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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2011 Page 2
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
A study on Indian Insurance Industry
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.
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• 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
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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.
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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.
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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
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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.
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• 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.
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• 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.
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• 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
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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
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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
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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.
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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.
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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
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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
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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
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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,
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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.
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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
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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
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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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.
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• 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
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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.
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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.
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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
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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
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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
Life premiums in 2009
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
Source: “World Insurance in 2009,” Swiss Re, June 2010, Insurance Regulatory and Development Authority
website, www.irdaindia.org, accessed
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
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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
Life premiums in 2009
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
Source: “World Insurance in 2009,” Swiss Re, June 2010, Insurance Regulatory and Development Authority
website, www.irdaindia.org, accessed
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.
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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
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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.
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2011 Page 59
11. Conclusion
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2011 Page 60
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