your policy. It's a plan that offers insurance

coverage along with savings. A unique feature of the money back plan is that in the event

of the policy holder's death during the policy term, the beneficiary will get the full sum

assured without having any of the survival benefit amounts, which have already been

paid, deducted.

• Pension Plan

Pension plans are different from other types of life insurance because they do not provide

any life insurance cover, but ensure a guaranteed income, either for life or for a certain

period. You make the investment for a pension plan either with a single lump sum

payment or through installments paid over a certain number of years. In return, you get a

specific sum every year, every half-year or every month, either for life or for a fixed

number of years.


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• Endowment Policy

An endowment policy can be taken out for a specified period. At the end of the stipulated

period, the assured amount is paid back to the policy holder, along with the bonus

accumulated during the term of the policy. Designed primarily to provide a living benefit,

along with life insurance protection, the endowment policy makes a good investment if

you want coverage, as well as some extra money.

• Unit Linked Insurance Plan

ULIP is a type of life insurance where the cash value of a policy varies according to the

current net asset value of the underlying investment assets. It allows protection and

flexibility in investment, which are not present in other types of life insurance such

as whole life policies. The premium paid is used to purchase units in investment assets

chosen by the policyholder.

2.2.2. General Insurance

General Insurance provides much-needed protection against unforeseen events such as

accidents, illness, fire, burglary et al. Unlike Life Insurance, General Insurance is not meant

to offer returns but is a protection against contingencies. Almost everything that has a

financial value in life and has a probability of getting lost, stolen or damaged can be covered

through General Insurance policy.

Property (both movable and immovable), vehicle, cash, household goods, health, dishonesty

and also one's liability towards others can be covered under general insurance policy. Under

certain Acts of Parliament, some types of insurance like Motor Insurance and Public Liability

Insurance have been made compulsory. Major insurance policies that are covered under

General Insurance are:


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• Health Insurance

Under the general insurance category, health insurance is one of the most popular

choices. In India, Mediclaim covers hospitalization, expenses incurred during medical

tests and for medicines. You can also get coverage for medical expenses by opting for the

'Critical Illness (CI)' rider available with life insurance policies. This means that in case of

a 'critical illness' as defined by the insurance company during the policy tenure, you will

be paid the amount as proposed in the policy.

• Auto Insurance

Under the policies of auto insurance, coverage is provided for any damage caused by

accidents. The insured needs to pay an amount on a monthly basis to the insurer who in

turn provides compensation to the insured in case of accident and mishaps. There are 3

types of auto insurance coverage – liability coverage, physical damage coverage and

uninsured and underinsured motorist coverage.

• Home Insurance

The home insurance provides compensation for any mishaps that occurs on your home.

Coverage is provided according to the policy and premium paid by the homeowner. There

are various types of home insurance plans that you can choose from to suit your needs.

• Disability Insurance

Disability insurance is the financial coverage provided to an insured individual when he

loses his ability to work due to any illness or accident. There are two types of disability

policies: Short Term Disability (STD) and Long Term Disability (LTD). In short term

disability, compensation is provided for a period of maximum 2 years. On the other hand,

if you avail the long term disability plan, you can get benefits for the rest of your life.

• Business Insurance

If you have a business organization, be it small or big, you should always opt for business

insurance policies to protect it from any mishaps. Under business insurance, you can avail

policies that provide coverage for business property and liability. The most popular

business insurance policy that is availed by various business concerns is BOP (business


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owner’s policy). BOP is a package that provides coverage for property insurance,

business interruption insurance and liability protection.

• Travel insurance

Travel insurance is insurance that is intended to cover medical expenses, financial

default of travel suppliers, and other losses incurred while traveling, either within one's

own country, or internationally. Temporary travel insurance can usually be arranged at

the time of the booking of a trip to cover exactly the duration of that trip, or a "multi-trip"

policy can cover an unlimited number of trips within a set time frame. Coverage varies,

and can be purchased to include higher risk items such as "winter sports".

2.2.3. Reinsurance

Reinsurance is insurance that is purchased by an insurance company (insurer) from another

insurance company (reinsurer) as a means of risk management. The reinsurer and

the insurer enter into a reinsurance agreement which details the conditions upon which

the reinsurer would pay the insurer's losses (in terms of excess of loss or proportional to

loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues

insurance policies to its own policyholders. The main reason for insurers to buy reinsurance

is to transfer risk from the insurer to the reinsurer, but reinsurance has various other

functions also. In India GIC is the only reinsurance company.

2.3. Insurance Regulatory Bodies

Insurance laws and regulations in India takes care of all matters related to various insurance

companies in the country. Much of the development and growth of the insurance sector in

India is due to the government's decision to nationalize the insurance business and to allow

private and foreign insurance companies to establish their businesses here. In India, there is

one regulatory authority i.e. IRDA which oversees different functioning of the life insurance

companies in India and provide them with guidelines.

1. Insurance Regulatory and Development Authority (IRDA)

Insurance Regulatory and Development Authority (IRDA) is the controlling body, overseeing

important aspects and functioning of various insurance companies in India. Established by

the government, it safeguards the interest of the insurance policy holders of the country.


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Some of IRDA's functions include:

• To regulate, ensure and promote the orderly growth of the insurance business

• To prescribe regulations on the investment of funds by insurance companies

• To regulate the maintenance of the margin of solvency

• To adjudicate the disputes between insurers and intermediaries

• To supervise the functioning of the Tariff Advisory Committee

Other supporting organisations which facilitate in the working of the industry

1. Tariff Advisory Committee

The main task of Tariff Advisory Committee is to regulate and control the rates, benefits,

terms and conditions offered by life insurance companies in India.

2. Insurance Association of India

All insurance companies in India are members of the Insurance Association of India. It

has two councils under its patronage, mainly Life Insurance Council & General Insurance

Council

3. Ombudsmen

Ombudsmen play important role in regulating and ensuring smooth functions of the

insurance companies. They are appointed to address all complaints relating to settlements

of claims. Anyone having a grievance against an insurance company can approach

Ombudsmen for redressal.

2.4. Rules and Regulations

• The Insurance Act of 1938 was the first legislation governing all forms of insurance to

provide strict state control over insurance business.

• Life insurance in India was completely nationalized on January 19, 1956, through the Life

Insurance Corporation Act. All 245 insurance companies operating then in the country

were merged into one entity, the Life Insurance Corporation of India.

• The General Insurance Business Act of 1972 was enacted to nationalise the about 100

general insurance companies then and subsequently merging them into four companies.

All the companies were amalgamated into National Insurance, New India Assurance,


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Oriental Insurance and United India Insurance, which were headquartered in each of the

four metropolitan cities.

• Until 1999, there were not any private insurance companies in India. The government

then introduced the Insurance Regulatory and Development Authority Act in 1999,

thereby de-regulating the insurance sector and allowing private companies. Furthermore,

foreign investment was also allowed and capped at 26% holding in the Indian insurance

companies.

• In 2006, the Actuaries Act was passed by parliament to give the profession statutory

status on par with Chartered Accountants, Notaries, Cost & Works Accountants,

Advocates, Architects and Company Secretaries.

• A minimum capital of US$20 million (Rs.100 Crore) is required by legislation to set up

an insurance business.

• IRDA was formed by an act of the Indian Parliament (known as the IRDA Act, 1999) as

the regulatory body to govern the Indian insurance sector.

• A company, to operate as an insurance company in India, must be incorporated under the

Companies Act, 1956, and possess the certificate of the memorandum of association and

articles of association.

• Capital requirement —paid up equity share capital

• At least US$ 208.3 million for life insurance or non-life insurance business

• At least US$ 416.7 million for reinsurance business

• International players can operate in India only through a joint venture with a domestic

firm and are classified under private sector insurers.

• FDI up to 26 per cent is permitted in the insurance sector.

• IRDA does not allow foreign reinsurance companies to open branches in India. This

proposal is currently under consideration in the Parliament

FDI norms

• The Insurance Laws (Amendment) Bill, 2008, proposes to provide for the increase in

shareholdings by a foreign company from the current limit of 26 per cent to 49 per cent.


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2.5. Growth

The Indian insurance sector has witnessed significant growth - the number of life policies in

force has increased nearly 12-fold over 2000-2010, and health insurance policies nearly 25-

fold. Factors like better terms, availability of a wide variety of products (like unit-linked

insurance products, whole life, maximum net asset value (NAV) guarantee etc), and

government incentives have boosted the growth of the industry.

With an annual growth rate of 15-20% and the largest number of life insurance policies in

force, the potential of the Indian insurance industry is huge. Data released by the Insurance

Regulatory and Development Authority (IRDA) indicates that 23 life insurers registered

₨18,282.86 crore (US$ 4.1 billion) by writing new policies during April-June 2011. State-

owned Life Insurance Corporation (LIC) of India, collected premiums worth about

₨13,341.97 crore (US$ 3 billion), while its private peers collected ₨4,940.89 crore (US$ 1.1

billion) as new first-year premium during the period.

The first year premium, underwritten by the life insurers during 2009-10 was ₨1,09,894 crore

as compared to ₨87,331 crore in 2008-09 registering a growth of 25.84 per cent against

negative growth rate of 6.81 per cent during 2008-09. In terms of linked and non-linked

business during the year 2009-10, 54.53% of the first year premium was underwritten in the

linked segment while 45.47% of the business was in non-linked segment (51.13 and 48.87%

respectively in 2008-09). The total premium underwritten by the life insurance sector in

2009-10 was ₨2,65,450 crore as against ₨2,21,785 crore in 2008-09 exhibiting a growth of

19.69% (10.15% in 2008-09). In June 2011, industry collection stood at ₨6,022.98 crore

(US$ 1.35 billion). Revenue earned by selling new policies increased by 15.13 per cent in

FY11, amounting to ₨1,25,826.03 crore (US$ 28.24 billion) against ₨1,09,290.38 crore (US$

24.53 billion) in FY10.

The growth and evolution of Indian insurance sector can be measured in terms of the

insurance penetration in the country and its density over the period. The measure of insurance

penetration and density reflects the level of development of insurance sector in a country.

While insurance penetration is measured as the percentage of insurance premium to GDP,

insurance density is calculated as the ratio of premium to population (per capita premium).

Since opening up of Indian insurance sector for private participation, India has reported


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increase in both insurance penetration and density. But, the increase has been almost entirely

contributed by the life insurance sector. As of 2009, the penetration of Insurance in India

accounts only 5.2% in which Life Insurance accounts 4.6% and general insurance accounts

0.6%. From the table it is observed that the Indian life insurance sector showed a huge

growth, the insurance density of life insurance sector had gone up from USD 9.1 in 2001 to

USD 47.7 in 2009. Similarly, insurance penetration of life sector had gone up from 2.15 per

cent in 2001 to 4.60 percent in 2009. This shows that India insurance industry has a huge

potential and there is a chance of gaining more profits by the players.

Table 2.3: Insurance Penetration and Density in India

Year

Life Insurance General Insurance Industry

Density Penetration Density Penetration Density Penetration

(USD) (%age) (USD) (%age) (USD) (%age)

2001 9.1 2.15 2.4 0.56 11.5 2.71

2002 11.7 2.59 3 0.67 14.7 3.26

2003 12.9 2.26 3.5 0.62 16.4 2.88

2004 15.7 2.53 4 0.64 19.7 3.17

2005 18.3 2.53 4.4 0.61 22.7 3.14

2006 33.2 4.1 5.2 0.6 38.4 4.8

2007 40.4 4 6.2 0.6 46.6 4.7

2008 41.2 4 6.2 0.6 47.4 4.6

2009 47.7 4.6 6.7 0.6 54.3 5.2

Insurance density is measured as ratio of premium (in US Dollar) to total population.

Insurance penetration is measured as ratio of premium (in US Dollars) to GDP (in US Dollars).

Source: Swiss Re, IRDA Annual Reports 2001 to 2009


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3. Literature Review

Mr. Tapen Sinha (2005) in his research paper “The Indian Insurance Industry:

Challenges and Prospects” highlighted the phenomenal growth experienced recently, in line

with the country's improving economic fundamentals. He benchmarked the Indian insurance

market against other regional counterparts. By comparing growth, penetration, density and

other insurance variables, it can be shown that, whilst India is still an underdeveloped

insurance market, it has a huge catch-up potential. He presented a necessary overview of the

historical development of the sector, but the relevance to the current marketplace is not lost,

as the original 938 Insurance Act still forms the backbone of present insurance regulation. A

more detailed dissection of current regulatory issues is offered. He also discussed the issues

in the life and non-life insurance sectors respectively. Developments with far-reaching

implications, like the proliferation of bancassurance as an alternative distribution channel and

the move to allow non-life insurance companies greater freedom in pricing their products, are

looked at in detail. Finally, he summarises the potential and pitfalls of rural insurance in

India. Even though there is strong potential for expansion of insurance into rural areas,

growth has so far remained slow. Considering that the bulk of the Indian population still

resides in rural areas, it is imperative that the insurance industry's development should not

miss this vast sector of the population.

Shilpa Thakur (2008) research “Competition in Life Insurance sector of India” is aimed

at understanding the life insurance sector in India and flagging issues relating to competition

in this sector. The life insurance sector has a small market and cover approx. 3 % of

population in India. As a growing sector, it is important that all players get a level playing

field. The competition act is to provide for a level playing field to all players to encourage

competition in market. Through my study I have tried to substantiate this with facts and

evidence proving that LIC as a state owned enterprise enjoys a dominant market. The

enterprise having a dominant position is not per se illegal but abuse is. The dominance of LIC

is not deliberate rather it is by virtue of the regulations that the market is deprived of a level

playing field and market has an anti-competitive environment. This sector is highly lucrative

and therefore increasing the FDI cap would be a step to enhance competition in this sector

and also cover a large population. Exclusive networking, sovereign guarantee and entry

barriers like limited FDI creates an anti-competitive environment in market.


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According to Krishna Chaitanya Vadlamannati’s (2008) “Do Insurance Sector Growth

and Reforms Affect Economic Development? Empirical Evidence from India” A well-

developed insurance sector is necessary for the economic development of an emerging

economy like India, as it provides long-term funds for physical and social infrastructure,

while simultaneously strengthening risk-taking abilities. The investment requirements for

India in the coming years are well-known and the rapid growth of the insurance sector in the

post-liberalisation period is seen as a good sign as it can, to some extent, facilitate investment

in infrastructure development to help sustain the economic growth of the country. Against

this backdrop, this paper raises an important question: what has been the contribution of

insurance sector growth to economic development in India? The paper further examines the

economic growth effects of insurance sector reforms and the rate of growth of insurance

reforms. The claims brought forward by this study are mixed. The contribution of the

insurance sector to economic development is positive and exhibits a long-run equilibrium

relationship. We find that reforms exert no strong relationship, but the rate of growth of

reforms has a positive influence on economic development. The study therefore suggests that

in order to make the insurance sector a more important component of the financial

intermediation process, complete deregulation and an increase in the pace of reforms are the

need of the hour.

“The Potential of Rural Life Insurance in India: Problems and Prospects” of K.

Spandana states that the recent research work on the commercial viability of doing

insurance business in rural India clearly indicate that the rural sector is a vibrant market, and

that it holds tremendous potential for the growth of insurance business in India. However, the

penetration of insurance in rural India remains pitifully low. This paper aims at exploring the

potential of life insurance in rural India with all its problems, complexities and variables, and

suggesting the means and ways of meeting the challenge of developing the rural insurance

business in tandem with its potential of economic growth.

Ashish Sadh, Soniya Billore in their “Brand Building and Advertising: approaches in

Indian Life Insurance Industry” explained that the Financial service brands are based on

ensuring long-term financial security through a broad range of inherently risky services and

investment options. In the insurance sector, branding has typically involved the concepts of


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stability, trust and protection. If there was one industry in India which least considered

branding as an essentiality, it would be the insurance industry. However, with liberalization

of the industry, players have to realize the need for branding in a competitive environment.

Insurance companies need to strive to build a brand in order to attract both the end customer

and intermediaries. This study is intended to analyze the advertisements and to know through

a set framework and model how closely the present day advertisements fall in line with what

has been proposed in theory. It is meant to understand the features that come up in the

Insurance product advertisement in the Indian industry and how closely the advertisements

are in line with what has been theoretically prescribed as ideal way of communication for the

Insurance products. The results of the analysis will be particularly useful for the players of

the insurance industry, the media world and academicians.

Our research focus on most of the topics that the above research papers mention but our

research paper goes one step beyond these research papers. We used Herfindahl index to

know the nature of competition. We used PEST analysis, Porters Analysis and SWOT

analysis to clearly understand about the insurance industry. We also covered the mergers and

acquisitions takes place in the industry. We made a research to find the scope and ways to

improve the industry from its current level using technology. We also made a global

comparison and predicted the growth of Indian insurance industry in the future.

2011

4. Market Share of Life Insurance Industry

The introduction of private players

initiatives taken by the private players are very competitive and have

competition to the on time monopoly of the market LIC. Since the

players in the market, the insurance industry has

insurance companies to grab market share.

quality of the insurance. They initiated many new policies for the betterment of both

company and policy holders. As a result

shares to the private players. Though

upcoming natures of these private players are enough to give more

near future. LIC market share has

now as people showing more faith on Government’s LIC,

shares are gradually declining.

The following is the market share

Industry.

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

Source: Forbes India Magazine, July 2011

5%

5%

2%2% 2%

1%

1% 1%

Market Share of Life Insurance Companies


Market Share of Life Insurance Industry

players in the industry has added value to the industry.

by the private players are very competitive and have given immens

the on time monopoly of the market LIC. Since the advent of

, the insurance industry has seen new and innovative steps taken by the

insurance companies to grab market share. The new companies have improved

. They initiated many new policies for the betterment of both

. As a result down the years LIC gradually losse

Though LIC still holds the 75% of the insurance sector but the

these private players are enough to give more competition to LIC

has decreased from 95% (2002-03) to 70.10% (2009

now as people showing more faith on Government’s LIC, the private companies’ market

market share of Life Insurance Companies in the Indian Insurance

Market Share of Life Insurance Companies as of May 2011

, July 2011

76%

5%

Market Share of Life Insurance Companies

LIC India

SBI Life

ICICI Prudential

HDFC Standard

Max New York Life

Bajaj Allianz

Birla Sunlife

Reliance Life

Tata AIG

Others


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industry. The

given immense

advent of the private

seen new and innovative steps taken by the

have improved the serviced

. They initiated many new policies for the betterment of both

gradually losses its market

rance sector but the

competition to LIC in the

2009-10). But

the private companies’ market

of Life Insurance Companies in the Indian Insurance

Market Share of Life Insurance Companies as of May 2011

LIC India

ICICI Prudential

HDFC Standard

Max New York Life

Bajaj Allianz

Birla Sunlife

Reliance Life

Tata AIG


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The above chart shows that LIC with 75.68% (~76%) market share dominates the Life

Insurance sector with its supremacy and is currently in growth phase. The first year premium

of LIC was grown from 60.89% in 2008-09 to 65.08% in 2009-10. SBI Life Insurance and

ICICI Prudential with 4.83% and 4.42% market shares holds second and third positions

respectively. Other players hold negligible market shares in the industry.

4.1. Herfindahl-Hirschman index

The Herfindahl index (also known as Herfindahl–Hirschman Index or HHI) is a measure

of the size of firms in relation to the industry and an indicator of the amount of

competition among them.

Table 4.1: Herfindahl-Hirschman index calculation

Companies Market Share M^2

LIC India 0.7568 0.57274624

SBI Life 0.0483 0.00233289

ICICI Prudential 0.0442 0.00195364

HDFC Standard 0.0238 0.00056644

Max New York Life 0.0199 0.00039601

Bajaj Allianz 0.0179 0.00032041

Birla Sunlife 0.0132 0.00017424

Reliance Life 0.0125 0.00015625

Tata AIG 0.0114 0.00012996

Others 0.052 0.002704

Herfindahl–Hirschman Index 0.58148008

Source: Forbes Magazine, July 2011

After analysing the industry using the Herfindahl index we come to the conclusion that the

Insurance industry is highly concentrated in India, as the parameters for the index state that

the result if it is below (0.1) that the market is not concentrated and it shows the potential for

new entrants to enter the market. The index if lying in between (0.1 to 0.18) means that the

industry is not fully concentrated and is averagely concentrated, but anything above (0.18) it

means that that the industry is heavily concentrated. But here we have an index of (0.58148)


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which means to say that the industry is heavily populated and does not show any positive

signs for new entrants.

However contrary to this we should also consider the fact that the Indian life insurance

industry has been tapped only 0.46% and holds tremendous potential for companies to tap

into the vast untapped market that needs to be captured. Almost a population of 100 crores

population to be captured. The govt regulation on the J.V where foreign investment is

regulated to 26 % of the total stake in the J.V.


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5. Industry Analysis

5.1. Introduction

As Indian insurance market is highly concentrated and there is an involvement of more

political and economical factors making the insurance history to split into Pre-Liberalisation,

Liberalisation and Post-Liberalisation we made a PEST analysis to understand the factors

involved and affecting the sector. Considering the increase in entry of more and more

companies after liberalisation, we developed a Porters five force model and analyze the

current market conditions. Finally to know the potential of the market and considering the

outcome of the early two PEST analysis and Porter’s Five Force Model, we made a SWOT

analysis to know its present status and to predict the insurance industry’s future. The analysis

are made available in the report.

5.2. PEST Analysis

A PEST analysis (also sometimes called a STEP, PESTLE or STEEP analysis) looks at the

external business environment. PEST stands for Political, Economic, Socio-cultural and

Technological.

5.2.1. Political Factors

The entry of private companies in the insurance sector allowed by The Insurance Regulatory

Development Act, 1999 (IRDA Act), was the sole exclusive privilege of the public sector

insurance companies. The IRDA act was passed in order to protect the concerns of share

holders of insurance policy and also to govern and check the growth and development of the

insurance sector. According to this act following are the circumstances under which allowed

the private insurance companies were allowed to operate in India

• The company should be established and registered under the 1956 company Act.

• No company should be allowed to deal with both life and general insurance through a

single entity.

• Private companies with the minimum paid up capital of Rs 100 crores should be

allowed to enter into the sector.


2011 Page 20

• A foreign partner or its subsidiaries or nominees can hold 26% equity capital in an

Indian insurance company.

A policy known as 'Health plus Life Combi Product', offering health insurance along with life

cover insurance which has been granted permission by the IRDA act , insurance companies

are allowed to provide it now. The FDI (Foreign direct investment) limit in the insurance

sector has been limited to 26% for the foreign markets but according to the Union Budget

fiscal in 2005 there was a proposal to increase it to 49% this offer is pending at the Rajya

Sabha. The Pension Fund Regulatory and Developmental Authority (PFRDA) on 1st April,

2010 have formed a low cost pension scheme for the poorer class to provide them social

security. The compulsory surrender formally regulated by IRDA for every General Insurance

Corporation (GIC), would go on to stay at 10%.Postal life insurance should be allowed in

rural market. Government’s objectives to liberalize insurance sector is to provide insurance

coverage to all Indian citizen and to main a long term financial flow for growth of

infrastructure. There are different policies which are adopted for investors outside India. They

cannot invest outside India the funds of policy holders.

5.2.2. Economical Factors

Development of insurance industry is an important part of the financial system, and which is

expected to contribute to financial development and economic growth.

Consequently, the insurance sector provides risk transfer and various compensation schemes

by the efficient distribution of different risks at all possible level. Therefore, the insurance

sector accelerates capital accumulation and leads the domestic savings to investment because

of these functions. Inflation rate can be one of the factor which may affect the scenario of

insurance sector. High inflation rate which is present persistent in India will show a

slowdown in insurance business as the investor will get less ROI and hence will lose to attract

the investors. In high inflation situation clients prefer scheme which is on short term basis or

periodically repaid and risk policies are kept for long term. Capital adequacy is required to

meet up long terms client’s dues and claims. So minium amount of fund is required by the

insurance sectors as suggested by IRDA is 1 billion to enter the insurance sector.

Unemployment also affects the insurance sector as because they will be unaware or incapable

of purchasing the insurance policy, so savings also affect the sector. Increase in economic

growth or activity will increase the value of insurance companies as no demand will be

created such as airlines industry etc.


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5.2.3. Social Factors

Population, life style, educational level, level of earning and social benefits are the basic

social factors that affect the life insurance factors that affect the life insurance sectors.

• Population

The population expansion is one of the major factor on the life insurance sector. As it

may push up demand as in it may have positive effect because too many vehicles will

create hazard and pollution which will require policy coverage which is otherwise not

sold that much.

• Life style

Disintegration of social values, increase of possibility of accidents as most of them work

outside home, illegal use of official property, funds, patronage, and abduction needs to be

under coverage under suitable designed policies

• Education Level

More than 50%people in India are uneducated .They are not aware of the policies. Also

the educated group are not qualified properly in terms of quality hence they doesn’t

understand the concept of insurance properly. Hence the policy awareness is the major

issue in this sector now with low education as a barrier

• Level of earning

Due to unequal distribution of money the richer are becoming richer and the poorer are

become poorer because only 20% of the population are having 80% of the wealth which

is affecting the life insurance sector.

• Social Benefits

The pension policy scheme adopted by the life insurance sector based on the financing

through employer and employee participation have acted as majority workforce in the

unorganized sector and it helped to formalize channels of old age economic support and

also helped to recover poverty and unemployment


2011 Page 22

5.2.4. Technological Factors

As most of the people are unaware of the risk coverage scheme by life insurance sector hence

the best way to educate people will be through internet. It can serve as a single window for

information about product, process and update. Through internet the growing insurance

companies can get an idea on the market segmentation and also they can review and get

suggestions from different customers. Through technological up gradation the customers can

be benefited in many ways such as service transaction, pricing, product differentiation which

will increase the convenient aspect of the customer service.

• Maintaining data base

It is very important to maintain a proper data base for the growth of the insurance sector

which can easily done by using computers and other advance technological aspects.

• E-business insurance in India

Due to technological advancement there were various advantages such as fast processing

time, sophisticated scheme of work etc. But too much sophistication increases the risk

factor which needs to be under the risk coverage policies. Also online payment facility

has risen the customer satisfaction level and attracted the clients

5.3. Porter Five Force Model Analysis

One important component of industry and competitive analysis involves delving into the

industry’s competitive process to discover what the main sources of competitive pressure are

and how strong each competitive force is. This analytical step is essential because managers

cannot devise a successful strategy without in-depth understanding of the industry’s

competitive character. Even though competitive pressures in various industries are never

precisely the same, the competitive process works similarly enough to use a common

analytical framework in gauging the nature and intensity of competitive forces.

The state of competition in an industry is a composite of five competitive forces.

1. The rivalry among competing sellers in the industry.

2. The potential entry of new competitors.

3. The market attempts of companies in other industries to win customers over to their own

substitute products.


2011 Page 23

4. The competitive pressures stemming from supplier-seller collaboration and bargaining.

5. The competitive pressures stemming from seller-buyer collaboration and bargaining

Porter’s five- forces model of competition are as below:-

1. Threat from new entrants

2. Bargaining power of supplier

3. Bargaining power of buyer

4. Threat from substitute

5. Competition from existing players

The five-force model developed by porter in 1980, guides the analysis of an organization’s,

Environment and attractiveness of the life insurance industry. The nature and degree of

competition in an industry hinge on five forces, which include the threat of substitute,

bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants and

degree of rivalry between the existing competitors.

5.3.1. Threat of new entrants

The future of life insurance market scenario will be marked by the active presence of many

international players, beside several Indian players. As far as life insurance industry there

would be fewer entries due to more specialized firm with lower expenses ratios and better

capitalization. In life insurance industry entry barriers is moderate so that it becomes

profitable, it attracts new entrants, thereby increasing the number of competitors. Tax

exemption makes the industry attractive. Private giants and international player are trying to

enter in to the market in the large scale with their proper homework with customized and

products too.

5.3.2. Bargaining power of buyers

Market is segmented into different segments based on customers’ needs and demands and

they have strong competitive force when they are able to bargain over premium, service other

terms of sale etc. Due to increase of competition in each and every sector the bargaining

power of customers are high. And the customers of this industry often switch over to other

substitute products etc.


2011 Page 24

5.3.3. Bargaining power of Suppliers

Policy designer tend to have less leverage to bargain over premium and other terms of sale

when the company is supplying to major customer. Suppliers bargaining power increases if

there exist a reduction in administrative cost and claim procedure time.

Insurance is tax exempted so that suppliers bargaining power increases. At the same time

suppliers then have a big incentive to protect and enhance their customer’s competitiveness

providing them with reasonable premium, better service and ongoing advances in the

technology of the item supplied. Supplier’s ability to integrate forward: the private players

can integrate forward to increase the volumes of business by providing customized and tailor-

made policies whereas existing players whereas lack on this point. To maintain brand identity

there is certainty among the minds of people in relation to maintain relation with the existing

players.

5.3.4. Threat form substitutes

The increasing market potential of Government bonds like NSC, debentures, etc,, is threat to

the existing private players. Moreover the investment in insurance sector with an objective of

tax exemption can be subsidised using similar products which offer the similar benefits. But

risk coverage is only provided by this sector so no threat is there in this area.

5.3.5. Competition among existing players

As a result of privatization competitive conditions prevail in which entry of companies

buyers will exercise control. There is cut- thought competitions among rivals in life insurance

industry. There are mainly 23 private organizations and one public organization in life

insurance competition. The insurance sector is showing high market growth rate, which

enables the insurance companies to achieve its own market growth through the growth in

market place. The annual growth rate is expected to be 15%. All the insurance companies

deal in identical policies, as service levels offered are similar. Hence, there is no much

product differentiation. Post-privatization, product and service differentiation exist between

public company-private companies. Ministry of finance controls all the insurance companies

that are in the industry at present. Hence, there are less chances of exit. Also,

post privatization made less chances of exit, as after 1999 IRDA governs the insurance

companies. Nationalized players have negligible computerization and use of management

information system (MIS). Although they are planning to implement software developed by


2011 Page 25

CMC for fulfilling the MIS requirements across various levels of offices. Private players

make extensive use of MIS as well as have more or less a paperless office.

5.4. SWOT Analysis

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,

Opportunities and Threats involved in a projector in a business venture. It involves specifying

the objective of the business venture or project and identifying the internal and external

factors that are favorable and unfavorable to achieve that objective.

� Strengths: characteristics of the business or team that give it an advantage over others in

the industry.

� Weaknesses: are characteristics that place the firm at a disadvantage relative to others.

� Opportunities: external chances to make greater sales or profits in the environment.

� Threats: external elements in the environment that could cause trouble for the business.

5.4.1. Strengths

• The increasing literacy rate, especially in rural India, has spread awareness about the

need for insurance.

• Between 2001 and 2026, the working population (25–60 years) is expected to increase

from 398.3 million to 675.8 million resulting in a favourable market for insurance

companies.

• Projected per capita GDP is expected to increase from US$ 380.8 in 2000–01 to US$

2,097.5 in 2026, reflecting higher disposable income.

• Premium income as a percentage of GDP has increased from 3.3 per cent in 2002–03

to 7.6 per cent in 2008–09.

• Insurance companies are providing a wide range of products to meet the diverse

requirements of the Indian population.

• Life insurance is already the most popular financial product among Indians because of

the tax benefits and income protection it offers.

• The rising income level and demographic shifts results in emergence of new market.

• Increase in per capita income increases the disposable income with people which

create large insurable population resulting in purchase of new policies.

• Premium rates are increasing and so are commissions of the agents motivating them

to sell more policies.


2011 Page 26

• Prospects expect more services from their brokers.

5.4.2. Weaknesses

• Insurance companies are often slow to respond to changing needs.

• There is an increasing trend of financial weakness among the companies.

• There are more competitors for agencies to compete with banks and Internet players.

5.4.3. Opportunities

• Today’s human life becomes full uncertain, so they prefer protection against the risk.

Therefore they prefer life insurance. This is the opportunity for the life insurance

sector.

• Easy accesses to development in the more advance market provide further opportunity

to upgrade their working. Technological, financial or specific area based avenues of

absorbing improved system are also now more easily available. So, that insurance

companies working efficiently and fast service.

• Increased economic activities: increase in the economic activity has become the

opportunity for the life insurance sector. The activity such as development in the

automobile industry, development in the shipping industry. The growth in the GDP

shows the opportunity for this industry. So this is also one of the opportunities for the

life insurance sector.

• Uncovered market: The Insurance penetration in India is only 5.2% in which Life

insurance accounts only 4.6%. The remaining 95% of market is untapped. Being the

developing economy, there is a huge opportunity for the insurance companies to tap

into the untapped market and gain more customers.

• Technology is improving to the point that paperless transactions are available. In the

past companies used lot of paper works to maintain records from issuing policy,

premiums payment records, claims records till policy is closed or withdrawn. But now

due to the technological innovations these records are maintained in database format

using computer and also the payment of insurance premium and claim process made

online reducing the paper works.

• The client’s increasing need for an “insurance consultant” can open new ways to

service the client and generate income.


2011 Page 27

• To enter into rural market where customer awareness about insurance is low by

effective and efficient marketing strategies.

• To sell insurance products through electronic Medias.

• Natural calamities: natural calamities taking place now days have created a concern

for life insurance among the public. Because of natural calamities like earthquake,

flood, and cyclone people have become conscious about benefits and need of

insurance. Thus through a calamity it has become a considerably big opportunity for

the industry.

• Growing population: the growth in the population is very high. It is said that one

Australia is added in our country every year. Thus potential customers for the life

insurance industry. It has become an opportunity for the life insurance industry.

• The lack of comprehensive social security system combined with a willingness to

save means that Indian people demand for pension products will be large. Thus, it has

become an opportunity for the life insurance industry.

• India has traditionally been a highly savings oriented country. Needless to say, if the

insurance market is properly tapped, it is possible to raise life insurance premium as a

percentage of GDP from its existing level. Thus, it has become an opportunity for the

life insurance industry.

• To use Internet and e-commerce technologies to dramatically cut the costs and/or to

pursue new sales-growth opportunities. With the help of technology it has become

easy for the companies to reach the customer quickly, easily, efficiently and in a

better way. Also the companies can cut down the cost of operation up to considerable

level. Thus technology has thrown lots of opportunity for the company.

5.4.4. Threats:

• Private entrants are naturally targeting the profitable and more lucrative segments, by

providing better service, new products and flexibility. They are targeting the bigger

corporate the other clients in the well established metropolitan center.

• These new entrants succeeded in eating share of the existing entities. This creates

threat among rival firms itself.

• Fluctuation in the bank rate makes big difference for the life insurance industry. It has

become threats for the life insurance industry.


2011 Page 28

• Interest rate of P.F and bank saving create threat to insurance sector. All other saving

is obviously the threat for life insurance sector.

• Increasing intensity of competition among industry rivals-may cause fall on profit

margins.

• Consumer’s education- consumers are more and more confused because the market

players are offering large number of product range. The consumers perceive life

insurance as a tax saving tool instead of knowing its real benefit. Using this as

advantage companies instead of educating the consumers they are selling the policies

as a tax benefit tool.

• The flight of talent to new entrants is already in evidence, and could be on the rise for

some time to come. Retaining qualified and competent executives will be

considerable challenges for existing companies.

5.5. Business diversification of insurance sector in India

Diversification is one of the fundamentals of business because it helps spread risk, which

allows for the shifting of risk for reasonable pricing. Diversification can be accomplished

through a variety of approaches, including line of business, product line, geographic

concentration and distribution diversification strategies. Certainly no one would argue that

diversification is not imperative in writing catastrophe exposed property insurance.

5.5.1. Types of Diversification

• Concentric Diversification

Under concentric diversification new products and service are added to the line with the

condition that these products and service are related to their existing products/services

carried by the organization. For concentric diversification it becomes necessary that the

products or services that ate added must be within the framework of the know and

experience in technology, product lie, distribution channels or customer base of the

organization.

• Horizontal Diversification

Where an organization adds unrelated products and services for existing customers, this is

called horizontal diversification. The strategy is comparatively less risky because the


2011 Page 29

customers are known. The organization in fully acquainted with their consumer

preference and their expectations about the quality and price of the goods and services.

• Conglomerate Diversification

Conglomerate diversification is growth strategy in which new products and services are

added which are significantly different from the organization’s present product and

services.

Out of 24 registered life insurance companies in India most of the companies are diversified

into different sectors. All the 24 life insurance companies can be considered as Concentric

diversified as all the companies provide more than one type of policy to the customers. For

eg: LIC provides Pension Plans, Endowment Plans, etc., Most of the companies can also list

under Horizontal Diversification. For eg: ICICI serving customers through banking service,

the same ICICI with the tie up with Prudential provides Life Insurance to the same customers.

It also provides General Insurance in the name ICICI Lombard. Most of the companies in

Life Insurance are Conglomerate diversified in nature as almost all companies have its

presence in financial sector like banking, mutual funds, insurance, etc.,. Eg: SBI is in

Banking and also in Insurance sector. ICICI is in Banking, mutual funds, insurance, etc.,

However there are few exceptions such as Bajaj Allianz as they have other business in

automobile sector. Tata AIG is another example as Tata group have wide diversified business

starting from salt to steel business. The other companies such as Reliance life insurance are

also in mobile communication market to petroleum business.


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6. Mergers &Acquisitions

6.1. Introduction

As if we see that only 5% of Indian population are covered with health and life insurance.

With this percentage India stands in the 11th position in the world in insurance sector. By

examining these figures we can say that there is bright future for the insurance sector in

coming years. For this reason many foreign insurance companies are interested in Indian

insurance industry and they want to enter to India. But as per the rules of IRDA only 26%

FDI are allowed. Hence foreign companies are entering India by merging with the domestic

companies. Therefore a lot of M&A are happened in recent years.

What is Mergers &Acquisitions?

A Merger happens when two firms, often about same size, agree to go forward as a new

single company rather than remain separately owned & operated by pooling all their

resources together, to create a sustainable competitiveadvantage.

When a Company takes over another one & clearly becomes the new owner, the purchase is

called Acquisition. Unlike mergers, acquisitions can sometimes be unfriendly.

Motives behind mergers and takeovers

• Expansion and growth

• Tax Benefits

• Synergy

• Arresting downward trend

• Creating value to stakeholders

• Risk reduction

• Balancing product cycle

• Market leadership

• Market penetration

• Deploy surplus funds


2011 Page 31

6.2. Merger and Acquisition in Indian Insurance industry

1. Bajaj Auto Limited and Allianz AG: Bajaj Allianz General Insurance Company

Limited

Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj Auto

Limited and Allianz AG of Germany. Bajaj Allianz General Insurance came into existence on

2nd May 2001, when it got certification of Registration from the Insurance and Regulatory

Development Authority. Bajaj Auto has a share of 74%, whereas Allianz has the remaining

26%. In the very first year, the company made a strong position for itself in the industry and

was reckoned amongst the top private insurers.

Bajaj Allianz serves customers in all areas of General and Health Insurance as well as Risk

Management. It has in-depth knowledge of the local market and extensive distribution

network with expertise, stability and experience. It has a capital base of Rs. 147 crores, and is

allowed to serve both the General and Health insurance.

It has achieved AAA rating, by ICRA Limited and has the highest claims- paying ability and

a stable position in the market. In a 2006 survey, Business World has rated it among the Most

Respected Companies, putting it at No.2 position in Insurance sector.

The Company provides the following products under general insurance:

• Travel Insurance

• Asset Insurance

• Health Insurance

• Corporate Insurance

2. ICICI bank and Prudential plc: ICICI Prudential Life Insurance Company

ICICI Prudential is a joint venture between ICICI bank and Prudential plc, both having

strong operations in their respective countries. ICICI bank is one of the leading banks in

India providing quality financial services and Prudential is an international financial service

provider headquartered at United Kingdom. ICICI and Prudential have respective shares of

74% and 26%. The Company started operating in December 2000. Currently, total capital

with the company is Rs. 18.15 billion.

ICICI Prudential was the first insurance company in India to receive a National Insurer

Financial Strength rating of AAA (Ind.) from Fitch ratings. It has been given the honour of

being among the Most Trusted Brands in the industry by Economic Times for 3 consecutive


2011 Page 32

years. It has a network of 450 branches, over 1, 50,000 insurance advisors and 18 bank

assurance partners.

3. ICICI Bank Limited and Fairfax Financial Holdings Limited: ICICI Lombard

General Insurance

ICICI Lombard General Insurance Company Limited is a joint venture between ICICI Bank

Limited and Fairfax Financial Holdings Limited. ICICI bank is India's second largest bank;

Fairfax is Canada-based, engaged in general insurance, reinsurance, insurance claims

management and investment management.

ICICI Lombard General Insurance Company commenced its operations in general insurance

business in August 2001.ICICI Lombard is India's number one private insurance company; it

is also the first general insurance company to be given certification of ISO 9001:2000. The

company provides simple and fast documentation, fast claims settlement, online policy

issuance, and comprehensive product line.

It has also been given AAA rating by ICRA for having highest claims paying ability. In the

very first year of operations, it was able to reach financial breakeven and achieve

underwriting breakeven in the second year.

4. Aditya Birla Group and Sun Life Financial Inc: Birla Sun Life Insurance Company

Limited

Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between Aditya Birla

Group and Sun Life Financial Inc. BSLI started functioning in March 2001 after getting the

certificate of registration from IRDA.

Birla Sun Life Insurance Company Limited introduced unit Linked Life Insurance Solutions

in India. Within a short span of time it was able to establish itself as a leading player in the

Private Life Insurance Industry. It has been innovative and come up with customer-centric

products to provide safety and services. The company has web-enabled IT systems for better

customer services and a strong distribution channel which is easily approachable. The

company shows corporate governance and a high degree of transparency in all business

practices. It has professional knowledge and global expertise of Aditya Birla Group.

Birla Sunlife Insurance has been providing first class financial solutions to its customers and

has been amongst the top three private sector life insurance companies.


2011 Page 33

5. Tata Sons and American International Group, Inc. (AIG): TATA AIG General

Insurance

Tata AIG General Insurance Company Ltd. is a joint venture between Tata Sons and

American International Group, Inc. (AIG). The Tata Group is holding 74 per cent stake and

the rest 26 percent is held by AIG. The company has got the expertise, knowledge and

strength of both the organizations.

Tata AIG General Insurance Company was founded on January 22, 2001. It offers general

insurance in various categories, such as automobile, home, personal accident, travel, energy,

marine, property and casualty and specialized financial solutions.

Jamsetji Tata founded Tata Group in 1860s. It has an estimated turnover of around US $

14.25 billion. It has spread its operations in various fields such as steel, power, hotels,

airlines, software services, communications, etc. Some of its major projects have been Tata

Tea, Tata Steel, Tata Chemicals, Titan, Tanishq, Voltas, Westside and Tata Motors. Its

imprints are made on the telecommunication and technology sector. Regarding

telecommunications, it is the largest international long distance service provider.

Approximately two- third of the equity of Tata Sons is held by a host of national institutions

in science and technology, medical services and performing arts. By combining the ethical

values with business acumen and fulfilling its commitment to the nation, it has become one of

the largest groups in India.

American International Group, Inc. (AIG) is the leading international player in insurance and

financial services. Its network spreads across 130 nations. AIG member companies serve all

types of customers, be it commercial or individual. AIG is among the leading insurers and the

largest underwriter of insurance. Aircraft leasing, financial products and trading are some of

the services offered by AIG. AIG has a global expertise of fulfilling the customer-centric

needs. It has specialized investment management capabilities in equities, fixed income,

alternative investments and real estate. AIG's stock has been listed in the New York Stock

Exchange as well as stock exchanges in London, Paris, Switzerland and Tokyo.


2011 Page 34

Table 6.1: M&A happened in the Indian insurance sector

Name of the

Company Indian company Foreign company Area

HDFC Standard Life HDFC Standard Life Life Insurance

Max New York Life Max India New York Life Life Insurance

ICICI Prudential Life ICICI Bank Prudential, UK Life Insurance

Om Kotak Mahindra Kotak Mahindra Old Maruthi, South Africa Life Insurance

Birla Sunlife Aditya Birla Group Sun Life, Canada Life Insurance

IDBI-Federal IDBI Federal and Fortis Life and General

Bajaj Allianz Bajaj Auto Allianz AG, Germany Life and General

Aviva Dabur Investments Aviva Plc, UK Life Insurance

TATA-AIG TATA Group AIG, USA Life and General

AMP Sanmar Sanmar Group AMP, Australia Life Insurance

ING-Vysya Vysya Bank ING Insurance, Netherlands Life Insurance

MET Life India Jammu Kashmir

Bank MET Life, USA Life Insurance

SBI Life Insurance SBI Cardiff, France Life Insurance

Royal Sundaram Sundaram Finance Royal Sun, UK Life and General

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


2011 Page 35

7. Technology Initiatives

7.1. Introduction

Worldwide Insurance industry lags behind in technology till 20th century. But later Insurance

industries find the need of technology in order to meet the needs of clients. If we compare the

insurance industry with other financial industries, technologically it is far behind. Some

might say that the insurance industry has made tremendous technological strides despite great

challenges. Well, while banks and investment companies have emerged on how to open

accounts online, and collect relevant data, and transfer money and provide multiple service

categories, and not have to deal with issues such as insurance policies for the submission of

multiple application to cover temporary needs, and approvals that add layers of complexity to

the process of insurance. There is no doubt that the issue of the complexity of insurance and

other financial products that do not.

7.2. Need and Challenges to have Technology

Insurance companies have the ability to use internal legacy systems to new technology or opt

for third party software and systems to use. Creating sustainable systems online is a difficult

task. For many insurance companies, switching to an online purchasing system is expensive,

time consuming and difficult to maintain. In fact, many insurance companies have introduced

online systems with much fan fare, only to pull the plug immediately, due to maintenance and

other issues.

Apart from cost, another major concern for online transactions is security. This is the main

obstacle to an insurance company is willing to participate in online community development

intermediary. All entities (insurance offices, retail and wholesale online brokers) must work

together to ensure the privacy, state control and individual licenses broker and agent licensing

and compliance with other laws. Without a single security and the process of privacy, many

brokers and operators are reluctant to use online services.

Another main reason industry has not fully embrace done-stop-shop platform is that many

insurers would like a part of the race head-to-head to be, if that would be involved in a multi-

line insurance platform. But soon, we will not mention. Ultimately, consumers will force the


2011 Page 36

insurance industry to change. When customers expect their brokers to quickly find the best

policy at the best price, brokers will force the issue with the carriers.

The insurance industry is faced with how to interact with customers and maintain in an effort

to stimulate growth and profitability. Insurance companies that want to be leaders in their

sector are focussing on three innovative technologies, social networks, telematics and SOA.

A study by A.T. Kearney finds that the three important innovative technologies that are

essential for insurance companies to become industry leaders are social networking,

telematics and SOA. Chief Information Officers (CIOs) are challenged to be leaders in

innovation to overcome and effective use of technology to constantly challenge the insurance

industry.

In insurance industry, all companies are adopting a business strategy similar and consistent,

as new ways to grow and find success. For many of the research strategies of wealth and

efficiency of interaction with customers, improve the technological day more. Social

networks, telematics and service-oriented architecture (SOA) all are in the mix and units of

this change.

The study of A.T. Kearney included interviews with more than 150 leading executives in

technology from around the world. The results indicate that social networks, telematics and

service necessary to achieve growth and competitiveness. Discusses all of the following in

more detail, including how each technology can play a role in the transformation of the

insurance industry.

7.3. Role of Social Networking

Insurance companies have the new technology to run efficiently. The benefits of IT, the

importance of automation, the use of information to acts as an insurance underwriting,

claims, marketing, etc., are described in this chapter. Change with the technology sector of

the insurance in place with unprecedented speed, travelling further and more completely

affects companies never expected. The business drivers driving insurers to look for

technologies and business processes that are very different from what they have before.

Driving forces such as globalization of markets, merger and acquisition activity, and absolute

need for strategies to determine market segmentation, forcing companies are the move age of


2011 Page 37

information at an unprecedented rate. Who does not want to take more risks is left with

unsatisfactory levels of the company, falling profits and, inability to survive.

More insurers are using social networking. Some companies are using their Facebook sites to

build awareness among consumers and in the process of evaluating and selecting an insurer.

State Farm uses its Facebook page to work with customers and customer service, a major

component of the ongoing strategy to improve clients are connecting to.

Social media is also a way to connect agents and brokers to insurance companies, the creation

of communities with the power to impact on product development, sales and marketing.

Progressive Facebook pages (with Flo) are probably the most popular in the industry and

explain why the combination of social media with a popular campaign is a good way to

communicate product information.

Some in the insurance industry are turning to the next step in commitment to social media

with their followers in the "challenges". How Frito-Lay uses Facebook and YouTube every

year to challenge users to create a new Doritos commercial to air during the Super Bowl, the

insurer Aflac the "10-Second Challenge" commercial competition has generated more than

180 video contributions, which has seen over 250,000 times on Facebook and aflac.com.

Social networks also have the opportunity to save costs in an application, for example, some

insurance providers to offer premium is lower for banks that use social networks to identify

borrowers at risk of banks using the software. SAS, among others, to check the 'Association',

who are known criminals and isolating patterns that suggest the potential for fraud,as

technology becomes a major social network, we believe that insurance companies can take

advantage of this opportunity. Although the financial value to businesses is still not

completely clear, the potential to improve our products and services and influence the target

consumer is perfectly clear.

7.4. Role of SOA in Insurance industry

Service-oriented architectures or SOA, are considered among the most promising hidden

technology. Companies to make their applications and computing resources (such as

customer databases and catalogs of suppliers) are available on a unitary basis or through an

intranet or Internet. Not surprisingly, the SOA gain traction in the insurance industry,

especially as put together a large, reliable systems and legacy systems used in different ways,


2011 Page 38

such as e-commerce. Insurer is using SOA to share customer information with business units,

and also cut costs with new software applications development to capitalize on these services.

Other uses SOA to integrate legacy and new applications. Both companies understand that

success in the insurance (or any business, for that matter) that requires the functionality of

updating and using the existing infrastructure as SOAs become more popular as more

insurance companies still consider their IT architectures as strategic assets.

7.5. Technologies that helps in transformation of Insurance industry

According an article of Mr Anthony O'Donnell in conference “2011 Insurance Technology

Outlook”, which held on Jan-2011 hot technologies that helps in transformation of insurance

technology in coming years are:

• Data Management

• Business Intelligence and Predictive Analytics

• Open Standards Architecture

• Cloud Computing/SaaS

• Social Media

• Mobile Technology

7.5.1. Data Management

Insurance companies have plans to processing, the success of their projects on the quality and

availability of improved data. So they invest in a variety of information technologies,

including data warehouse, data storage and metadata initiatives, says Karen Pauli, Research

Director, Insurance, Tower Group (Needham, MA). It is not possible to implement a

meaningful strategy or the regulations, no data in usable condition. Insurers have recognized

only limited progress in the liberation of data in tables and isolated local databases.

7.5.2. Business Intelligence and Predictive Analytics

Insurance companies are sitting on a goldmine of customer and operational data, and they

recognize that they are comprehensive Business Intelligence (BI) to use these insights to

improve the customer, develop new products and markets, and online resources to the point

where their performance relative to the accelerating. Hand in hand with the interest in BI,

predictive analytics is to help insurers with premiums and claims leakage by driving better

underwriting decisions and to help eliminate fraud.


2011 Page 39

In life insurance arena, the airlines are making increasing use of heterogeneous data to better

predict mortality experience, successful producer, surrenders, and tend to buy different items.

Towards the industry in general, insurers will use predictive analytics to better manage

through difficult economic times. Insurance companies continue to invest in better

technology, which seeks to identify profitable growth opportunities in a hyper-market.

7.5.3. Cloud Computing/Saas

Many insurers perception about cloud computing is not a risk / reward proposition, but the

two activities, however, is likely to boom in the cloud-based applications, some e-mail, CRM,

and even the political administration of P & C Insurance. After many years of careful

exploration into the cloud computing, Insurers becoming more comfortable with the use of

IT, as the tested model. CIOS two leverage cloud-based services up and down the stack, from

infrastructure and services at the request of two applications.

7.5.4. Mobile Technology in Insurance industry

Mobile commerce, generally defined as conducting information inquiries and transactions

through the use of mobile devices via wireless communication, is considered the next big

wave of investments and implementation of information technology. Although plenty of

research available on the commercial side of mobile technology, there is very limited

research on the strategies and M-commerce applications. These are the factors that influence

successful introduction of mobile commerce in insurance industry.

• If the system is based on personal mobile commerce technologies Digital Assistant

(PDA) for the insurance industry.

• Whether individual differences in cognitive fit of insurance implications of mobile

use PDA-commerce system.

• Which of the three major insurance tasks is better suited for the PDA technology.

• The technology attribute affects 4 Which PDA is best for which type of insurance.

PDA mobile commerce system is in fact suitable for the insurance industry. With regard to

the impact of individual differences, cognitive style and computer self-efficacy important

factors affecting the proper implementation of PDA technology for insurance tasks predicted.

Counter conventional wisdom, other demographic variables such as age and gender prove to


2011 Page 40

be insignificant. Among the three major insurance companies’ tasks, mobile PDA technology

offers the highest level of customer support in post-contract, then recruiting new insurance

contracts and tax and legal advisory information services.

Insurers are not always known for the latest on the media when it comes to technology

because of the adequacy of old systems is to reduce administrative costs and the basic

instincts of the conservatives. However, changing the business value and convenience

through innovative technology created compulsory insurance for their business models and

take delivery of affordable, high-payback, but meeting the challenges of technological

solutions for increasing amounts of information in real time and costs.

The industry is keeping a watchful eye on innovations taking place in areas similar to BFSI

and responds with the launch of low-cost and high ROI technology enablers such as mobile

and wireless technologies.

This is a fundamental change, the value proposition of mobile solutions for most insurers

have been. The change is accelerating the speed and convenience of business-enablement m

directed its components, such as producers, consumers, employees and suppliers through

information and transaction services. This is in direct contrast to the early days of e-mail

communication alone. Mobile Computing has acquired the necessary importance of insurers

in the IT budget dollars and enables m-SFA for its stakeholders and customer management.

Because of the ubiquity of mobile computing, there was a growing need for more services for

agents and consumers with mobile devices and the demand seems to intensify over time were

on offer. Through mobile phones, insurers have good tools to equip its agents in real-time

information and contacts. Start mobile applications is becoming increasingly popular,

especially in the United States, for insurers who want to create a new brand image.

Some of the major insurers in mature markets have proactively mobile applications to their

customers for the submission of applications, photos, random information and assistance in

the field as a vocation and location of shops, hospitals, regulators, etc. The insurers are also

accelerates the process of affirmation m rolled to their adjustment to field a significant

reduction in the overall cycle of political demand and operating costs. Days are not far when


2011 Page 41

mobile geo-targeting solutions through personalized and localized the interaction and

maintenance of existing and potential customers.

Some insurers do not have the mobile strategies into their business processes; others are

technology leaders in the insurance industry to mobile customers. Carriers have developed

smartphone applications with functions of marketing payments to insurance buyers about the

risks. The main features of smartphone applications for insurance, most cameras and GPS.

Some of the most popular applications include insurance for auto insurance, the little easier to

adapt to the smartphone interfaces with other types of insurance. The impact of mobile

technology extends to the workplace in insurance.

The space now includes mobile applications, rich in features and functionality for agents,

brokers, risk managers, claims adjusters and other insurance professionals. Distributed

workers who benefit has always been important in insurance, in real time from the

convenience of portable devices. Mobile applications are also influenced Software

Assurance. Other suppliers and cheaper, the emphasis on ease of use, social, faster release

cycles, and open-source approach to application development. All these aspects of

application development have the potential to make, insurance and agile software update.

Mobile applications and platforms are becoming more common in the insurance industry.

Insurance companies, which have to invest in mobile technologies an advantage in attracting

and retaining customers, especially young people who rarely see expect officers in person,

but that immediately communicate with the insurers on their handheld devices. Because

many insurers in markets with little or no growth, in which customers often purchased from

other insurers, can be mobile systems is an important competitive advantage to draw. Hence

the future is of innovative strategies for communication and service on handheld devices.


2011 Page 42

8. Marketing Initiatives

8.1. Introduction

As we know that Marketing is important to any company, it is essential in Insurance industry.

Marketing is a continuous activity in any insurance and includes various functions likesales

promotion, advertising, public relations, efficient servicing, monitoring etc., whichis achieved

by the marketing organization. A typical insurance company may includethe following

marketing personnel, whose designations however may vary.

Regional Marketing Manager

Senior Branch Manager

Asst. Branch Manager

Development Officers

(Select, train, motivate, supervise agents, liaise with policy holder etc.

Permanent employees, also called Field Officers in General Insurance)

Agents

(Canvassing policies, sale & service of policies, avoid adverse selection, settlement of claims.

Agents can be Part time, Full time or Career agents)

As we are mainly concentrated on life insurance, let us discuss about marketing strategies of

LIC and Private Companies that provide life insurances.

8.2. Marketing Strategies of LIC

In consonance with the changes taking place in the insurance market, the corporation

has undergone a transformation, simultaneously requiring a revamp in its image.

Systematic and focused PR initiatives and wide spread publicity have resulted in

markedly improved visibility. The corporation has emerged with a much younger and sleeker

image.


2011 Page 43

A conscious effort was made to bring about a transformation in the corporate image. Through

various campaigns, the corporation tried to depict the organization as one oriented

towards the younger generation. The corporation advertising campaigns assisted the

marketing strategies.

8.2.1. PR Activities for Consumer Relations

The business of insurance is purely service which cannot be seen or held. Hence, the

consumer relations activities of LIC concentrate on the customer public and building relations

with prospective customer.

The corporation has time and again made endeavours to r each out to the consumers,

interact with them and keep them satisfied. The corporation tries to achieve its objective

through a number of means.

8.2.2. Oral Communication

Oral communication with the consumer public is the most effective means of

presenting facts and creating understanding of the organizations policies and practices.

8.2.3. Employee-Consumer Communication

The harmonious relationship that LIC has, through the years, built and maintained with

its customers has only been possible due to its dedicated and committed team of

Development Officers and scores of Insurance Agents throughout the country.

8.2.4. Press Conferences

Press Conferences are organised to announce new appointments of top executives,

introduction of new schemes, etc. Audio-Visual Communication Television and Radio

broadcasts are a basic medium of consumer communication Television and Radio

advertising. The corporation’s advertisements reached nearly 25crore people through over 50

campaigns. There were 79 hours of TV advertising and 408 hours of Radio advertising.

8.2.5. Trans-slides

The Corporation has placed trans-slides at strategic places, like Railway Stations and

airports, for maximum exposure to public at large printed communication. At LIC printed

communications are used in conjunction with oral communication media.


2011 Page 44

8.2.6. Press Release:

Press releases are frequently handed out to the media by the local PR department on behalf of

the company. These generally comprise of any subject or issue concerning the

company, containing information for policy holders or any item of news value to the

media and its readers.

8.2.7. Journals and Publications

The corporation takes out its annual working results and several other publications from time

to time to keep the public abreast of the happenings and achievements at LIC.

8.2.8. Financial Results

The annual financial report of the corporation is published in the National dailies and is also

circulated amongst the shareholder s to keep them informed. It also aims attracting new

investors.

8.2.9. Website

The Corporation’s website www.licindia.com gives information about the corporation’s

products, services, subsidiaries and addresses of branches and about premium payment

through the internet. It also provides Press releases, News sections, Online policy

status Online Premium Payment.LIC has tied up with HDFC Bank, ICICI Bank, UT I

Bank, Bank of Punjab, Global Trust Bank, Corporation Bank, The Federal Bank Ltd.,

Citibank, and service providers like BillJunction.com, timesofmoney.com to offer the

online premium payment facility to its customers in select cities.

8.2.10. Information Kiosks

The corporation has installed online information kiosks at prominent places across the

country. This provides information about the Products, services and policy status

reports to the customers.

8.2.11. Community Relations

LIC regularly provides µHealth vans to various organizations across the country. The


2011 Page 45

corporation also sponsors many sports events at the national level. Numerous publicity

projects with a social purpose are undertaken at the zonal level. Recently the North

Zone (Delhi) associated itself with the Perfect Health Melas to propagate the cause of good

health.

8.3. Marketing strategies of ICICI Prudential

Under private insurance companies, we discussed about the marketing strategies of ICICI

Prudential Life Insurance. ICICI Prudential Life Insurance Company is a joint venture

between ICICI Bank, a premier financial powerhouse, and Prudential plc, a leading

international financial services group headquartered in the United Kingdom. ICICI

Prudential was amongst the first private sector insurance companies to begin operations

in December 2000 after receiving approval from Insurance Regulatory Development

Authority (IRDA).

Marketing strategies are:

8.3.1. The Target audience

Representing an ideal mix of medium to high net worth individuals: The consumers

most disposed towards buying life insurance. Middle-aged professionals, primarily male,

salaried and self-employed, age group: 28 – 45 years, household income: Rs.20, 000 and

above.

8.3.2. Creative Strategy

To get the consumer to re look at Insurance as a means to lead a worry free life and not

as a necessary evil. When ICICI Prudential Life Insurance first began operations, the task

was to present the visiting card of the company to the public at large and build credibility

and stature and to give the consumer the confidence that 'here was a company that could

be trusted to invest funds with'. This required a corporate campaign, which started

with advertising to establish the brand, build awareness and give the brand a larger

than life image. To this effect the core brand insight highlighted was "As head of the family

it's my responsibility to take care of my loved ones and protect them from the

uncertainties of life", summed up in the advertising idea.


2011 Page 46

Over the last few months, ICICI Prudential has been advertising in outdoor, TV and

press. The company launched a corporate television campaign “Saat-Phere” which took

the emotions and thoughts of initial Sindoor corporate film a few steps further. The

film highlights the strength of promises that a husband makes to his wife, through the

depiction of everyday situations, and then goes on to emphasize that ICICI Prudential

will stand by the husband to help him fulfil all these promises. The TV campaign has

also been extended to outdoor. The company has also undertaken press and internet

campaigns to inform customers about benefits of some of its products, particularly

retirement solutions, through the ‘Chintamani campaign’.

Once the corporate image and brand identity were established, and as the company expanded

and its product range grew, the next phase of communication was to give the

consumer rational and tangible reason to buy - first of all insurance and secondly from

ICICI PrudentialLife. This was tackled through product-specific advertising, such as for

ICICI Pru Smart Kid, retirement solutions or Lifetime.

8.3.3. The Creative execution

Through television channels: Building image and creating a differential in the most creative

and compelling manner. The creative execution heightened the emotional connect with the

ICICI Pru brand- Indian; satisfaction of knowing that one’s loved ones are protected.


2011 Page 47

Fig. 8.1: ICICI Prudential

Source: www.iciciprulife.com

8.3.4. Other Communications:

Other programs included direct mail, PR of communications campaign in press & TV,

website marketing; and database generation through channels. Other initiatives included

tie-up with the Dabbawalla Organisation in Mumbai for a direct marketing exercise, to

talk to the customer through a non-cluttered route, and thereby have a higher impact. The

direct mailer was about ICICI Prudential’s retirement solutions and the tax benefits that

one can avail of buy investing in any of these. About 100,00 direct mailers were attached

to the dabbas, in areas such as Churchgate, Bandra and Andheri where there are mostly

office-goers.

ICICI Prudential Life Insurance has also announced a strategic distribution tie-up with

HariyaliKisaan Bazaar, the rural business arm of DCM Shriram Consolidated Ltd

(DSCL). As a partner, HariyaliKisaan Bazaar can now distribute ICICI Prudential's


2011 Page 48

protection, wealth creation, retirement solutions and health insurance products to

customers across the its growing number of rural business hubs in the country.

In addition to advertising, the company has also initiated several activities to raise consumer

awareness about life insurance and ICICI Prudential. It includes seminars plus ICICI

Prudential regularly holds consumer awareness meets on µthe need for retirement

planning in different cities such as Pune, Aurangabad, Coimbatore, Nagpur, Bangalore

and Mangalore. These are very well attended and have contributed significantly towards

increasing awareness about the category and the company. Apart from this, company also

entered into alliances with telecom companies, as well as companies like BPCL and

Dominos.


2011 Page 49

9. Future Outlook

Since the liberalization of Indian Insurance Sector in 1999, the growth of Insurance industry

increased dramatically. Opening the market to private players and foreign investment,

encouraged lot of Private Indian and Foreign companies to tap insurance market. In 1999,

state owned Life Insurance Corporation (LIC) was the only company that provided Life

Insurance in India. But now in 2011, the numbers of companies that provide life insurance to

Indians are 24, in which 1 is state owned LIC which holds 75.68% of market share and other

23 are private players accounts market share of 24.32%. Considering the entry of more

private players and opportunity of tapping untapped 95% of market, Indian Insurance

Industry is expected to grow at an annual growth rate of 15-20%.

9.1. Factors favouring the growth of Insurance Industry

• The estimated annual growth of India’s GDP of around 7% to 8% will make Indian

economy as the 3rd biggest economy in the world after China and United States in

2020 providing a huge opportunity for the growth of Insurance sector as it is a capital

market. Currently Life Insurance sector contributes 4% to the total India’s GDP and is

expected to increase between 5.1% to 6.2% in 2012.

• Most of the Indian’s perceive Life insurance as a tax benefit instrument and even the

insurance agents sold those policies as tax benefit instruments, but the increase in

competition and aggressive advertisements and marketing strategies makes the people

aware of the requirement and actual benefit of the insurance. This makes more people

to buy life insurance policies. This awareness is expected to grab the major people

from untapped Semi-urban and rural market.

• Understanding the growing insurance market, the Indian Government passed a bill in

2008 to increase the Foreign Direct Investment (FDI) in Insurance companies to from

the current 26% to 49%. If this revamping of Insurance act, 1938 accepted by Indian

Parliament, the Foreign Investment increases and it also attracts more new insurance

companies to enter Indian market, creating a good path for Insurance sector in future.


2011 Page 50

• The rising income level and the dramatic demographic shifts will results in the

emergence of new markets: The rising income level results in around 2.3million

households to generate income more than 10 lakhs in 2012 and is likely to increase to

more than 9.5million household in 2025.

• Even the middle class average income is likely to increase from 5 to 10 lakhs per

annum containing 37.7 million household in 2012 and lower end people with an

income from 90000 to 2 lakh comprising 107.7 million households in 2012 provides

new opportunities to for insurance companies to tap in to increase policy holders.

• The increase in per capita income allows the emergence of larger insurable population

which leads to the purchase of protection insurance products, thus increasing the

household insurance premium from 1300 to 3000 - 4000 in 2012. This also like to

increase the rural penetration from 25% to 35-42% and low income segment in urban

India will rise from 30% to 40%.

• The Indians do not prefer the Term policies as the people won’t get back any

monetary benefit if the insured person doesn’t die within the term of policy. To face

this problem, LIC after the approval of IRDA, provided an insurance policy which

combines both Endowment and Term policy so that the insurer can get the insured

money if he/she died during policy term and he/she also can get his/her cash value

back once the term over under endowment policy.

• According to the Old Age Social and Income Security report,(OASIS) there will be

around 113 million people over 60 years of age in 2016 and around 117 million in

2026. But out of these only 10% to 11% of people hold formal old age security

mechanisms. The rise is because of the increase in medical technology, the average

Indian lifespan is set to around 80. So it is expected that these people live around 20

years non-earning. Hence, to take care of their financial needs for medical and other

day to day requirements, pension plans provides a better platform and thus people

purchasing these policies is likely to be increased. Currently the private insurance


2011 Page 51

companies aggressively selling their pension plan policies than LIC as they provide in

low premiums and other benefits for the insurer.

• Government has reduced the number of years after which companies can raise capital

through an initial public offering (IPO) from 10 years to five years.

The life insurance sector has witnessed the launch of innovative products such as Unit

Linked Insurance Plans (ULIPs). Other traditional products have also been

customised to meet specific needs of the Indian consumers.


2011 Page 52

10. Global Comparison

In life insurance business, India ranked 9th among the 156 countries for which data are

published by Swiss Re. During 2009, the life insurance premium in India grew by 10.1 per

cent (inflation adjusted). However, during the same period, the global life insurance premium

had contracted by 2 per cent. The share of Indian life insurance sector in global market was

2.45 per cent during 2009, as against 1.98 per cent in 2008.

As per the World Insurance Report published by reinsurance major Swiss Re, the global

insurance premium for the calendar year 2009 was USD 4066 billion, which is 1.1 per cent

(inflation adjusted) lower than USD 4220 billion reported during the previous calendar year

2008. The share of life insurance business was 57 per cent in total premium collection. While

life insurance business collected USD 2331 billion as premium, the same for non-life

business was USD 1735 billion. During 2009, the premium in life insurance business fell by

2 per cent on account of double digit decline in premium collection in USA and UK.

However, compared to 2008, when life insurance premium fell by 5.8 per cent, this is an

improvement on account of the improved sentiment in the calendar year 2009.

During year 2010, it is expected that overall premium growth in the industry will turn

positive and profitability and balance sheets will continue to improve. The prospects for life

insurance in 2010 are promising as growth resumes in the sector. A further recovery of the

financial markets is likely to stimulate the overall growth of unit-linked products and allow

insurers to continue strengthening their balance sheets.

Ernst & Young research identified the issues that will influence the growth of insurers in

2011: They are

• Dramatic Demographics shift and change in consumers buying pattern

• Developing strategies according to the local and global regulatory developments

• Accelerating business growth by developing dependable capital source

E&Y also predicted that by 2015, approximately 39% of the world’s economy is to be from

Asia-Pacific.


2011 Page 53

Considering these factors, the Asia-Pacific markets has been classified as mature, developing

and emerging markets

Table 10.1: Asia-Pacific insurance market by category

Category Markets

Mature

Australia

Hong Kong

Japan

Korea

New Zealand

Singapore

Taiwan

Developing

China

India

Malaysia

Thailand

Emerging

Indonesia

Philippines

Vietnam

Source: Ernst & Young, 2011 global insurance outlook

The global economy has slowly started recovering from the economic recession. Lagging

employment, coupled with declining aggregate wages, a weakened residential and

commercial real estate market, tight credit and a behavioural shift on the part of consumers

from consumption to savings are factors contributing to a delayed recovery. Even though the

financial crisis has not affected the insurance industry as much as the banks; it still has its set

of issues.

• Managing risk

• Promoting compliance

• Growing globally

• Lack of innovation around products and delivery

• Adapting to demographic shifts


2011 Page 54

Comparison of life insurance premiums, penetration and density for developed

countries

Table 10.2: Developed countries Life premiums

Country

Life premiums in 2009

Premiums,

US$ million

Penetration,

% of GDP

Density, US$

per capita Rank

Australia 32,468 3.4 1,524.80 15

France 194077 7.2 2,979.80 4

Germany 111,776 3.3 1,359.70 6

Singapore 9,057 5.1 1,912.00 28

South Korea 57,436 6.5 1,180.60 8

United Kingdom 217,681 10 3,527.60 3

United Arab Emirates 732 0.4 159.2 46

United States 492,345 3.5 1,602.60 1

Source: “World Insurance in 2009,” Swiss Re, June 2010, Insurance Regulatory and Development Authority

website, www.irdaindia.org, accessed

According to the Swiss Re, United States is the largest economy in the world and is also the

World’s largest Insurance market with the premium of USD 1,149,758 million (both life and

non-life) as of 2009. Japan stands as the second largest insurance market with a total

premium volume of USD 518070 million (both life and non-life). On comparing India with

these countries, even though the penetration of life insurance is much higher than USA i.e.

penetration of insurance in India is 4.6% and USA is 3.5% in life insurance but still India

accounts only to the total premium of USD 65085 million (both life and non-life) and ranked

as 12 largest insurance market in the world and with respect to Life insurance USA and India

ranked 1 and 9 respectively.

We compare USA and India on various aspects and found that the total number of insurance

companies is much higher in USA than in India resulting to more varieties in policies and

premiums. The per capita income is much higher in USA so the disposable income with

people in USA is much higher than Indians. The other favourable reason for USA is, most of


2011 Page 55

the people are aware of Life Insurance and its importance but Indians still perceive insurance

as a tax saving tool.

Comparison of life insurance premiums, penetration and density for developing

countries

Table 10.3: Developing countries Life premiums

Country


Premiums,

US$ million

Penetration,

% of GDP

Density, US$

per capita Rank

Bangladesh 636 0.7 3.9 53

Brazil 24,781 1.6 127.9 20

China 109,175 2.3 81.1 7

India 46,206 4.6 48.1 9

Indonesia 5,066 0.9 22 35

Malaysia 5,682 2.9 206.9 32

Mexico 7,688 0.9 70.1 31

Pakistan 543 0.3 3 56

Philippines 1,563 1 17 44

Romania 533 0.3 25.1 55

Russia 636 0 4.5 52

South Africa 28,773 10 574.2 16

Sri Lanka 238 0.6 11.8 65

Taiwan 52,204 13.8 2,257.30 10

Thailand 6,212 2.4 91.7 33

Vietnam 671 0.7 7.6 51



According to Swiss Re, among the key Asian markets, India is likely to have the fastest-

growing life insurance market, with life premium poised to grow at a CAGR of 15% for the

next decade, slightly faster than the 14% expected for China. The growing consumer class,

rising insurance awareness and greater infrastructure spending have made India and China the

two most promising markets in Asia. Europe and the Americas represent relatively mature


2011 Page 56

insurance markets. Though India’s penetration appears higher, it is not excessive, given the

high level of investments in insurance policies underwritten. Nonetheless, besides India,

Taiwan is the other Asian market that shares similar characteristics. Taiwan has the highest

insurance penetration in Asia, largely driven by the immense popularity of ULIPs.

Comparison of life insurance premiums, penetration and density for BRIC countries

Table 10.4: BRIC countries Life premiums

Country


Premiums,

US$ million

Penetration,

% of GDP

Density, US$

per capita Rank

Brazil 24,781 1.6 127.9 20

Russia 636 0 4.5 19

India 46,206 4.6 48.1 9

China 109,175 2.3 81.1 7



According to Ernst & Young research and Swiss Re, the so-called BRIC nations (Brazil,

Russia, India and China) are developing markets and their Insurance sector is currently under

growth phase. Out of these 4 countries, the penetration of life insurance in India is very high

with 4.6% and followed by China with 2.3% penetration and Brazil with 1.6%. Russia

accounts 0% penetration i.e. only negligible amount of Russians are covered under life

insurance policy but the penetration of General insurance in Russia is 2.5%, which is higher

than all the other BRIC nations. Even though the penetration of life insurance in India is

higher than China, the premium of China is greater than India. This is because of the

government policies, policy premiums and mainly the population. The population of China is

much greater than India and hence, the policy holders are more in numbers in China than in

India. As a result the contribution of China to the World is 4.68%, whereas India’s share in

the global life insurance market is 2.45% only. Brazil and Russia has a world share of 1.06%

and 0.03% respectively during 2009.


2011 Page 57

Fig. 10.1: Average Insurance growth rate by region (1999-2009)

Source: Ernst & Young, Windows of opportunity: 2011 global insurance outlook

Ernst & Young research about the growth rate of countries in insurance industry by regions in

Fig.10.1. shows the region with more developing countries south and East Asia had a high

growth rate in both Life and Non life insurance. The growth is more than twice the growth

rate of the World. With developing countries like Brazil, Mexico, etc., Latin America and

Caribbean region also showed a positive growth more than the growth of World. Whereas the

growth rate in Western Europe and North America is low as the countries in those regions are

matured and developed.

Fig. 10.2: Predicted GDP by Region

Source: Ernst & Young, Windows of opportunity: 2011 global insurance outlook


2011 Page 58

Ernst and Young research apart from just analyzing the GDP of countries by region, is also

forecast the growth rate for countries by region till 2015. The Fig.10.2 shows that Asia has a

huge market potential and so the GDP growth rate is predicted to be very high. Even

European and North American regions are predicted to have a reasonable which is much

higher than the average growth rate between 1999-2009. This is because the developed

countries in these regions faced a recession and now slowly recovering back. Hence, it is

predicted that the people will have enough disposable income and hence they will invest in

buying policies. But the oceanic and South American regions predicted to have very low

growth rate. Even though these regions consists developing countries like Brazil, etc., These

countries insurance penetration % is very low.


2011 Page 59

11. Conclusion


2011 Page 60

References

1. Insurance Regulatory Development Authority Annual Reports (2007-06, 2008-09, 2009-

2010). Retrieved from

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1.1

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2011 Page 61

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35. Insurance November 2010. Retrieved from

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