Insurance Sector

Saneem Nazim, Sreeji J.R.Ringu Sujith, Jacob John Panicker

Submitted to: Prof. Anoop R.

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Overview

The actual agenda of this presentation is to discus…

Insurance Services in Insurance sector Evolution of Insurance sector Major players in Public & Private sector Current scenario Contribution to Indian economy

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What is Insurance?

Insurance is concerned with protection of economic value of assets. Tangible assets are human beings, house, furniture, motor cycle etc. Intangible assets are liabilities…

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Need For InsuranceTax benefit + Tax free cash on maturityHelp during retirement – act as a pensionsSavings InstrumentImproves credit rating- considered as a financial assetContribution towards sustaining a standard of living when one contributing partner dies.Cover against riskFinancial Planning

Services in Insurance Sector

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Insurance

Life Insurance

Term Life Insurance

Permanent Life Insurance

General Insurance

Fire Insurance

Marine Insurance

Mediclaim

Accidental

Motor Vehicle

Life Insurance

It is a written contract between the insured and the insurer.

• Term Life: the insured is covered while the policy is in effect, usually 10–20 years.

• Whole Life: similar to term life, but allows the policyholder to borrow against the policies cash value. When the term of policy expires, the insured can get the cash value of the policy.

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General Insurance

• It is a non life insurance policies, including automobile and homeowners policies, provides payments depending on the loss from a particular financial events.

• General insurance typically comprises any insurance that is not determined to be life insurance.

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Types of General Insurance

Health insurance: Just like one looks to safeguard ones

wealth, these policies ensure guarding the insurer's health against any calamities that may cause long term harm to ones life and even hamper ones earning ability for a lifetime.

Business insurance: Risks of loss of profits/business, goods,

plant and machinery are most profound in case of business.

Automobile insurance: Auto Policy is required to be taken

to cover the risks that arise to the owner, vehicle and third party.

Fire insurance: This policy is required to be taken to prevent

any loss of profits / property from incidental fire.

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Evolution of Insurance Sector

1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

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 are taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs 5 core from the Government of India.

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Similarly, in 1972, 107 general insurers were nationalized through the passing of General Insurance Business (Nationalization) Act, 1972.

The existing 107 insurers were amalgamated and grouped into Five companies, viz., National Insurance Company (NIC), New India Assurance Company (NIAC), Oriental Insurance Company (OIC), United India Insurance Company (UIIC), and General Insurance Corporation (GIC).

Then insurance industry transformed into monopoly and Oligopolistic state or public sector insurance industry in India.

9Source: http://en.wikipedia.org/wiki/Insurance_in_India

History of LIC

• The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.

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Presently the LIC has a network of seven zones; 100 divisions and 2,048 branches, personnel exceed seven lakhs employees and over six lakhs agents.

Vision: A trans-nationally competitive financial conglomerate of significance to societies and Pride of India.

Mission: To explore and enhance the quality of the life of people through financial security by providing products and services of aspired attributes with competitive returns and by rendering resources for economic development.

Values: Caring and Courtesy, Initiatives and Innovation, Integrity and Transparency, Quality and Returns, Participation and Relationship, and Trustworthiness and Reliability

Culture: Agility (quickness), Adaptability, Collaboration, Commitment, Discipline, Empowerment, Sensitivity, and Excellence.

11Source: www.licindia.com/

General Insurance Corporation (GIC)

• Prior nationalization there were 68 Indian insurers (including LIC) and 45 non-Indian insurers did the business.

• In Nov. 1972, the general insurance business was nationalized by the General Insurance Business (Nationalized), Act 1972 (GIBNA) and vested in the hand of the GIC and its four subsidiaries viz.

1. National Insurance Co. Ltd.,

2. New India Assurance Co. Ltd.,

3. Oriental Fire and General Insurance Co. Ltd., and

4. United India Insurance Co. Ltd.

• GIC was incorporated as a holding company in 1992.

• General Insurance Business is completely owned by the government.

• The paid up capital of GIC was fully subscribed by the Government and of four subsidiaries.

• It was controlled by a single organization with four subsidiaries

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• GIC’s four subsidiaries:1. National Insurance Co. Ltd.,2. New India Assurance Co. Ltd., 3. Oriental Fire and General Insurance Co. Ltd., and4. United India Insurance Co. Ltd.

• The Govt of India took over Control, supervision, and policy making is with GIC.

• The premium income for GIC comes mainly through the obligatory reinsurance premium on a quota share basis from subsidiaries on their direct business in India (almost 20% of subsidiaries business come to GIC).

13Source: www.gicindia.com

Regulatory Body

Insurance Regulatory & Development Authority (IRDA) is the controlling and regulatory apex body in the country for insurance sector and its chairman and members are appointed by Government of India. IRDA’s HQ is located at Hyderabad. It was constituted as a body to regulate and develop the insurance industry in 1999, and was incorporated as a statutory body in April, 2000.

The Key objectives of IRDA is promotion of competition to satisfy customer choice with lower premiums. The IRDA opened up market in August 2000.

Foreign companies were allowed ownership up to 26%.

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Role of IRDA :

Protecting the interest of policyholders. Establishing guidelines for the operations of

insurers, and brokers. Specifying the code of conduct, qualifications, and

training for insurance intermediaries and agents. Promoting efficiency in the conduct of insurance

business. Regulating the investment of funds by insurance

companies.15Source: http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=AR&mid=11.1

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• Public owned corporation• Main objective of earning

profit• Formation involves a long

process • Capital contributed by owner

and investor• More freedom of operations• Managed and control by board

of directors selected by shareholders

• Not directly accountable to general public

• Performance evolution on basis of economic gains

• State-owned enterprises• Main motive of providing

service to public• Formed in short time just

by government decision• Capital contributed by

government • Less freedom of

operations• Managed and control by

board of directors selected by government

• Accountable to general public on performance discus in parliament

• Performance evolution on basis of economic and non- economic gain

Private Sector v/s Public Sector

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LIC PRIVATE PLAYERS

Growth – 21.87% Growth – 129%

Earned – Rs.197.86 billion[04-05]

Sold – 2.4 billion policies

Earned – Rs.55.57 billion[04-05]Against Rs.24.29 billion [03-04]

Market share – 2010 2011 201287.04% 78.07% 75%

Market share –2010 2011 2012 13% 22% 24%

Source: www.rncos.com

The 15 private players together saw their business grow 32 % to Rs 848 crore with a market share of 28.44 %.

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Insurers Premium[Rs.Cr.]

• ICICI Prudential 271.00

• Bajaj Allianz 124.00

• SBI Life 90.00

• HDFC Standard 70.00

• Max New York Life 69.00

• Tata AIG 48.00

• Aviva 39.00

• Reliance Life 33.00

• Birla Sunlife 28.00

• Kotak Mahindra Old Mutual 26.00

• ING Vysya 22.00

• Met Life 19.00

• Shriram Life 4.50

• Sahara Life 1.70

• Bharti Axa Life 0.72

Major Players

Players in Life Insurance Companies

1.Bajaj Allianz Life Insurance Company Ltd2.Birla Sun Life Insurance Company Ltd3.HDFC Standard Life Insurance Company Ltd4.ICICI Prudential Life Insurance Company Ltd5.Max New York Life Insurance Company Ltd

6.SBI Life Insurance Company Ltd7.Tata AIG Life Insurance Company Ltd8.Reliance Life Insurance Company Ltd,

etc.

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Players in General Insurance Companies

1.Bajaj Allianz General Insurance Company Ltd2.Icici Lombard General Insurance Company

Ltd3.Reliance General Insurance Company Ltd4.Bharti AXA General Insurance Company ltd5.SBI General Insurance Company Ltd6.L & T General Insurance Company Ltd7.Tata AIG General Insurance Company Ltd8.Agriculture Insurance Company Of India Ltd,

etc.

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Current Scenario

• Growing at the rate of 15-20% annually• 75% population has no insurance• Adds 7% to country’s GDP• Annuity or pension product have over 33% of market• Unity linked insurance scheme have monopoly• Until 1999, there were no 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 51% holding in the Indian insurance companies. 21

Contribution to Indian Economy

• Life Insurance is the only sector which garners long term savings

• Spread of financial services in rural areas and amongst socially less privileged

• Long term funds for infrastructure• Strong positive correlation between development

of capital markets and insurance /pension sector• Employment generation

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Conclusion

Insurance is a subject listed in the Union list in the Seventh Schedule to the Constitution of India where only centre can legislate. The insurance sector has gone through a number of phases by allowing private companies to solicit insurance and also allowing foreign direct investment of up to 26%, the insurance sector has been a booming market. However, the largest life-insurance company in India is still owned by the government.

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Ask me about the topic if you want…

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Thanks

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Prepared by: Saneem Nazim, Sreeji J.R.,

Ringu Sujith, Jacob John Panicker