changes in index

8/11/2019 Changes in Index

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PROJECT ON

insurance sector in ndia

Bachelor of Commerce-

Banking & Insurance

Semester VI

(2012-2013)

Submitted By

GEETA MEDI

Roll no- 19

GURU NANAK COLLEGE OF ARTS, SCIENCE, AND COMMERCE

G.T.B Nagar Sion (E), Mumbai -400037


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Insurance sector of India.

2

C E R T I F I C A T E

This is to certify that Miss. GEETA MEDI of B.Com - Banking &

Insurance Semester VI (2012-2013) has successfully completed

the project on INSURANCE SECTOR IN INDIA

under the guidance of SUDHA MAM

Project guide

Principal

Course Co-ordinator:

Internal Examiner:

External Examiner:


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Declaration

I GEETA MEDI student of B.ComBanking & Insurance Semester

VI (2012-2013) hereby declare that I have completed the Project on

INSURANCE SECTOR IN INDIAThe information submitted is true and

original to the best if my knowledge.

Signature of the student

Name of the student


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ACKNOWLEDGEMENT

I would like to thank a lot of people without whom this project would

not have been complete. first prof. Sudha mam she was of utmost

help in guiding me structures this project. She helped me throughout

and was always present to help me whenever I had a doubt.

A research can never be over without access to a good library and in

this case I was blessed as our college library, is very well stocked with

books. And the lending policy made life a lot easier. And not to forget

the unconditional support provided by my parents and friends.


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EXECUTIVE SUMMARY:

Insurance sector in INDIA is booming up but not to levelcomparative with the developed economies such as Japan,

Singapore etc. Also with the opening of the insurance sector

to the private players have provided stiff competition

resulting into quality products. Also there is a need to

restructure the Indian Government owned Life insurance

Corporation of India so as to maximize revenue and in turn

profits. IRDA regulations and norms for the allocation of

funds need to have a comprehensive look. In the phase of

declining interest rates and rising inflation the funds need to

be applied in productive areas so as to generate high

returns. Also in terms of clients servicing areas such as

premium payments, after sales service, policy dispatch,

redressal of grievances has to be amended. In the current

scenario, LIC has to provide flexible products suited to the

customers requirements. Also a proper and systematic risk

management strategy needs to be adopted. After the

increase in terrorism and destructive events around the

global world such as September 11 attack on World Trade


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Centre, USTaliban war, US Iraq war etc.. an alternative

to reinsurance such as asset backed securities is emerging

out in the developed economies. A catastrophe bond is one

of the alternatives for reinsurance. Finally some policies

such as pure term and pension schemes needs to be

addressed massively at both the urban and the rural

segment so as to generate high premium income which will

help in the development and growth of the economy.


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INDEX

SR. NO CONTENTS PAGE NO.

1 INTRODUCTION 8

2 INSURANCE SECTOR - A PREVIEW 10

3 LIFE INSURANCE INDEX

(COUNTRYWISE )

13

4 PURPOSE OF OPEN UP THE INSURANCE

SECTOR

14

5 GOVERNMENT / RBI REGULATIONS 18

6 INDIAN PARTNERFOREIGN TIE UP 23

7 LIBERALISE, MARKET STRUCTURE

& ROLE FOR THE REGULATOR

25

8 INVESTMENT AND CAPITAL NORMS 39

9 ROLE OF THE PORTFOLIO MANAGER 41

10 RESTRUCTURING OF LIC & GIC 48

11 POINTERS FOR THE INDIAN

POLICYMAKERS

51

12 SWOT 55

13 TOP 3 INDIAN INSURANCE COMPANIES 57

14 CURRENT SCENARIO 68

15 CONCLUSION 72

16 BIBLIOGRAPHY 73


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INTRODUCTION:

Insurance may be described as a social device to reduce or eliminate

risk of loss to life and property. Under the plan of insurance, a large number

of people associate themselves by sharing risks attached to individuals. The

risks which can be insured against, include fire, the perils of sea, death and

accidents and burglary. Any risk contingent upon these, may be insured

against at a premium commensurate with the risk involved. Thus collective

bearing of risk is insurance.

DEFINITION:

General definition:

In the words of John Magee, Insurance is a plan by which large number of

people associate themselves and transfer to the shoulders of all, risks that

attach to individuals.

Fundamental definition:

In the words of D.S. Hansell, Insurance may be defined as a social device

providing financial compensation for the effects of misfortune, the


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payment being made from the accumulated contributions of all parties

participating in the scheme.

Contractual definition:

In the words of justice Tindall, Insurance is a contract in which a sum of

money is paid to the assured as consideration of insurers incurring the risk

of paying a large sum upon a given contingency.

Characteristics of insurance:

Sharing of risks

Cooperative device

Evaluation of risk

Payment on happening of a special event

The amount of payment depends on the nature of losses

incurred.


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INSURANCE SECTORA PREVIEW :

The insurance sector in India dates back to 1818, when Oriental Life

Insurance Company was incorporated at Calcutta. Thereafter, few other

companies like Bombay Life Assurance Company, in 1823 and Triton

Insurance Company, for General Insurance, in 1850 were incorporated.

Insurance Act was passed in 1928 but it was subsequently reviewed and

comprehensive legislation was enacted in 1938. The nationalisation of life

insurance business took place in 1956 when 245 Indian and Foreign

Insurance provident societies were first merged and then nationalized. It

paved the way towards the establishment of Life Insurance Corporation

(LIC) and since then it has enjoyed a monopoly over the life insurance

business in India. General Insurance followed suit and in 1968, the

insurance act was amended to allow for social control over the general

insurance business. Subsequently in 1973, non-life insurance business was

nationalised and the General Insurance Business (Nationalisation) Act, 1972

was promulgated. The General Insurance Corporation (GIC) in its present

form was incorporated in 1972 and maintains a very strong hold over the

non-life insurance business in India. Due to concerns of

(a) Relatively low spread of insurance in the country.


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(b) The efficient and quality functioning of the Public Sector

insurance companies

(c) The untapped potential for mobilizing long-term contractual

savings funds for infrastructure the (Congress) government set up an

Insurance Reforms committee in April 1993.

The Committee submitted its report in January 1994, recommended a

phased program of liberalization, and called for private sector entry and

restructuring of the LIC and GIC. But now the parliament has given a nod to

the Insurance Regulatory and Development Authority (IRDA) bill with some

changes in the original structure.

How big is the insurance market?

Insurance is an Rs.400 billion business in India, and together with banking

services adds about 7% to Indias GDP. Gross premium collection is about

2% of GDP and has been growing by 15-20% per annum. India also has the

highest number of life insurance policies in force in the world, and total

investible funds with the LIC are almost 8% of GDP. Yet more than three-

fourths of Indias insurable population has no life insurance or pension

cover. Health insurance of any kind is negligible and other forms of non-life

insurance are much below international standards. To tap the vast

insurance potential and to mobilize long-term savings we need reforms


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which include revitalizing and restructuring of the public sector companies,

and opening up the sector to private players. A statutory body needs to be

made to regulate the market and promote a healthy market structure.

Insurance Regulatory Authority (IRA) is one such body, which checks on

these tendencies.


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INDIVIDUAL LIFE INSURANCE COVERAGE INDEX, 1994

COUNTRY NO. OF POLICIES PER 100 PERSONS

Indonesia 2.0

Philippines 5.6

India 12.4

Thailand 14.7

Malaysia 35.5

Hong Kong 69.4

South Korea 70.5

Taiwan 75.2

Singapore 112.6

Japan 198.4

Source: Charted Financial Analyst May 1999. (Insurance in Asia: The

financial times, quoted from Tillinghast study)


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WHY OPEN UP THE INSURANCE INDUSTRY ?

An insurance policy protects the buyer at some cost against the

financial loss arising from a specified risk. Different situations and different

people require a different mix of risk-cost combinations. Insurance

companies provide these by offering schemes of different kinds.

Unfortunately the concept of insurance is not popular in our country. As

per the latest estimates, the total premium income generated by life and

general insurance in India is estimated at around a meagre 1.95% of GDP.

However Indias share of world insurance market has shown an increase of

10% from 0.31% in 1996-97 to 0.34% in 1997-98. Indias market share in

the life insurance business showed a real growth of 11% thereby

outperforming the global average of 7.7%. Non-life business grew by 3.1%

against global average of 0.20%. In India insurance spending per capita was

among the lowest in the world at $7.6 compared to $7 in the previous year.

Amongst the emerging economies, India is one of the least insured

countries but the potential for further growth is phenomenal, as a

significant portion of its population is in services and the life expectancy has

also increased over the years. The nationalized insurance industry has not

offered consumers a variety of products. Opening of the sector to private

firms will foster competition, innovation, and variety of products. It would

also generate greater awareness on the need for buying insurance as a

service and not merely for tax exemption, which is currently done. On the

demand side, a strong correlation between demand for insurance and per


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capita income level suggests that high economic growth can spur growth in

demand for insurance. Also there exists a strong correlation between

insurance density and social indicators such as literacy. With social

development, insurance demand will grow.

Future course of Insurance Business:

One of the main differences between the developed economies and the

emerging economies is that insurance products are bought in the former

while these are sold in latter. Focus of insurance industry is changing

towards providing a mix of protection / risk over and long-term investment

opportunities. Some of the major international players in the insurance

business, which might try to enter the Indian market, are Sun Life of

Canada, Prudential of the United Kingdom, Standard Life, and Allianz etc.

Although the insurance sector is officially open to private players, they still

need a license from the IRDA, which will announce its guidelines in May

2000. Following might be the future strategies of insurance companies.

(1) The new entrants cannot compete with the state owned LIC on price

alone. Due to its size, LIC operates at very low costs and their

premia on policies that offer pure protection are on a par with

comparable schemes across the globe. What the new insurance

companies will probably offer is higher returns than the annualized

9-10% one can hope to earn from LICs policies. This will put

pressure on LIC to offer more attractive returns.

(2) Consumers can also expect product innovations. For instance,


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at present, LIC provides cover for permanent disability and what

the new companies could offer is temporary disability insurance as

well.

(3)

Apart from the basic term insurance, most insurance products

worldwide are sold as long-term investment opportunities with the

protection component being clearly spelt out in the scheme.

(4)

LICs policies are not flexible according to the customers needs.

New entrants have planned to offer universal life and variable life

insurance products that allow the holder flexibility in deciding how

his premia are split between protection and savings. New products

would also enable product combinations that allow greater

customisation.

(5)

Private insurers would compete furiously on the service platform.

These would not only include faster claims settlement and other

after-sales service but there agents would be trained in pre-sales

interaction to usher in a customer-oriented approach. They would

be better qualified in assisting clients in financial planning.

(6)Foreign companies would also use superior software (like APEX) that

will give them an edge over the in-house LIC software. This

technology will help private insurers in product development and

customizing products to suit individual needs.

(7)

The foreign players will probably introduce a lot of innovation and

competition on Surrender value. LIC pays surrender value only after


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three years but private insurance companies are likely to offer sops

by way of better and timely surrender value to clients.

(8)

Access to insurance too will probably become more widespread. Role

of intermediaries would decrease and sale of insurance through

direct channels and banks would increase. Simple products like term

insurance might be sold through the telephone or direct mail to high

net worth clients.

(9)In reaction to foreign players strategies one might expect LIC to

react and drop its premia and upgrade its services.


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BOTTLENECKSGOVERNMENT / RBI REGULATIONS:

The IRDA bill proposestough solvency margins for private insurance

firms, a 26% cap on foreign equity and a minimum capital of Rs.100 crores

for life and general insurers and Rs. 200 crores for reinsurance firms.

Section 27A of the Insurance Act stipulates that LIC is required to invest

75% of its accretions through a controlled fund in mandated government

securities. LIC may invest the remaining 25% in private corporate sector,

construction, and acquisition of immovable assets besides sanctioning of

loans to policyholders. These stipulations imposed on the insurance

companies had resulted in lack of flexibility in the optimisation of risk and

profit portfolio. If this inflexibility continues, the insurance companies will

have very little leverage to earn more on their investments and they might

not be able to offer as flexible products as offered abroad.

The government might provide more autonomy to insurance

companies by allowing them to invest 50 % of their funds as per their own

discretions. Recently RBI has issued stiff guidelines, which had dealt a

severe blow to the plans of banks and financial institutions to enter the

insurance sector. It says that non-performing assets (NPA) levels of the

prospective players will have to be 1% point lower than the industry

average (presently 7.5%). RBI has also stipulated that all prospective

entrants need to have a net worth of Rs. 500 crores. These guidelines have

made it virtually impossible for many banks to get into the insurance


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business. Also banks and FIs who are planning to enter the business cannot

float subsidiaries for insurance. RBI has taken too much caution to make

sure that the new sector does not experience the kind of ups and downs

that the non-bank financial sector has experienced in the recent past. They

had to rethink about these guidelines if Indias strong banks and financial

institutions have to enter the new business. The insurance employees

union is offering stiff resistance to any private entry. Their objections are

(a) that there is no major untapped potential in insurance business

in India;

(b)

that there would be massive retrenchment and job losses

due to computerization and modernization; and

(c) that private and foreign firm would indulge in reckless

profiteering and skim the urban cream market, and ignore the

rural areas.

But all these fears are unfounded. The real reason behind the protests is

that the dismantling of government monopoly would provide a benchmark

to evaluate the governments insurance services.

OPENING UP OF INSURANCE SECTOR :

Indian History: Time to turn the clock back-and open up insurance.

For two years, around 30 foreign insurers have eagerly explored the

nationalized Indian insurance market, preparing to leap in when private


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participation is allowed. But it seems they have an endless wait before the

sector is opened up. That's ironical: in 1947, many of these insurers were

firmly established here. BAT subsidiary Eagle Star, for example, opened

offices in Calcutta in 1894. By 1921, it was doing business with Brooke Bond

and the Birlas. Prudential's first Asia office was opened In India in 1923.

Fifty years ago, India had a bustling, if somewhat chaotic, entirely private

insurance industry. The year after Independence, 209 life Insurance

companies were doing business worth Rs712.76 crore (which grew to an

amazing Rs 295,758 crore in 1995-96). Foreign insurers had a large market

share 40 per cent for general insurance but there were also plenty of Indian

companies, many promoted by business houses like the Tatas and Dalmias.

The first Indian-owned life insurance company, the Bombay Mutual Life

Assurance Society, was set up in 1870 by six friends. It Insured Indian lives

at the normal rates instead of charging a premium of 15 to 20 percent as

foreign insurers did. Its general insurance counterpart, Indian Mercantile

Insurance Company Ltd., opened in Bombay in 1907. A plethora of

insufficiently regulated

players was a sure recipe for abuse, especially because there was no

separation between business houses and the insurance companies they

promoted. The Insurance Act, 1938, introduced state controls on

insurance, including mandatory investments in approved securities, but

regulation remained ineffective. In 1949, Purshottamdas Thakurdas,

chairman of the Oriental Assurance Company, admitted: "We cannot deny


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that, today, there is a tendency on the part of insurance companies in

general to make illicit gains.

Can we overlook the cutthroat competition for acquiring business? And

still worse is the dishonest practice of adjusting of accounts." After a 1951

inquiry, the government was dismayed that companies had high expense

and premium rates, were speculating in shares, and giving loans regardless

of security. No wonder that between 1945 and 1955, 25 insurers went into

liquidation and 25 transferred their business to other companies. This

reckless record stoked the pro-nationalisation fires. The 1956 life insurance

Nationalisation was a top-secret intrigue; for fear that unscrupulous

insurers would siphon funds off if warned. The government resolved to first

take over the management of life insurance companies by ordinance, then

their ownership. The ordinance transferred control of 245 insurers to the

government. LIC, established eight months later, took over their ownership.

General Insurance had its turn in 1972, when 107 insurers were

amalgamated into four companies headquartered in the four metros, with

GIC as a holding company.Nationalization brought some benefits. Insurance

spread from an urban-oriented, high-end business to a mass one. Today, 48

per cent Of LIC's new business is rural. Net premium income in general

insurance grew from Rs.222 crore in 1973 to Rs.5,956 crore in 1995- 96.

Yet, rigid controls hamper operational flexibility and initiative so both

customers service and work culture today are dismal. The frontier spirit of

the early insurers has been lost. Insurance companies have also been timid


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in managing their investment portfolios. Competition between the four GIC

subsidiaries remains illusory.

WHOS GOING WITH WHOM?

Indian Company Foreign Partner

Kotak Mahindra Chubb, US

Tata Group AIG, US

Sundram Finance Winterthur, SWITZERLAND

Sanmar Group GIO of Australia


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M A Chidambaram MetLife

Bombay Dyeing General Accident, UK

DCM Shriram Royal Sum Alliance, UK

Dabur Group Liberty Mutual Fund, USA

Godrej J. Rothschild, UK

ITC Eagle star, UK

S K Modi Group Legal and General, Australia

CK Birla Group Zurich Insurance, Switzerland

Ranbaxy Cigna, US

Alpic Finance Allianz, GERMANY

20th Century Finance Canada Life

Vyasa Bank ING

Cholmandalam Guardian Royal Exchange, UK

SBI Alliance Capital

HDFC Standard Life, UK

ICICI Prudential, UK

IDBI Principal

Max India New York Life

The privatisation of the insurance sector would open up exciting new

career options and new jobs would be created. A few insurers estimated a

figure of 1lakh, after comparing the work forces in India and the UK. At

present, life products comprise a big chunk, or 98%, of LICs business.

Pension comprises a mere 2%. Now with increase in life expectancy rate,

people have to start planning their retirements. Hence pension business is


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expected to grow once the industry opens. The demand for healthcare is

growing due to population increase, greater urban migration and alarming

levels of pollution. Healthcare insurance is more important for families with

smaller savings because they would not be able to absorb the financial

impact of adverse events without insurance cover. Foreign insurance

companies like Aetna (worlds largest healthcare insurance provider) and

Cigna have been providing Managed Care services across the globe.

Managed Care integrates the financing and delivery of appropriate health

care services to covered individuals.


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WHY LIBERALIZE, WHAT MARKET STRUCTURE TO HAVE FINALLY,

WHAT ROLE FOR REGULATOR?

Introduction:

The decision to allow private companies to sell insurance products in

India rests with the lawmakers in Parliament. These are the passage of the

Insurance Regulatory Authority (IRA) Bill, which will make IRA a statutory

regulatory body, and amending the LIC and GIC Acts, which will end their

respective monopolies. In 1994 the government appointed a committee on

insurance sector reforms (which is known as the Malhotra Committee)

which recommended that insurance business be opened up to private

players and laid down several guidelines for orchestrating the transition. In

particular, we do not address many other related questions such as

whether foreign (and not just private) players should be allowed, what cap

should there be on foreign equity ownership, whether banks and other

financial institutions should be allowed to operate in the insurance

business, whether firms should be allowed to sell both life and -non-life

insurance, and so on.

The three questions that we address are(a) Why should insurance be opened up to private players?

(b) If opened up, what should be the appropriate market structure?


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(many unregulated players or a few regulated players); and finally,

(c) What is the role of the regulator in insurance business?

Why allow entry to private players?

The choice between public and private might amount to choosing between

the lesser of two evils. An insurance contract is a "promise to pay"

contingent on a specified event. In the case of insurance and banking,

smooth functioning of business depends heavily on the continuation of the

trust and confidence that people place on the solvency of these financial

institutions. Insurance products are of little value to consumers if they

cannot trust the company to keep its promise. Furthermore, banking and

insurance sectors are vulnerable to the "bank run" syndrome, wherein even

one insolvency can trigger panic among consumers leading to a widespread

and complete breakdown. This implies the need for a public regulator, and

not public provision of insurance. Indeed in India, insurance was in the

private sector for a long time prior to independence. The Life Insurance

Corporation of India (LIC) was formed in 1956, when the Government of

India brought together over two hundred odd private life insurers and

provident societies, under one nationalized monopoly corporation, in the

wake of several bankruptcies and malpractices'. Another important

justification for Nationalisation was to raise the much-needed funds for

rapid industrialization and self-reliance in heavy industries, especially since

the country had chosen the path of state planning for development.

Insurance provided the means to mobilize household savings on a large


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scale. LIC's stated mission was of mobilizing savings for the development of

the country.

The non-life insurance business was nationalized in 1972 with the

formation of General Insurance Corporation (GIC). Thus the fact that

insurance is a state monopoly in India is an artifact of recent history the

rationale for which needs to be examined in the context of

liberalization of the financial sector. If traditional infrastructure and "semi-

public goods" industries such as banking, airlines, telecom, power, and

even postal services (courier) have significant, private sector presence,

continuing a state monopoly in provision of insurance is indefensible. This is

not to deny that there are some valid grounds for being cautious about

private sector entry. Some of these concerns are:

(a) That there would be a tendency of private companies to "skim" the

markets; thus private players would concentrate on the lucrative mainly

urban segment leaving the unprofitable segment to the incumbent LIC.

(b) That without adequate regulation, the funds generated may not be

deployed in sectors (which yield long-term social benefits), such as

infrastructure and public goods; similar without regulation, private firms

may renege on their social sector investment obligations. Meeting these

concerns requires a strong regulatory body. Another commonly expressed

fear is that there would be massive job losses in the industry as a whole

due to computerization. This however doesnot seem to be corroborated by

the countries' experience'. Moreover, apart from consideration based on

theoretical principles alone, there is sufficient evidence that suggests that


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introduction of private players in insurance can only lead to greater

benefits to consumers. This can be seen from the fact that the spread in

insurance in India is low compared to international benchmarks. The two

convention measures of the spread of insurance are penetration and

density. The former measure (premiums per unit) of GDP, and the latter,

premiums per capita. Less than 7% of the population in India has life

insurance cover. In Singapore, around 45 per cent of the people are

covered and in Japan, this is close to 100 per cent. In the US, over 81 per

cent the households have insurance cover. India has the biggest life

insurance sector in the world if we go by the number of policies sold, but

the number of policies sold per 10 persons is very low. The demand for

insurance is likely to increase with rising per-capita incomes, rising literacy

rates and increase of the service sector, as has been seen from the example

of several other developing countries. In fact, opening up of the insurance

sector is an integral part of the liberalization process being pursued by

many developing countries. After Korean and Taiwanese insurance sectors

were liberalized, the Korean market has grown three times faster than GDP

and in Taiwan the rate of growth has been almost 4 times that of its GDP.

Philippines opened up its insurance sector in 1992. There are several other

factors that call for private sector presence. Firstly, a state monopoly has

little incentive to innovate or offer a wider range of products. This can be

seen by a lack of certain products from LlC's portfolio, and lack of extensive

risk categorization in several GIC products, such as health insurance. In fact,

it seems reasonable to conclude that many people buy life insurance just


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for the tax benefits, since almost 35 per cent of the life insurance business

is in March, the month of financial closing. This suggests that insurance

needs to be sold more vigorously. More competition in this business will

spur firms to offer several new products, and more complex and extensive

risk categorization. The system of selling insurance through commission

agents needs a better incentive structure, which a state monopoly tends to

stifle. For example LIC pays out only 5 per cent of its income as

commissions, whereas this share in Singapore is 16 per cent, and in

Malaysia it is close to 20 percent. Private sector presence will also mean

that the current investment norms, which tie up almost 75 per cent of

insurance funds in low yielding government securities, will have to go. This

will result in more proactive and market oriented investment of funds. This

needs to be tempered by prudential regulation to ensure solvency'. Of

course, this also implies that cross-subsidizing across policyholders of

different types that is seen both in life and non-life insurance will diminish.

Since public sector firms are required to sell subsidized insurance to weaker

sections of society, a separate subsidy mechanism will have to be designed.

The India Infrastructure Report (GOI, 1996) estimates that the funds

required in the next two decades are more than Rupees 4000 billion.

Finally, private sector entry into insurance might be simply a fiscal

necessity. Since large scale funds form long term contractual savings need

to be mobilized, especially for investment in infrastructures the option of

not having more (private) players in the insurance sector is too costly.


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WHAT SHOULD BE THE MARKET STRUCTURE ?

Individuals buying an insurance contract pay a price (called the

"premium") to the insurance company and the insurance company in turn

provides compensation if a specified event occurs. By making such

contractual arrangements with a large number of individuals and

organizations the insurance company can spread the risk. This gives

insurance its "social" character in the sense that it entails pooling of

individual risks. The price of insurance i.e., the premium is based on

average risk. This premium is too high for people who perceive themselves

to be in a low risk category. If the insurer cannot accurately determine the

risk category of every customer and prices insurance on the basis of

average risk, he stands to lose all the low risk customers. This in turn

increases the average risk, which means premia have to be revised

upwards, which in turn drives away even more customers and so on. This is

known as the problem of "adverse selection". Adverse selection problem

arises when a seller of insurance cannot distinguish between the buyer's

type i.e., whether the buyer is a low risk or a high type. In the extreme case,

it may lead to the complete breakdown of insurance market. Another

phenomenon, the problem of "moral hazard" in selling insurance, arises

when the unobservable action of buyer aggravates the risk for which

insurance is bought. For example, when an insured car driver exercises


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less caution in driving, compared to how he would have driven in the

absence of insurance, it exemplifies moral hazard. Given

these problems, unbridled competition among large number of firms is

considered detrimental for the insurance industry. Furthermore, even the

limited competition in insurance needs to be regulated. Insurance

companies can differentiate among various risk types if there is a wide

difference in risk profile of the buyers insuring against the strong insurers. It

also called for keeping life insurance separate from the general insurance. It

suggested the regulation of insurance intermediaries by IRDA and the

introduction of brokers for better professionalisation'.

THE ROLE OF IRDA :

(a) The protection of consumers interest,

(b)To ensure financial soundness of the insurance industry and

(c)

To ensure healthy growth of the insurance market.

These objectives must be achieved with minimum government involvement

and cost. IRDAs functioning can be financed by levying a small fee on the

premium income of the insurers thus putting zero cost on the government

and giving itself autonomy.


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( a ) Protection of Customer Interests:

IRDAs first brief is to protect consumer interests. This means

ensuring proper disclosure, keeping prices affordable but also insisting on

some mandatory products, and most importantly making sure that

consumers get paid by insurers. Ensuring proper disclosure is called

Disclosure Regulation. Insurance contracts are basically contingency

agreements. They can be full of inscrutable jargon and escape clauses. An

average consumer is likely to be confused by them. IRDA must require

insurers to frame transparent contracts. Consumers should not have to

wake up to unpleasant surprises, finding that certain contingencies are not

covered. The IRDA also has to ensure that prices of products stay

reasonable and certain mandatory products are sold. The job of keeping

prices reasonable is relatively easy, since competition among insurers will

not allow any one company to charge exorbitant rates. The danger often is

that prices may be too low and might take the insurer dangerously close to

bankruptcy. As for mandatory products, those that involve common and

well-known risks, certain standardization can be enforced. Furthermore,

IRDA can insist that for such products the prices also be standardized. From

the consumers point of view the most important function of IRDA is

ensuring claim settlement. Quick settlement without unnecessary litigation

should be the norm. For example, in motor vehicle insurance, adopting no-

fault principle can speed up many settlements. Currently, LIC in India has a

claims settlement ratio of 97%, an impressive number by any standards.


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However, it hides the fact that this settlement is plagued by long delays,

which reduce the value of settlement itself. If consumers have a complaint

against an insurer they can go to a body formed by association of insurers.

The decision of such a body would be binding on the insurers, but not on

the complainant. If complainants are not satisfied, they can go to court.

Some countries such as Singapore have such a system in place. This system

offers a first and quicker choice of settling out of court. IRDA can encourage

the insurers to have such a grievance redressal mechanism. This system can

serve the function of adjudication, arbitration and conciliation. The second

area of IRDAs activity concerns monitoring insurer behavior to ensure

fairness. It is especially here that IRDAs choice of being a bloodhound or a

watchdog would have different implications. We think that an initial tough

stance should give way to a more forbearing and prudential approach in

regulating insurance firms. When the industry has a few firms there is some

chance of collusion. IRDA must be alert to collusive tendencies and make

sure that prices charged remain reasonable. However, some cooperation

among the insurance companies could be considered desirable. This is

especially in lines where claim experience of any one company is not

sufficient to make accurate forecasts. Collusion among companies on

information sharing and rate setting is considered fair. IRDA must have

severe penalties in case of fraud or mismanagement. Since insurance

business involves managing trust money, in some countries the

appointment of senior managers and key personnel has to be approved

by the insurance regulatory agency.


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( b ) Ensuring Solvency of Insurers :

There are basically four ways of ensuring enough solvencies.

First is the policy of a price floor.

Second is the restriction on capital and reserves, i.e., on what kind of

investments and speculative activities firms can make.

Third is putting in place entry barriers to restrict the number of

competitors.

Fourth is the creation of an industry financed guarantee fund to bail out

firms hit by unexpectedly high liabilities. Entry restrictions of the IRDA are

implemented through a licensing requirement, which involves

capital adequacy among other things. Since there are economies of scale

and scope in insurance operations it might be better to have only a few

large firms. There is however no magic number regarding the optimal

number of firms. Restricting competition provides a scope for higher profits

to the companies thereby strengthening their solvency position. After

qualifying, the entrants are continuously subjected to restrictions on

reserves and investments, which ensure ongoing solvency. Additionally, a

guarantee fund, created by mandatory contributions from all insurance

companies is used to bail out any insurance company, which might be in

financial trouble. This guarantee fund does not imply that firms can charge

whatever they wish to their consumers. All insurance companies would

have an incentive to monitor the activities of their rival peer firms. This is

because insolvency of any insurance company would entail a price, which


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all the insurance companies would have to shoulder. Peer review of

accounts can also be institutionalized.

IRDA can have several ways for early detection of a potential

insolvency. For example, in the USA there is an Insurance Regulatory

Information System (IRIS) that regularly computes certain key financial

ratios from financial statements of firms. If some of these ratios fall outside

given limits the company is asked to take corrective action. Insolvency can

also arise out of reinsures abandoning insurance companies in the lurch, as

witnessed in the USA in 1980s. Reinsurance is a bigger business dominated

by large international reinsurers. Such litigation between reinsurer and

insurance companies involves cross boundary legalities and can drag on for

years. IRA must evolve a set of operational guidelines to deal with

reinsurance matters.

Insurance intermediaries such as agents, brokers, consultants and

surveyors are also under IRDAs jurisdiction. IRDA has to evolve guidelines

on the entry and functioning of such intermediaries. Licensing of agents

and brokers should be required to check against their indulging in activities

such as twisting, rebating, fraudulent practices, and misappropriation of

funds. IRDA can also consider allowing banks to act as agents (as opposed

to underwriters) of insurers in mass base types of products. Given their

wide network of branches and their customer base, the banks can access

this market for insurance products and also earn commission income. The

incremental cost of providing such insurance products would be much

lower.


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( c ) Promoting Growth in the Insurance Industry :

A society experiences many benefits from the spread of insurance

business. Insurance contributes to economic growth by enabling people to

undertake risky but productive activity. In the past,

growth of trade has been facilitated by the development of insurance

services. One only needs to look at the history of insurance to see how

evolution of insurance helped trade flows along various trade routes.

Promotion of insurance also provides for long-term funds, which are

utilized to fund big infrastructure projects. These projects typically have

positive externalities, which benefit society at large. IRDA can ensure

growth of insurance business with better education and protection to

consumers, and by making the insurance business a level playing field. They

can also support Indian insurance companies in the international field. IRDA

thus has to frame the rules, design procedures for enforcement and also

make operational guidelines. All this with virtually no relevant historical

data makes the task very difficult. An initial conservative approach (the

bloodhound) is justified since there is no prior experience to fall back on,

and it would be prudent to err by regulating more rather than less. As

experience accumulates, the IRDA can relax its initial harsh stance and

adopt a more accommodating stance (the watchdog). Regulation is always

an evolutionary process and experience constantly has to feed into policy

making. Care must be taken so that this process does not slow down and

cause regulatory lags. IRDA can also consider allowing banks to act as

agents (as opposed to underwriters of insurers in mass base types of


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products. Given there wide network of branches their customer base, the

banks can access this market for insurance products and also commission

income. The incremental cost of providing such insurance products would

be much lower. Such a move of allowing banks to operate insurance

business and vice versa is consistent with a worldwide trend of greater

integration of banking and insurance. The major insurance markets in

South and East Asia are in varying degrees opposite. This range from

comparative free markets of Hong Kong and Singapore to increasingly more

liberal markets of South Korea and Taiwan to more densely regular

insurance sectors of Thailand and Malaysia.

LIBERALISATION OF INSURANCE INDUSTRY :

While no aspect of the reform process in India has gone smoothly

since its inception in 1991, no individual initiative has stirred the proverbial

hornets' nest as much as the proposal to liberalise the country's insurance

industry. However, the political debate that followed the submission of the

report by the Malhotra Committee has presumably come to an end with

the ratification of the Insurance Regulatory Authority (IRA) Bill both by the

central Cabinet and the standing committee on finance. This section traces

the evolution of the life insurance companies in the US from firms

underwriting plain vanilla insurance contracts to those selling sophisticated

investment contracts bundled with insurance products. In this context, it

brings into focus the importance of portfolio management in the insurance

business and the nature and impact of portfolio related regulations on


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the asset quality of the insurance companies. It also provides a rationale for

the increased autornatisation of insurance companies, and the increased

emphasis on agent independent marketing strategies for their products. If

politicized, regulations have potential to adversely affect the pricing of

risks, especially in the non-life industry, and hence the viability of the

insurance companies. Finally, the backdrop of US experience provides some

pointers for Indian policymakers.


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INVESTMENT OF INSURANCE FUNDS :

Any reform of the insurance sector must necessarily consider aspects

related to the investment of insurance funds. Under sec 27A of the

insurance act and its application in the LIC act, the manner in which LIC can

deploy its funds is stated. Under the current guidelines, the LIC is required

to invest 75% of the accretions through a controlled fund in certain

approved investments. 25% of accretions may be invested by LIC for

investments in private corporate sectors, loans to policyholders,

construction and acquisition of immovable assets. These stipulations have

resulted in the lack of flexibility in the optimization of its risk and profit

portfolio.

It has been reported that the government is planning to offer greater

autonomy to LIC through the following:

It is proposed that the deployment of the balance of 50% of the funds will

be left to discretion of LIC. Similarly, it is proposed that the GIC will be

subject to the following guidelines:

CAPITAL NORMS FOR NEW INSURANCE COMPANIES :

One of the contentious issues raised by foreign companies seeking an entryinto the insurance sector in India is the minimum paid up capital

requirements. The Malhotra committee (1994) recommended


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Rs 100 crores as the norm. The multilateral insurance working group (an

industry forum representing most of the interested foreign and Indian

companies seeking an entry into the insurance sector) has recommended

Rs. 50 crore. The IRA is also reported to considering a

graded pattern for capitalization of the companies keeping in mind the

volume of business likely to be handled by them.

The Insurance Potential :

The main reason why the leading insurance companies in the world

and the leading corporate group in India have shown a keen interest in the

insurance sector, is the vast potential for future business. Restricted, as the

market has been, through the operations of the two monopolies (LIC and

GIC), it is generally felt that the sector can grow exponentially if it is opened

up. The decade 1987-97 has witnessed a compounded growth rate of

marginally more than 10% in life insurance business. LIC predicts for itself

that its business has potential to grow by 16.27% p.a. in a decade 1997-

2007 (LIC, 1997).

If we take a look at insurance coverage index for the age group of 20-59

years a considerable gap between India and other countries in Asia can be

observed. In this scenario, naturally insurance companies see a vast

potential.


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THE ROLE OF PORTFOLIO MANAGEMENT :

Portfolio and asset liability management are important for both life

and property liability insurance companies. However, the latter face the

problem that their liabilities are far more unpredictable than the liabilities

of the life insurance companies. For example, given a stable mortality table

and other historical data, it is easier to predict the approximate number of

death claims, than the approximate number of claims on account of car

accidents and fire. As a consequence of such uncertainty, and perhaps also

moral hazard stemming from reinsurance facilities, asset liability manage-

ment of property liability companies in the US has left much to be desired.

Hence, a meaningful discussion about the changing nature and role of

portfolio management for US's insurance companies is possible only in the

context of the experience of its life insurance companies. Although the role

of an insurance policy is significantly different from that of investments,

economic agents like households have increasingly viewed insurance

contracts as a part of their investment portfolio. This change in perception

has not affected much the status of the property liability or non life

insurance policies, which are still viewed as plain vanilla insurance contracts

that can be used to hedge against unforeseen calamities. However, the

perception about life insurance contracts has perhaps been irrevocably

altered, and it has changed the nature of fund management of insurance

companies significantly, forcing them to move away from passive portfolio


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management to active asset liability management. The change in

perception of the households became apparent during the 1950s, when

stock prices rose sharply in the US. Given the steep increase in the

opportunity cost of funds, households shied away from whole life insurance

products and opted for term life insurance policies! During the earlier part

of a policyholder's life, the premium for a term insurance policy is lower

than the premium for a whole life policy. Hence it was in a (young)

household's interest to opt for term insurance, and invest the difference

between the whole life premium and term life premium in the equity

market. As a consequence, the life insurance companies were forced to

think about development of new products that could give the investors

returns commensurate with the pins in the stock market. The immediate

impact of the financial volatility on portfolio or asset liability management

came by way of a change in the design of the life insurance products. The

insurance companies started offering universal life, variable life, and

flexible premium variable life products. These policies bundled insurance

coverage with investment opportunities, and allowed policy holders to

choose the amount of their annual premium and/ or the nature of the

portfolio into which the premium would be invested. Most of these

contracts carried guaranteed Minim urn death benefits, but returns over

and above that were determined by the inflow of premia and the

subsequent investment experience. Some of the policies could also be

forced into expiration if the afore mentioned inflow and experience fell

below some critical minimum levels.


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Further, policy loans were offered only at variable rates of interest. In other

words, the policyholders were increasingly co-opted into sharing market

and interest rate risks with the insurance companies. As a consequence of

these changes, which brought about a bundling of insurance and

investment products, portfolio management of life insurance companies

today is similar to that of a bank or non bank financial company. They have

to,

(i) look out for arbitrage opportunities in the market place both

across markets and over time,

(ii) use value at risk modeling to ensure that their reserves are

adequate to absorb market related shocks,

(iii)

ensure that there is no mismatch of duration between their assets

and liabilities, and

(iv) ensure that the risk return trade off of their portfolios remain at

an acceptable level.

During the 1980s, the life insurance companies gradually reduced the

duration of the fixed income securities in their portfolio, thereby ensuring

greater liquidity for their assets. They also moved away from long term and

privately placed debt instruments and increasingly invested in exchange

traded financial paper, including mortgage backed securities. However,

while the increased liquidity of their portfolios reduced their risk profiles,

they also required active management of these portfolios in accordance

with the changing liability structures and market conditions. Today, while


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life insurance companies compete for market share by changing the nature

and structure of their products, their viability is critically dependent on the

quality of their portfolio and asset liability management.

IMPLICATIONS OF COST MANAGEMENT :

As is the case with most competitive industries, profitability and

viability of a firm in the insurance industry significantly depends on its

market share, and its ability to minimise its cost of operations without

compromising the quality of its service and risk management. Perhaps the

easiest way to reduce cost is to reduce the cost of processing and

underwriting policy applications. In the US, the average cost of processing

and underwriting an application has been estimated to be in excess of US

$250. As a consequence, insurance companies have increasingly resorted to

replacement of personnel by computer based "expert" systems which apply

the vetting models used by the companies' (human) experts to a wide

range of problems." However, the US companies have found it more

difficult to reduce their cost of marketing and distribution. A significant part

of these expenses accrue on account of the commissions paid to exclusive

and/or independent agents, the usual rate of commission being 15 to 30

per cent, depending on the line of business. As such, independent agents

have greater bargaining power than the exclusive agents because they

"own" the insurance contracts held by the policyholders, and can switch

from one insurance company to another at will. These agents also benefit


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from the perception that, as outsiders having bargaining power vis a vis the

insurance companies, they will be able to ensure better service for the

policyholders. In order to mitigate the cost related problem, insurance

companies in the US are increasingly looking at alternative ways to market

and distribute their products. Direct marketing has gained popularity, as

has marketing by way of selling insurance products through other financial

organizations like banks and brokers. These actions might lead to significant

reduction of cost of operations of insurance companies, but it is not

obvious as yet as to how the small policyholders will fare in the absence of

powerful intermediaries with bargaining power vis a vis the insurance

companies.

The Impact of Regulation :

While portfolio and cost management are important determinants of the

viability of insurance companies, the US experience indicates that the

nature and extent of regulation too plays a key role in determining the

viability of these companies. The insurance industry in the US has histori-

cally been one of the most regulated financial industries. The nature of

regulation of life insurance companies, however, has differed significantly

from the nature of regulation of property liability companies. Regulation of

the former has typically emphasized asset quality, while the regulation of

the latter has largely concerned itself with policyholder's "welfare." The

regulations had impact on the quality of bonds held by the life insurance

companies. New York's insurance regulatory laws require that life insurance


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companies ensure that, for all bonds purchased by them, the companies

issuing the bonds have had enough earnings to meet debt obligations for

the previous five years. The bond issuing companies are also required to

have net earnings 25 per cent in excess of the annual fixed charges, and

they should not be in default with respect to either principal or interest

payments. Further, regulation of various states impose quantitative

restrictions on the amount of "risky" bonds that can be purchased by the

insurance companies. Finally, regulations of all states are subject to the life

insurance asset portfolios to the Mandatory Security Valuation Reserve

(MSVR) requirement. According to this requirement, which came into effect

in June 1990, life insurance companies are required to make mandatory

provisions for all corporate securities. The minimum provisioning, for A

rated and higher quality bonds, is 0.1 per cent of par value, and the

maximum provisioning of 5 per cent is required for Caa rated (or

equivalent) and lower quality bonds. If the issuer of a bond goes into

default, the relevant loss is adjusted against the MSVR account rather than

against the company's surplus.

Further, the non life industry has suffered significantly as a conse-

quence of changing legal ethos. In the recent past, the US courts have

retroactively granted citizen policyholders coverage against hazards, like

those from use of asbestos, that were not factored into the actual

insurance contract. As a consequence, the premia actually earned by the

property liability companies fell short of the "fair" prices of these contracts,

and hence these companies had to bear huge losses on account of these


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policies. However, while politics and changing ethos might together have

dealt an unfair blow to the non life insurance companies, the importance of

regulation cannot be overemphasized. The cyclical nature of the firms

profitability requires that they be monitored/regulated such that they are

not in default during the unfavorable phases of the cycle. The property

liability cycle is typically initiated by an exogenous shock which increases

the industry's profits. The higher profits enable the companies to

underwrite more policies at a lower price. During this phase, the insurance

market is believed to be "soft." The decrease in price during the soft phase,

in turn, reduces the profitability of the companies, and initiates the

downturn in the cycle leading to the "hard" phase. Hard markets are

characterized by higher prices and reduced volumes. Once the higher prices

restore the industry's profitability, the market softens again and the cycle

starts again.


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RESTRUCTURING OF LIC AND GIC :

In the insurance sector as of today and in all probabilities for a long time to

come, LIC and GIC will form a very significant part. The reasons for these

are many.

Firstly, they have been in business for a long time and therefore, are in

position to know business conditions better than any new entrant.

Secondly, the network of branches and agents is large, deep and

penetrating, which will take a long time for any other entrant to replicate.

Thirdly,(especially the LIC), has a kind of government backing which instills

faith in all would-be policy holders, much more than a private company can

hope to generate. The envisaged private sector participation in the

insurance sector is unlikely to take this advantage away from LIC and GIC. In

the short run atleast. LIC and GIC will continue to command a very high

market presence and in the long run it will take a very good market player

to dislodge LIC and GIC from their prime positions. This also means that the

reform in insurance sector will necessarily mean the reform of LIC and GIC.


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THE PRESENT STATE OF AFFAIRS :

YEAR S.A. NO OF POL. P.INCOME INVEST. L.FUND

(Rs.Crore) (Lacs) (Rs.Crore) (Rs.Crore) (Rs.Crore)

1992-93 178120 566.79 7146.24 20545 21511

1993-94 208619 608.73 8758.19 24631 25455

1994-95 254572 655.29 10384.91 45287 48789

1995-96 295758 709.60 12093.63 65254 68542

1996-97 344619 777.50 14499.50 85236 95255

1997-98 406583 845.29 20582.35 105000 110255

1998-99 459201 917.26 25478.32 120445 127390

1999-00 536450 1013.89 30545.65 146364 154040

2000-01 645041 1131.11 34207.78 175491 186024

2001-02 811011 1258.76 48963.60 216883 227008


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GENERAL INSURANCE BUSINESS :

Under Tariff ,Outside Tariff

Fire Insurance, Burglary and Housebreaking

Consequential Loss (fire policy) all Risk: Jewelry and Valuables

Marine, Cargo and Hull insurance ,Television Insurance

Motor Vehicle Insurance, Baggage Insurance

Personal Accident (Individuals and group up to 500 persons)

Mediclaims

Personal Accident (Air travel), Overseas Mediclaims

Engineering Compensation Personal Accident (group over 500

people)

Bankers Indemnity Policy - Bhavishya Arogya

Carrier's Legal Liability

Public Liability Act Policy


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POINTERS FOR INDIAN POLICYMAKERS:

A significant part of the activities of the insurance industry of an

economy entails mobilization of domestic savings and its subsequent

disbursal to investors. At the same time, however, they guaranty minimum

payoffs to both individuals and companies by way of the put like insurance

contracts. As discussed above, these contracts can significantly affect

behavior of economic agents and, in general, are perceived to lead to

better outcomes for economies. Herein lies the importance of the viability

of insurance companies: insolvency/bankruptcy of an insurance company

can be fast transformed into a systemic problem in two different ways. The

part of the systemic crisis that can be attributed to the quasi bank like

function of a section of the insurance industry is easily understood.

However, even if an insurance company does not default on its credit and

investment related obligations, and merely reneges on its insurance obliga-

tions, the adverse impact of such default on the economy and the society at

large can be quite devastating. For example, it is not difficult to imagine the

closure of a company that had not made provisions for damages on account

of (say) product related liability because it had believed that it was pro-

tected from such damages by an insurance policy." The consequent

insolvency of the company can affect a number of banks and other

companies adversely, and a systemic problem will be precipitated. In other

words, the insurance industry in any country should be subjected to


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of lower rating and thereby add to the average yield of their investment

without adding significantly to their portfolio risk. The problem, however, is

that till the imperfect character of the bond market is removed to a

significant extent, the insurance companies might either have to operate

with thinner margins or remain exposed to unacceptably high levels of

liquidity risk. It might, therefore, be prudent for the policymakers to impose

stringent capital and reserve norms on the insurance companies, in order

to ensure their viability in the short to medium run." Subsequent to

liberalization, the Indian insurance industry might also be at the receiving

end of regulations governing insurance prices / premia. Specifically, there

might be highly politicized interventions in the markets for workers'

compensation and medical insurance. The government might also be under

pressure to "regulate" the prices of infrastructure related lines like freight

and marine insurance. In principle, the risks associated with such liability

insurance policies may be hedged by way of reinsurance. But if the

reinsurers price the risks' accurately and the Indian insurance companies

are forced to underprice the risks, the margins of the insurance companies

will be affected adversely, thereby reducing their long term viability. In

view of these political and financial realities, it might be better to subsidies

the policyholders of politically sensitive lines directly or indirectly through

tax benefits, if at all, rather than distort the pricing of the risks themselves.

At the end of the day, it has to be realised that while competition enhances

the efficiency of market participants, the process of "creative destruction,"


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This ensures the sustenance and enhancement of efficiency, is not strictly

applicable to the financial markets. Hence, while exit is perhaps the most

efficient option for insolvent firms in many markets, insolvency of financial

intermediaries calls for government action and usually affects the

governments' budgetary positions adversely. At the same time, other things

remaining the same, the risk of insolvency is perhaps higher for insurance

companies than for other financial intermediaries because of the option

like nature of their liabilities. Therefore, competition in the insurance

industry has to be tempered with appropriate prudential norms, regular

monitoring and other regulations, thereby making the robustness of the

industry critically dependent on the efficiency of and regulatory powers

accorded to the proposed Insurance Regulatory Authority.


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SWOT ANALYSIS

Strength

Insurance having currently good market.

Risk protection is provided by this sector only.

Weakness

Unable to convince people about the products.

Insurance companies instability

Limited working capital

Products or services similar to competitors.

Opportunities

Technology is improving paperless transaction are available.

Busy life, customer need flexible and customizable policies.

Like mobile banking mobile insurance could be a hit.

Tax exemption.


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Weather cycles.

Threats

New substitute product emerging.

Increasing expenses and lower profit margins with hard on the smaller

agencies and companies.

Government regulations on issues like health care terrorism can quickly

change the direction on insurance.


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Top three players in the Indian Insurance companies

1.

Life Insurance Corporation of India

2.

ICICI Prudential Life Insurance Co Ltd

3. Bajaj Allianz Life Insurance Co Ltd

1. Life Insurance Corporation of India

LIC still remains the largest life insurance company accounting for 64%

market share. Its share, however, has dropped from 74% a year before,

mainly owing to entry of private players with innovative products and

better sales force.

LIC experienced growth of only 5% during 2007-08 in new business

premium. It had an estimated 1.1 million licensed agents, with the private

insurers adding another 900,000.

LIC witnessed decline in sales by 24% for new business premium for the

first four months for the current financial year.

Total sales stood at Rs 10,797.1 crore during April-July as against new sales

of Rs 14,186.04 crore in the corresponding period last financial year.


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This is was mainly due to slowdown in economy and crash of stock market.

Also, private companies are eating the share of LIC by introducing

innovative products.

Products in different market segment:

1. Insurance Plans:

As individuals it is inherent to differ. Each individuals insurance needs and

requirements are different from that of the others. LICs Insurance Plans are

policies that talk to you individually and give you the most suitable options

that can fit your requirement.

Children plan

Jeevan Anurag Komal Jeevan

CDA Endowment Vesting At 21 Marriage Endowment Or

Educational Annuity PlanCDA Endowment Vesting At 18

Jeevan Kishore Jeevan Chhaya

Child Career Plan Child Future Plan

Child Fortune Plus


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Plans for handicapped dependents

Jeevan Aadhar

Jeevan Vishwas

Endowment assurance plans

The Endowment Assurance Policy

The Endowment Assurance Policy-Limited Payment

Jeevan Mitra(Double Cover Endowment Plan)

Jeevan Mitra(Triple Cover Endowment Plan)

Jeevan Anand

New Janaraksha Plan

Jeevan Amrit

Plans for high worth individual

Jeevan Shree-I

Jeevan Pramukh


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Money back plans

Jeevan BharatiI

Whole life plan

The Whole Life Policy

The Whole Life Policy- Limited Payment

The Whole Life Policy- Single Premium

Jeevan Anand

Jeevan Tarang

The Money Back Policy-20 Years

The Money Back Policy-25 Years

Jeevan Surabhi-15 Years



Bima Bachat

Special money back plan for women


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Term assurance plan

Two Year Temporary Assurance Policy

The Convertible Term Assurance Policy

Anmol Jeevan-I

Amulya Jeevan-I

Joint life plan

Jeevan Saathi Plus

Jeevan Saathi

2. Pension Plans:

Pension Plans are Individual Plans that gaze into your future and foreseefinancial stability during your old age. These policies are most suited for

senior citizens and those planning a secure future, so that you never give up

on the best things in life.


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Pension plan

Market Plus I

Jeevan Nidhi

Jeevan Akshay-VI

New Jeevan Dhara-I

New Jeevan Suraksha-I

4.Unit Plans:

Unit plans are investment plans for those who realise the worth of hard-

earned money. These plans help you see your savings yield rich benefits and

help you save tax even if you don't have consistent income.

Unit plan

Market Plus I

Profit Plus

Money Plus-I

Child Fortune Plus

Jeevan Saathi Plus


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5.Pension Plan

LICs Special Plans are not plans but opportunities that knock on your door

once in a lifetime. These plans are a perfect blend of insurance, investment and

a lifetime of happiness!

Golden jubilee plan health plan

New Bima Gold Health Protection Plus

Special plan micro insurance plan

Bima Nivesh 2005

Jeevan Saral

Jeevan

Madhur

6.

Group Scheme:

Group Insurance Scheme is life insurance protection to groups of people. This

scheme is ideal for employers, associations, societies etc. and allows you to

enjoy group benefits at really low costs.

Group scheme

Group LIC's Superannuation Plus

Group Term Insurance Schemes


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Group Insurance Scheme in Lieu Of EDLI

Group Gratuity Scheme

Group Super Annuation Scheme

Group Savings Linked Insurance Scheme

Group Leave Encashment Scheme

Group Mortgage Redemption Assurance Scheme

Gratuity Plus

Group Critical Illness Rider

Social security scheme

JanaShree Bima Yojana (JBY)

Shiksha Sahayog Yojana

Aam Admi Bima Yojana

7. Withdrawn Plans:

Jeevan Nischay

Wealth Plus

Jeevan Aastha

Jeevan Varsha
http://www.licindia.in/group_schemes_002.htmhttp://www.licindia.in/group_schemes_002.htmhttp://www.licindia.in/group_schemes_005.htmhttp://www.licindia.in/group_schemes_005.htmhttp://www.licindia.in/group_schemes_002.htm


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Fortune Plus

Health Plus

2.ICICI Prudential Life Insurance Co Ltd

ICICI Pru is the biggest private life insurance company in India. It

experienced growth of 58% in new business premium, accounting for

increase in market share to 8.93% in 2007-08 from 6.97% in 2006-07. Total

premium collected increased to Rs 8,305.80 crore from Rs 5,254.64 in 2006-

07. Total number of policies sold went up by 49%, from 1,960,034 to

2,913,606 in 2007-08, with a market share of 5.73%. Renewal premium had

gone up by 101% to Rs.5,526 crore from Rs 2,751 crore. The company has

950 urban and 1,000 non-urban branches across the country. For the first

four months of current financial year, it reported growth of 45.3%.

Products in different market segment:

Life Insurance Plans:

Education Solutions

Wealth Creation plans

Protection Plans

Retirement Plans

Health Insurance Products


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Health saver

HealthAssure

Hospital Care II

Crisis Cover

3.Bajaj Allianz Life Insurance Co LtdTotal new business premium collected by Bajaj Insurance was Rs 6,491crore

in 2007-08. The company reported a growth of 52% and its market share

went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked

second (after LIC) in number of policies sold in 2007-08, with total market

share of 7.36%. For the period of April July 2008, total amount of new

insurance premium sold was Rs 1,197.95 crore as against Rs 1,075.93 in the

same period last year, experiencing a growth of 11.35%. Number of policies

sold dropped by around 3%. Bajaj Allianz Life has a strong distribution

network across the country with over 1000 branches spread over 950

towns. It plans to raise its capital base by infusing Rs 500 crore in next few

months to support its expansion plans.


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Products offered in different market segments:

UNIT LINKED

Regular Premium

New UnitGainII

Assured Gain

Single Premium

Shield Plus

Wealth Gain

PENSION

Annuity

Retirement

RetirementAdvantage RP

Future Income

Generator

TRADITIONAL

Endowment

Life Time Care

Super Saver

Money Back

CashGain

TERM

PLANS

New

Risk

Care

Term

Care

WOMEN

INSURANCE

House Wives

HEALTH

Family

CareFirst

Health Care

CHILDREN PLAN

ChildGain

YoungCare II

JUST

LAUNCH

ED

InvestPlus

Premier

Group

Secure

Life
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THE CURRENT SCENARIO: EFFECTS ON POLICY HOLDERS :

The primary reasons for buying an insurance policy, whether life or

non-life is to protect us from vagaries of life. We do not invest in insurance

for returns; rather we invest in it for regrettable necessities. Though a large

proportion of policies available in the country provides for returns, but

nobody is looking for returns to the inflation rate. Some people do look for

tax concessions, but lots of things have changed now.

First, tax rates are not so high as they used to be.

Secondly, concessions are still limited to a 20% tax shield.

Finally, other tax saving schemes, like public provident fund offers better

returns. So what does insurance offer, perhaps peace of mind, but even

that takes time, due to poor claim performance. In India insurance is sold

and not bought. Life Insurance Corporation has nearly eighty products, but

investors know only about a handful. Thats because the agents of LIC push

policies with the highest premium to pocket a higher premium. Same is the

case with General insurance. Companies offering General insurance

products-like medical, housing, motor and industrial insurance- have more

than 150 products to sell. But awareness

changes in index

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