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Privatization of Insurance
Privatization of Insurance
INTRODUCTION :
DEFINITION :
General definition:
In the words of John Magee, “Insurance is a plan by which large number of people
associate themselves and transfer to the shoulders of all, risks that attach to
individuals.”
Fundamental definition:
Contractual definition:
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Insurance is an Rs.400 billion business in India, and together with banking services
adds about 7% to India’s GDP. Gross premium collection is about 2% of GDP and
has been growing by 15-20% per annum. India also has the highest number of life
insurance policies in force in the world, and total investible funds with the LIC are
almost 8% of GDP. Yet more than three-fourths of India’s insurable population has
no life insurance or pension cover. Health insurance of any kind is negligible and
other forms of non-life insurance are much below international standards. To tap
the vast insurance potential and to mobilize long-term savings we need reforms
which include revitalizing and restructuring of the public sector companies, and
opening up the sector to private players. A statutory body needs to be made to
regulate the market and promote a healthy market structure. Insurance Regulatory
Authority (IRA) is one such body, which checks on these tendencies.
The IRDA bill proposes tough solvency margins for private insurance firms, a 26%
cap on foreign equity and a minimum capital of Rs.100 crores for life and general
insurers and Rs. 200 crores for reinsurance firms. Section 27A of the Insurance Act
stipulates that LIC is required to invest 75% of its accretions through a controlled
fund in mandated government securities. LIC may invest the remaining 25% in
private corporate sector, construction, and acquisition of immovable assets besides
sanctioning of loans to policyholders.
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allowing them to invest 50 % of their funds as per their own discretions. Recently
RBI has issued stiff guidelines, which had dealt a severe blow to the plans of banks
and financial institutions to enter the insurance sector. It says that non-performing
assets (NPA) levels of the prospective players will have to be 1% point lower than
the industry average (presently 7.5%). RBI has also stipulated that all prospective
entrants need to have a net worth of Rs. 500 crores. These guidelines have made it
virtually impossible for many banks to get into the insurance business. Also banks
and FI’s who are planning to enter the business cannot float subsidiaries for
insurance. RBI has taken too much caution to make sure that the new sector does
not experience the kind of ups and downs that the non-bank financial sector has
experienced in the recent past. They had to rethink about these guidelines if India’s
strong banks and financial institutions have to enter the new business. The
insurance employees’ union is offering stiff resistance to any private entry. Their
objections are(a)that there is no major untapped potential in insurance business in
India;(b)that there would be massive retrenchment and job losses due to
computerization and modernization; and(c)that private and foreign firms would
indulge in reckless profiteering and skim the ‘urban cream’ market, and ignore the
rural areas.But all these fears are unfounded. The real reason behind the protests is
that the dismantling of government monopoly would provide a benchmark to
evaluate the government’s insurance services.
PRIVATISATION:-
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MEANING:-
OBJECTIVES:-
Economic Growth
ADVANTAGES:-
Effective Management
Increase in Profitability
Encouragement to Innovation
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DISADVANTAGES:-
Class Struggle
Inflation
Economic Imbalances
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The difficulties of governments that run businesses are well-known. PSUs face
little "market discipline". There is neither a fear of bankruptcy, nor are there
incentives for efficiency and growth. The government is unable to obtain efficiency
in utilising labour and capital; hence the GDP of the country is lowered to the
extent that PSUs control labour and capital.
When an industry has large PSUs, which are able to sell at low prices because
capital is free or because losses are reimbursed by periodic bailouts, investment in
that entire industry is contaminated. This was the experience of Japan where the
"zombie firms" - loss-making firms that were artificially rescued by the
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The privatisation of the insurance sector would open up exciting new career
options and new jobs would be created. A few insurers estimated a figure of 1lakh,
after comparing the work forces in India and the UK. At present, life products
comprise a big chunk, or 98%, of LIC’s business. Pension comprises a mere 2%.
Now with increase in life expectancy rate, people have to start planning their
retirements. Hence pension business is expected to grow once the industry opens.
The demand for healthcare is growing due to population increase, greater urban
migration and alarming levels of pollution. Healthcare insurance is more important
for families with smaller savings because they would not be able to absorb the
financial impact of adverse events without insurance cover. Foreign insurance
companies like Aetna (world’s largest healthcare insurance provider) and Cigna
have been providing Managed Care services across the globe. Managed Care
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integrates the financing and delivery of appropriate health care services to covered
individuals.
The decision to allow private companies to sell insurance products in India rests
with the lawmakers in Parliament. These are the passage of the Insurance
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Regulatory Authority (IRA) Bill, which will make IRA a statutory regulatory body,
and amending the LIC and GIC Acts, which will end their respective monopolies.
In 1994 the government appointed a committee on insurance sector reforms (which
is known as the Malhotra Committee) which recommended that insurance business
be opened up to private players and laid down several guidelines for orchestrating
the transition. In particular, we do not address many other related questions such as
whether foreign (and not just private) players should be allowed, what cap should
there be on foreign equity ownership, whether banks and other financial
institutions should be allowed to operate in the insurance business, whether firms
should be allowed to sell both life and -non-life insurance, and so on. The three
questions that we address are
The choice between public and private might amount to choosing between the
lesser of two evils. An insurance contract is a "promise to pay" contingent on a
specified event. In the case of insurance and banking, smooth functioning of
business depends heavily on the continuation of the trust and confidence that
people place on the solvency of these financial institutions. Insurance products are
of little value to consumers if they cannot trust the company to keep its promise.
Furthermore, banking and insurance sectors are vulnerable to the "bank run"
syndrome, wherein even one insolvency can trigger panic among consumers
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leading to a widespread and complete breakdown. This implies the need for a
public regulator, and not public provision of insurance. Indeed in India, insurance
was in the private sector for a long time prior to independence.
The Life Insurance Corporation of India (LIC) was formed in 1956, when the
Government of India brought together over two hundred odd private life insurers
and provident societies, under one nationalized monopoly corporation, in the wake
of several bankruptcies and malpractice’s'. Another important justification for
Nationalisation was to raise the much-needed funds for rapid industrialization and
self-reliance in heavy industries, especially since the country had chosen the path
of state planning for development. Insurance provided the means to mobilize
household savings on a large scale. LIC's stated mission was of mobilizing savings
for the development of the country.
The non-life insurance business was nationalized in 1972 with the formation of
General Insurance Corporation (GIC).Thus the fact that insurance is a state
monopoly in India is an artifact of recent history the rationale for which needs to
be examined in the context of liberalization of the financial sector. If traditional
infrastructure and "semi-public goods" industries such as banking, airlines,
telecom, power, and even postal services (courier) have significant, private sector
presence, continuing a state monopoly in provision of insurance is indefensible.
This is not to deny that there are some valid grounds for being cautious about
private sector entry. Some of these concerns are:(a) That there would be a tendency
of private companies to "skim" the markets; thus private players would concentrate
on the lucrative mainly urban segment leaving the unprofitable segment to the
incumbent LIC.(b) That without adequate regulation, the funds generated may not
be deployed in sectors (which yield long-term social benefits), such as
infrastructure and public goods; similar without regulation, private firms may
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Individuals buying an insurance contract pay a price (called the "premium") to the
insurance company and the insurance company in turn provides compensation if a
specified event occurs. By making such contractual arrangements with a large
number of individuals and organizations the insurance company can spread the
risk. This gives insurance its "social" character in the sense that it entails pooling
of individual risks. The price of insurance i.e., the premium is based on average
risk. This premium is too high for people who perceive themselves to be in a low
risk category. If the insurer cannot accurately determine the risk category of every
customer and prices insurance on the basis of average risk, he stands to lose all the
low risk customers. This in turn increases the average risk, which means premia
have to be revised upwards, which in turn drives away even more customers and so
on. This is known as the problem of "adverse selection". Adverse selection
problem arises when a seller of insurance cannot distinguish between the buyer's
type i.e., whether the buyer is a low risk or a high type. In the extreme case, it may
lead to the complete breakdown of insurance market. Another phenomenon, the
problem of "moral hazard" in selling insurance, arises when the unobservable
action of buyer aggravates the risk for which insurance is bought. For example,
when an insured car driver exercises less caution in driving, compared to how he
would have driven in the absence of insurance, it exemplifies moral hazard.
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7. Disability insurance
8. Antique insurance
A variable risk transfer mechanism is the capital market. This is because capital
market is huge and can take on the risk that insurance companies run. The solution
is Asset-backed securities (ABS). A private insurer can bundle off policies with
similar maturity and quality and sell them as securities to retail investors. The
private insurer can float a Special-Purpose Vehicle(SPV) and sell the policies
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concerned to this entity. The SPV can bundle the policies and sell them as
securities to retail investors at attractive yields. The premium on the policies
underlying the ABS can be invested by the SPV in low-risk, highly liquid
instruments. The benefits of the SPV are First; the SPV is a separate entity from
the insurer. This enables easy rating of the ABS, as the credit rating agency will be
able to identify the underlying assets. Second, by selling the policies to the SPV,
the insurer removes the assets from its balance sheet. This means that the private
insurer frees capital that can be used for further business and lastly, the SPV is not
affected by the financial health of the insurer.
So when the policyholders (underlying the ABS) lodge the claims with the private
insurer, the private insurer simply passes on the claims to the SPVs. The SPV, in
turn will liquidate its investments and meet the claims. The SPV will stop paying
interest on the ABS. The retail investors, therefore, bear a sizable portion of claims
of the policyholders. There can of course be many variants to the ABS. The most
risky ABS, from the investors’ angle, will be those that stop interest payments and
delay principal repayments of claims are honored. Also buying ABS helps retail
investors truly diversify their portfolio. This is because probability of claims from,
say, a hurricane is largely unrelated to the economic factors or industry-specific
factors that drive equity and bond values. Besides, investors get attractive yields
for taking the risk. If mutual funds invest in ABS, retail investors need not estimate
the risk associated with the investment, the fund manager will do the needful. The
problem of adverse selection, on the other hand, can be reduced if the ABS are
credit-enhanced by a third party and rated by a credit rating agency.In India, debt
market is not deep and liquid enough to receive products such as asset-backed
securities. Moreover, regulatory restrictions, such as high stamp duty and a not-so-
efficient judicial system, may act as deterrents. Finally the alternative risk transfer
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market will only develop once the need for such risk transfer assumes importance
some time in the future.
* 85 percent of the Indians prefer LIC than any other insurance companies.
* 'Prevention of Loss', 'Assured Returns' and 'Long term Investment' are the
important factors influencing Indians in opting for Life Insurance
* Only few of the Indians are aware of private life insurance companies.
* Most of the Indians are of the opinion that private insurance companies
would be able to perform well in the long run.
* Most of the Indians are interested in 'Money back' policies than others
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One of the contentious issues raised by foreign companies seeking an entry into the
insurance sector in India is the minimum paid up capital requirements. The
Malhotra committee (1994) recommended Rs 100 crores as the norm. The
multilateral insurance working group (an industry forum representing most of the
interested foreign and Indian companies seeking an entry into the insurance sector)
has recommended Rs. 50 crore. The IRA is also reported to considering agraded
pattern for capitalization of the companies keeping in mind the volume of business
likely to be handled by them.
The main reason why the leading insurance companies in the world and the leading
corporate group in India have shown a keen interest in the insurance sector, is the
vast potential for future business. Restricted, as the market has been, through the
operations of the two monopolies (LIC and GIC), it is generally felt that the sector
can grow exponentially if it is opened up. The decade 1987-97 has witnessed a
compounded growth rate of marginally more than 10% in life insurance business.
LIC predicts for itself that its business has potential to grow by 16.27% p.a. in a
decade 1997-2007 (LIC, 1997).If we take a look at insurance coverage index for
the age group of 20-59 years a considerable gap between India and other countries
in Asia can be observed. In this scenario, naturally insurance companies see a vast
potential.
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In the insurance sector as of today and in all probabilities for a long time to come,
LIC and GIC will form a very significant part. The reasons for these are many.
Firstly, they have been in business for a long time and therefore, are in position to
know business conditions better than any new entrant.
Secondly, the network of branches and agents is large, deep and penetrating, which
will take a long time for any other entrant to replicate.
Thirdly, (especially the LIC), has a kind of government backing which instills
faith in all would-be policy holders, much more than a private company can hope
to generate. The envisaged private sector participation in the insurance sector is
unlikely to take this advantage away from LIC and GIC. In the short run atleast.
LIC and GIC will continue to command a very high market presence and in the
long run it will take a very good market player to dislodge LIC and GIC from their
prime positions. This also means that the reform in insurance sector will
necessarily mean the reform of LIC and GIC.
OPPORTUNITIES
As compared to the Western countries, where they have already reached a stage of
saturation, India can exploit some golden opportunities in the following fields.
1. Mass Marketing:
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India is a highly populated country and would continue to be so in the near future.
New players may tend to favour the "creamy" layer of the urban population. But, in
doing so, they may well miss a large chunk of the insurable population. A strong
case in point is the current business composition of the dominant market leader -
the Life Insurance Corporation of India. The lion's share of its new business comes
from the rural and semi-rural markets. In a country of 1 billion people, mass
marketing is always a profitable and cost-effective option for gaining market share.
The rural sector is a perfect case for mass marketing.
Competition in rural areas tends to be "kinder and gentler" than that in urban
areas, which can easily be termed cutthroat. Identifying the right agents to harness
the full potential of the vibrant and dynamic rural markets will be imperative.
Rural insurance should be looked upon as an opportunity and not an obligation. A
smaller bundle of innovative products in sync with rural needs and perceptions,
and an efficient delivery system are the two aspects that have to be developed in
order to penetrate the rural markets.
2. Job Opportunities:
Job opportunities are likely to increase manifold. The liberalization of the
insurance sector promises several new job opportunities for those who are
equipped with degrees in finance. Finance professionals who had witnessed a
slump in the job market would be much relieved.
There will be demand for marketing specialists, finance experts and human
resource professionals. Apart from this, there will be high demand for professionals
in streams like underwriting and claims management, and actuarial sciences.
3. Inflow of Funds:
There could be a huge inflow of funds into the country. Given the industry's huge
requirement of start-up capital, the initial years after opening up are bound to see a
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strong inflow of foreign capital. A rise in the equity share of foreign partners to 49
percent will act as a boost to them.
4. Reinsurance:
Huge capacity is likely to be created in the area of reinsurance. Apart from pure
reinsurance activities, which involves providing insurance protection, there will be
a revolution in service-related fields like training, seminars, workshops, know-how
transfer regarding risk assessment and rating, risk inspections, risk management
and devising new policy covers, etc.
5. Marketing Strategies:
Also, with more players in the market, there will be significant increase in
advertising, brand building, and this will benefit whole lot of ancillary industries.
A substantial shift is likely to take place in the distribution of insurance in India.
Many of these changes will echo international trends. Worldwide, insurance
products move along a continuum from pure service products to pure commodity
products. Initially, insurance is seen as a complex product with a high advice and
service component. Buyers prefer a face-to-face interaction and place a high
premium on brand names and reliability.
As products become simpler and awareness increases, they become off-the-shelf,
commodity products. Sellers move to remote channels such as the telephone or
direct mail. Various intermediaries, not necessarily insurance companies, sell
insurance. In some countries like Netherlands and Japan, insurance is marketed
using the Post Office's distribution channels. At this point, buyers look for low
price. Brand loyalty could shift from the insurer to the seller.
6. Bancassurance:
In other markets, notably Europe, this has resulted in bank assurance: banks
entering the insurance business. The Netherlands led with financial services firms
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providing an entire range of products including bank accounts, motor, home and
life insurance, and pensions. Other European markets have followed suit. In
France, over half of all life insurance sales are made through banks. In the UK,
almost 95% of banks and building societies are distributing insurance products
today.
In India too, banks hope to maximize expensive existing networks by selling a
range of products. Many bankers have shown an inclination to enter the insurance
market by leveraging their strengths in the areas of brand image, distribution
network, face to face contact with the clients and telemarketing coupled with
advanced information technology systems. Insurers in India should also explore
distribution through non-financial organizations. For example, insurance for
consumer items such as refrigerators can be offered at the point of sale.
7. Information Technology
Worldwide interest in E-commerce and India's predominant position in Information
Technology and software development are also likely to be major factors in the
marketing of insurance products in the immediate future. The number of Internet
account is increasing and the trend has already been set by some of the leading
insurers and insurance brokers worldwide.
CHALLENGES
If one has opportunities, one has to face challenges; it is like two sides of the same
coin. No doubt India has a lot of opportunities coming her way, but there are a few
challenges and threats as well.
The four main challenges facing the industry are product innovation, distribution,
customer service, and investments. Unit-linked personal insurance products might
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the players will have to consider the Indian market as a long-term investment, and
maintain clear-cut objectives and constant monitoring at all levels.
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The trend in developed economies where people live longer and retire earlier is
now emerging in India too. With the breakdown of traditional forms of social
security like the joint family system, consumers are now concerned with the need
to provide for a comfortable retirement. This trend has been further driven by the
long-term decline in interest rates, which makes it all the more necessary to start
saving early to ensure long term wealth creation. Today's consumers are
increasingly interested in products to help build wealth and provide for retirement
income.
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Gone were the days when the customers were forced to take up the kind of
products whatever coming from LIC's and GIC's stables. But now, the customer
has been portrayed as the king and to his delight, the products are redesigned and
customized suiting his need taking into account his paying capacity and multiple
benefits. To much of his chagrin, he has also got an option of withdrawing his offer
within a period of 15 days (free-look period) if he is not satisfied with the policy
features. Let us look at the strategies adopted by the players in the market.
Earlier the entire industry was revolving around investment and savings oriented
plans. As the interest rates are moving southwards, all the players are deliberately
focusing on selling pure risk covers in an effort to capture the new customers. The
premium on such products is low as it covers only the risk aspect and does not
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factor in investments or savings. Even the market leader LIC has withdrawn some
of the products, which are positioned, on the assured returns platform. Though the
share of the term plans in the product portfolio is quite negligible, the shift
towards the term products is already visible. Typically a term plan does not provide
anything by way of maturity, unlike moneyback or endowment policies. Globally,
close to a third of the policies fall into this category must be an encouraging news
to the players.
Unit linked products are also gaining momentum in this country. Om Kotak and
Birla Sun Life have launched unit linked schemes focusing on equity, debt and gilt
edged stocks. These schemes are expected to yield better returns when compared to
normal insurance schemes. As the awareness level about these unique products is
much lower, the companies resort to educate the customers about the salient
features of the products.
The sea change since the sector opened up has been on the way the basic products
have been packaged innovatively, often tailor made to provide a bundle of benefits
to the customers. This is possible through the introduction of riders, which have
added value to the risk cover at minimal cost. Riders are nothing but add-ons
coming along with the base policies for a slightly additional premium. Riders have
become the major instruments for the organizations to lure the customers away
from the competitors. The removal of 30% cap on the premium of the base policy
for the health riders alone has come as a shot in the arm for many players since this
is used as an Unique Selling Proposition by many private players vis a vis the LIC.
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Later, LIC has also started announcing riders along with the main policies dancing
to the tune of the market forces. This could see many non-life players going out of
the business as life insurers offer a plethora of personal line products as add-ons.
Riders can also be availed by the existing policyholders.
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* The other segments, which have attracted almost all the players, are the women
and the children segments. Though the State insurer has had a chunk of products
sufficiently for a longer time, it faces stiff competition from the private players in
these segments.
* TATA AIG has offered a specialized life insurance package where the insured and
the employers of the insured have a say in it. Termed as Worksite Marketing, AIG,
which has adopted this practice in different places across the world, is spreading
the concept in India too. Worksite Marketing is a distribution method used to offer
voluntary insurance products (employee benefits) to employees at their place of
work with the sponsorship or backing of their employer, traditionally done on a
deduction from the payroll. The policyholder carries the policy with himself
throughout his life, even if it happens to change the organizations.
* TATA AIG GENERAL INSURANCE, for the first time in the country, has
launched a specialized product for Accountants (after tasting the success with
specialized products such as Directors and Officers policy in India) in its bid to
segment the market for professional indemnity policies. The policy has been
designed with the assistance from Bombay Chartered Accountants Society. This
policy covers claims pertaining to professional negligence, wrongful acts
committed in the performance duties. It also provides for coverage of all legal
expenses incurred in defending such claims.
As against an annual premium of Rs.2400 on a Rs.10 lacs policy for a 10 year term
for a 30 year old under the preferred term plan, the regular term premium works
out to Rs.3400 for a similar cover. Though there are apprehensions in the industry
circle about the success of the policy, the intention of the company is quite
appreciated.
* Even the unborn child's future can be safeguarded now. The offspring can be
insured against unfortunate congenital defects. State owned General Insurers have
started aggressively marketing these kinds of products.
Thanks to the norms stipulated by the regulator IRDA, all the players have turned
their eyes towards the rural market. Towards ensuring equitable distribution of
insurance policies in every nook and cranny of the country, IRDA stipulates the
rural obligations to be met by the players over the years.
The rural obligation on part of the new private insurance companies is incremental
in nature. It goes from 5% to 15% over the period of 5 years for life insurance and
from 2% to 5% in case of general insurance. IRDA has also defined what it meant
by rural.
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rural sector with the percentage of policies issued in the rural sector standing
higher than 5% level mentioned. Most of the non-life insurers achieved the base
level of 2% gross premium from rural sector. Since the penalty for not adhering to
the obligation includes Rs.5 lacs penal fee and upto 3 years of imprisonment of the
Chief of the organization, all the companies are swarming the rural market. The
challenge lies in reaching the critical mass with the redesigned products. And the
organizations have been fairly successful in their efforts. For instance, Om Kotak
Life Insurance is successful in selling the single premium policy in rural market.
Reaching the doorsteps of the villagers through non-conventional channels like
Regional Rural Banks (RRBs), Co-operative banks, Self-Help Groups (SHGs),
ITCs e-choupal is also being tried by the players.
Nevertheless all the players depend heavily on their agents force to reach out
(LIC has reached a figure of 8,50,000 agents and planned to increase it to 1
million by this year), they are trying out other distribution channels also like
banks and corporate agencies in addition to the channels mentioned above.
The following table shows the strategic alliances the insurers have entered into
to distribute their products.
LIC is also exploring ways to rope in Regional Rural Banks (RRBs) across the
country. Cross-selling could be another key strategy in selling insurance provided
the restrictions on the functioning of corporate agencies are lifted. Once the curbs
are removed, the market may see a wave of cross-selling. Royal Sundaram
Alliance may offer household insurance with Sundaram Housing Finance and sell
customers of Sundaram Finance Mutual Fund a whole range of insurance products.
ICICI-Prudential and HDFC Standard will tie up with their parent companies to
use their network. .
Once the much-awaited Insurance Brokers Regulations comes into force, the
industry is poised to change the way the insurance products are sold with the entry
of brokers. While an insurance agent represents an insurance company and offers
only the products of that company, an insurance broker is independent and
represents a number of insurers. He can also compare the benefits of different
policies and premiums to find the best coverage for the customer.
VI Cause Related Marketing (CRM):-
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Cause Related Marketing has become the order of the day in Insurance industry.
By creating a goodwill about the organizations, the insurers are making an attempt
to change the negative attitude of the people towards insurance products. For
instance,
* Towards serving the society in a better way, LIC has adopted a novel way
through its Bima Grams policy. Accordingly, LIC pays 25% of the premium
collected from the villagers or Rs.25000 whichever is lesser for undertaking
developmental work in the villages provided,
* Birla Sun Life Insurance has adopted 332 villages around Renukoot and actively
involved in improving the lives of the residents.
Though the issue of de-tariffing in general insurance has been debated upon at
length, the response from the industry is quite mixed. By fixing a tariff for a
product, Tariff Advisory Committee (TAC) maintains discipline in the market and
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makes sure that the insurance companies do not resort to under pricing to gain
market share. IRDA is now working on detariffing the general insurance sector
beginning with commercial vehicle business since it constitutes more than two fifth
of the non-life business volume. Both IRDA and TAC are working out the modus
operandi of the deregulations of motor premium. Sensing the indifferent attitude of
the private general insurers towards motor insurance, the Government is
contemplating on coming out with obligations to be met by the private insurers in
this segment (like rural business). Once the motor insurance premium is detariffed,
the end user is likely to see another cola war like.
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ICICI Prudential Life Insurance Company is the first life insurer in India that
received a National Insurer Financial Strength rating of AAA (Ind) from Fitch
ratings. ICICI Prudential has been voted as India's Most Trusted Private Life
Insurer for three consecutive years. ICICI Prudential Life Insurance Company has
various insurance plans that have been designed for different individuals, as every
individual has different insurance needs.
Contact Address
ICICI Pru Life Towers
1089 Appasaheb Marathe Marg
Prabhadevi, Mumbai - 400025
Website: www.iciciprulife.com
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Given below is a list of plans provided by ICICI Prudential Life Insurance Company:
Life Insurance Plans Premium Guarantee Retirement Solutions Diabetes Care
Plans Life Stage Active
Education Insurance
InvestShield Pension
Plans Diabetes Assure
Life New LifeTime Super
Smart Kid New
InvestShield Pension
Unit-linked ICICI Pru Group
CashBank Solutions Advantage
Regular LifeLink Super
Premium Pension Group Super
Protection Plans
Annuation
Smart Kid New Pure Protect
ForeverLife Group Gratuity
Unit-linked Life Guard
Plan Plan
Single Premium Save 'n' Protect
Immediate Annuity
CashBak Annuity Solutions
Smart Kid
Regular
Home Assure Health Coverage Plans Group Term
Premium
Health Saver Insurance Plan
Micro Insurance Medi Assure
Wealth Creation Group Term
Plans
Plans Hospital Care Insurance in lieu
ICICI Pru of EDLI
Wealth Crisis Cover
Advantage Sarv Jana Rural Plans
LifeStage Cancer Care
Plan ICICI Pru
Assure Suraksha
ICICI Pru
LifeTime Gold
Suraksha
LifeLink Super Kavach
LifeStage RP
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
In June 2008, Bajaj Allianz entered into partnership with Thomas Cook India to
provide travel finance. Bajaj Allianz Life Insurance ensures excellent insurance
and investment solutions by offering customized products, supported by the best
technology.
Contact Address
Bajaj Allianz Life Insurance Co. Ltd.
GE Plaza, Airport Road
Yerawada, Pune - 411006
Website: www.bajajallianzlife.co.in
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A comprehensive list of policies and products offered by Bajaj Allianz Life Insurance Co.
Ltd. is as follows:
Unit Linked Plans 3. New UnitGain Health Plans 3. New Group
Regular Easy Pension Care First Superannuation
Premium Plus RP Health Care Care
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
2. Swarna Vishranti
HDFC STANDARD
LIFE INSURANCE
Established on 14th August 2000, HDFC
Standard Life Insurance Co. Ltd. is a joint
venture between Housing Development
Finance Corporation Limited (HDFC
Limited) - India's leading housing finance institution, and a Group Company of the
Standard Life Plc, UK. The Company is one of leading private insurance
companies, offering a range of individual and group insurance solutions, in India.
Being a joint venture of top financial services groups, HDFC Standard Life has
adequate financial expertise to manage long-term investments safely and
resourcefully.
HDFC Standard Life Insurance offers a range of individual and group solutions,
which can be easily personalized to specific needs. Its group solutions have been
planned to offer complete flexibility, together with a low charging structure. As of
31 December, 2008, the Company's new business premium income stood at Rs.
1,839.70 Crores; it has covered over 812,811 lives so far.
Contact Address
HDFC Standard Life Insurance Co. Ltd.
'Trade Star', 2nd floor, 'A' Wing
Junction of Kondivita and M.V. Road
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
Andheri-Kurla Road
Andheri (East), Mumbai - 400059
Website: www.hdfcinsurance.com
Given below is a comprehensive list of policies and products on offer by HDFC Standard Life
Insurance:
Protection Plans Retirement Plans HDFC Unit HDFC Critical
HDFC Term HDFC Personal Linked Care Plan
Assurance Plan Pension Plan Enhanced Life
HDFC
HDFC Loan HDFC Unit Protection II
SurgiCare Plan
Cover Term Linked Pension
HDFC Unit
Assurance Plan II Group Plans
Linked Wealth
HDFC Home HDFC Unit Maximiser Plus Group Term
HDFC Savings
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
Assurance Plan
Health Plans
Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla Group, an
Indian multinational corporation, and Sun Life Financial Inc, a leading global
insurance company. Birla Sun Life Insurance is distinguished as the first company
in the sector of financial solutions to begin Business Continuity Plan. This
insurance company has pioneered the unique Unit Linked Life Insurance Solutions
in India. Within 4 years of its launch, BSLI became one of the leading players in
the industry of Private Life Insurance Scheme.
Birla Sun Life Insurance believes in passion, integrity, speed, commitment and
seamlessness. The mission of the company is to help people with risk management.
It also helps in managing the financial situation of firms as well as individuals.
Contact Address
Birla Sun Life Insurance Company Limited
Vaman Centre, 6th Floor
Makhwana Road
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
Here is given a comprehensive list of policies and products offered by Birla Sun Life Insurance Co. Ltd.
Protection Plans Birla Sun Life Children Plans Birla Sun Life
Birla Sun Life Insurance Birla Sun Life Insurance Single
Insurance Term PrimeLife Premier Insurance Premium Group
Plan Children's Dream Term Plan
Birla Sun Life
Birla Sun Life Plan
Insurance NRI Plans
Insurance
PrimeLife Rural Plans Birla Sun Life
Premium Back
Term Plan Birla Sun Life Insurance
Birla Sun Life
Insurance Bima PrimeLife Premier
Insurance Flexi
Saving Plans Suraksha Super Birla Sun Life
Cash Flow
Birla Sun Life Birla Sun Life Insurance
Insurance Birla Sun Life Insurance Bima PrimeLife
Guaranteed Bachat Insurance Flexi Dhan Sanchay
Birla Sun Life
Plan Save Plus
Birla Sun Life Insurance Flexi
Birla Sun Life
Birla Sun Life Insurance Bima Life Line Plan
Insurance Money
Insurance Flexi Kavach Yojana
Back Plus Plan
Birla Sun Life
Life Line
Group Plans Insurance Flexi
Birla Sun Life
Birla Sun Life Birla Sun Life Save Plus
Insurance Gold-
Insurance Single Insurance Group
Plus II
Birla Sun Life
Premium Bond Unit Linked Plan
Insurance Flexi
Birla Sun Life Birla Sun Life
Health Solution Plans Cash Flow
Insurance Saral Insurance Group
Jeevan Plan BSLI Health Plan
Protection Birla Sun Life
BSLI Universal Solutions Insurance
Birla Sun Life
Health Plan ClassicLife
Insurance Birla Sun Life
Premier
Supreme-Life Retirement Plans Insurance Group
Birla Sun Life Superannuation Birla Sun Life
Birla Sun Life
Insurance Plan Insurance Single
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
B. S. L.Insurance
SimplyLife
Insurance premium income has risen to Rs 82,415 crore (Rs 824.15 billion) in
2003-04, against Rs 45,000 crore (Rs 450 billion) in 2000-01. Rao expects
premium income in the life insurance sector to rise further by 15-16 per cent and
non-life insurance premium by 14 per cent in 2005-06. The growth comes on the
back of healthy demand from the manufacturing sector.
"There has been no reduction in growth rates as seen in the case of the Life
Insurance Corporation of India It is able to hold on to its existing share in terms of
business growth. Market share is bound to stand reduced as some business goes to
the private players,"
The health and personal line segments are expected to see maximum growth during
the current financial year.
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
"The health insurance sector is expected to grow by 10-15 per cent," Rao said at a
one-day seminar on 'Growth of Insurance Industry in India' organised by the Indian
Merchants' Chamber in Mumbai on Friday.
If the cap on foreign direct investment is increased to 49 per cent from the current
26 per cent, the industry can expect greater entry of players. But this, said Rao,
should not be seen as a threat to public sector players.S
The reforms in the insurance sector leading finally to the opening of the insurance
sector for private participation have brought in its wake major changes not only in
the design of the products available in the market but also the manner in which
they are marketed. We have today a host of products coupled with a large number
of intermediaries who market them.
The post-liberalized insurance industry panorama in India is witnessing dramatic
changes in terms of a slew of latest products and services, new channels of
distribution, greater use of I.T. as a service facilitator etc. There is also the
phenomenon of noticeable shifts in consumer preferences impacting the product
mix being offered by insurers. The market structure dominated by a few stabilized
public sector players and the 'new' players in the market (some of whom claim
their lineage from established international insurance behemoths) is in a state of
flux- in terms of figure out market shares but is full of potential.
Added to these are the rising trends of convergence of financial services, especially
in the areas like wealth management and evolution of newer risk management
tools, particularly in the context of reinsurance management. Greater attention is
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
also being bestowed on the areas like Agricultural Insurance and risk coverage of
export-import trade. Then there is impact of visible socio-economic changes like
greater urbanization, greater job mobility, growth of the services industry,
weakening of traditional family structure, impact of globalization etc. All in all,
interesting things are happening in the Indian insurance scene.
Insurance undergone rapid and massive changes in all aspects of their
business: product and services, sectoral structure, market segmentation,
competitive environment.It is believed that the information sharing has not taken
its expected shape in the insurance industry for the purposes of practices, research
and education. However, data is one of the most needed ingredients in the
insurance business development as well as for research and consultancy. There
have been regular efforts by IRDA for collection and sharing of the data and other
information of public interest. The industry is facing problems in terms of data
review as parliament need to register this beforehand. We believe that progress of
the industry should not be constrained by any extraneous conditions in the interest
of research and development in the area.
Manpower India today released the Manpower Employment Outlook Survey for
the first quarter of 2006 revealing sustained positive hiring intentions of employers
in India. India continues to lead all 23 countries surveyed this quarter, with a
positive overall Net Employment Outlook of +27%. Even though this figure
represents a decrease of 13 percentage points from the fourth quarter of 2005, the
employment outlook remains extremely healthy. For the first time since the Survey
was launched in India, the Finance, Insurance and Retail industry sector emerged
as the most optimistic sector for a quarter with a Net Employment Outlook of
+32%, surpassing the Services sector.
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
crore. With the total assests in excess of Rs 7,00,000 crore, LIC has retained the
status of being the biggest financial institution in the country. It is this splendid
performance of LIC that has raised the levels of life insurance premium penetration
to 4.1 per cent of the GDP. This level of penetration is higher than those achieved
in many developed countries including the United States.
The IRDA has released the unaudited new business statistics for the year 2007-08.
As per the IRDA, the LIC has underwritten new premium of Rs 59182.20 crore (on
the basis of annualised premium), which translates to a market share of 63.64 per
cent. The seventeen private companies together have a market share of 36.36 per
cent. The ICICI prudential with a market share of 8.93 per cent is a distant second
to LIC. Eleven companies have a market share of less than 2 per cent. In the total
premium mobilised in the country, the share of LIC is in excess of 80 per cent. This
clearly demonstrated the total domination of LIC in the life insurance industry in
India.
Today, the opponents of public sector are greatly surprised over the resilience and
ability of LIC to innovate and raise its servicing standards. The LIC has been able
to offer innovative products, better returns to its policyholders and has created
unsurpassable records in claim settlements. The LIC has been settling over one
crore claims each of these years. It has maintained a consistent record of settling
over 99.86 per cent of the reported claims. It tops in conservation of business with
the lowest lapsing ratio in the industry. In contrast, the private companies have
settled only around 72 per cent of the reported claims and large number of these
companies have more than 25 per cent lapsing ratio as against 4 percent of LIC
according to the annual report 2006-07 of the IRDA. The operating expenses of
LIC are also the lowest in the industry at 5.54 per cent. It is this sound track record
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
that has earned LIC the trust of the insuring public. Naturally over 230 million
policyholders have placed their unflinching faith and trust in this great institution.
The performance of the four general insurance companies has been equally good.
These companies secured a gross direct premium income of Rs 16899.49 crore in a
de-tariffed regime. The profitability of all the four companies increased and their
underwriting losses have substantially been reduced. For the year ending March
31, 2008, United India has earned a net profit of Rs 631.32 crores, an increase of
19.5 per cent over the previous year. The details of other companies are yet to be
released but the story could be no different. We are convinced that the public sector
could have performed much better had the government been prudent to accept
merger of the four companies. The private companies on the other hand have
shown increased underwriting losses. The record of private companies in relation
to claim settlement is unsatisfactory and some state governments like Maharashtra
who had entrusted their social security mediclaim scheme to the private companies
have dragged them to courts on the issues of non-settlement of claims.
Despite such good performance, there is wild campaign that the public sector has
faltered and its performance is not that satisfactory for the year 2007-08. This
motivated campaign is aimed to malign and discredit the public sector. It is true
that the public sector could not achieve the rate of growth recorded in the previous
year. But it is equally true of the private sector too which witnessed decline in the
growth rates. The decline in the growth rate of the private companies is
deliberately not discussed showing a clear bias against the public sector. What are
the reasons for the slow down in the growth rates in the insurance industry? We
have always held that it is the growth of the economy and levels of disposable
incomes that enables the growth of the insurance industry. It is now acknowledged
that the Indian economy had slowed down in 2007-08. The government itself had
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
lowered the growth projections. The agriculture sector on which 60 per cent of
India's population is dependent continued to remain crisis ridden. The
manufacturing sector recorded the lowest growth rate for the last three years. The
services sector that contributes 55 per cent to the GDP did not remain unaffected
by the slow down. The RBI confirmed that the household savings declined while
corporate savings increased. This shows the shift in the incomes from the
household to spend a greater proportion of the incomes on food. The RBI also
confirmed decline in the rate of financial savings. Despite all these handicaps and
the constant attempts to encourage the private sector through governmental
policies and the IRDA interventions, the public sector insurance has performed
well and this is really creditable.
But many more challenges confront the public sector insurance industry today. The
slow down in the economy would impact the entire insurance industry. The threat
of further liberalisation of the sector continues unabated. There is aggressive
demand to increase the limits of foreign equity beyond 50 per cent. The Economic
Survey 2008 has suggested foreign equity beyond 51 per cent in health insurance.
The Raghuram Rajan committee on financial sector reforms and the Anwarul Hoda
committee on services sector have recommended complete liberalisation of
financial sector. These committees have recommended detariffing of all insurance
products and reducing of the solvency margin to 100 per cent as the higher
solvency margin rates have started affecting the private companies. These
committees have also suggested that foreign investors be permitted to a larger
share in the insurance companies and review of investment regulations to allow
investment in emerging instruments and derivatives. The Anwarul Hoda committee
has suggested total removal of FDI restrictions in reinsurance and an enactment of
a comprehensive law on insurance. Similarly in the banking industry, the
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PRIVATISATION IN INSURANCE SECTOR IN INDIA
recommendations are for gradual reduction in statutory liquidity ratio and to make
priority lending targets to be on market based approach. The committees further
recommend the doing away of the branch licensing and reduction of government
holding in public sector banks to 33 per cent. These recommendations are aimed to
integrate the Indian financial sector into the architecture of the global finance
capital. These recommendations would be disastrous not just to the financial sector
but to the entire national economy. But the government which is committed to
liberalise the financial sector would surely make attempts to implement these
recommendations.
The crisis in the financial markets in the US and Europe would also impact our
industry. It is not only the banks but the US insurance companies have also
suffered huge losses due to sub-prime lending crisis and swapping of credit
derivatives. The Business Standard April 22, 2008 reports that the biggest US
insurer AIG has announced losses of over 32 billion dollars in the last one quarter
itself compelling the company to announce raising of additional capital amounting
to 20 billion dollars. Therefore, the US and its insurance companies would exert
greater pressure for full liberalisation of Indian insurance sector. In the
circumstances the struggle to defend the public sector insurance industry has
become much more challenging. The movement led by AIIEA succeeded in
preventing the privatisation of insurance sector for over one decade. This struggle
has also helped the public sector to consolidate and gain due to the campaign of the
employees among the public. The campaign to educate the public about the
dangers inherent in the government policies and the need of a strong public sector
to better the lives of the people must be further strengthened. We are confident that
LIC and the four general insurance companies would continue to perform well
overcoming all obstacles. But let us also understand that this is possible only when
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we heighten our campaign and struggle. This is the urgent task before the insurance
employees. (Editorial, Insurance Worker, June 2008 issue)
The insurance sector was liberalised and opened to private sector participation to
break the monopoly position of public sector companies and provide better
insurance coverage, products and services to the citizens and in the process
augment flow of long-term resources for financing infrastructure.
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response to the consumers’ grievances are the other features of this market which
can easily be discerned.
The market seems to be expanding and growing but only in depth and not the
width of coverage. Such growth rates, however, can be sustained only by reaching
out to newer markets. And no concerted effort on development of new markets has
been seen so far. LIC has responded well to competition, the decline in its sales
figures, post 2002 have been on account of removal of its high selling single
premium, guaranteed products. It has shown impressive growth in its traditional
product sales.
In non-life sector, the challenge seems to be more daunting. Not only the retail
market has not been impacted in any perceivable proportion, the levels of
awareness and also the standards of customer services, as perceived by the general
public, are pretty low. This needs to change.
Product Development:-
There certainly has been a plethora of new and innovative products offered by
both, LIC and new players, in the life sector. LIC has the widest range of products
and customised solutions for the customers. Public sector non-life companies are
yet to get their act together.
Customer Service:-
This is an area where new companies are clearly ramping up by bringing in their
global best practices, operational efficiency through technology etc. Public sector
companies are fast gearing up. However, a lot still needs to be done in this area as
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is evidenced by the FORTE survey. The real time response and turnaround times in
delivery of the services have to be up to the customer expectation levels in areas
like delivery of first premium receipt, policy document, premium notice, final
maturity payment, death claim etc.
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brand loyalty. To survive, the focus of the modern insurers shifted to a customer-
centric relationship. The paper focuses the current position of insurance industry.
Liberalisation on the Insurance sectors has allowed the foreign players to enter the
market with their Indian partners. Most of the foreign Insurers have joined within
the local market. India offers immense possibilities to foreign Insurers since it is
the world's most populous country having over a billion people.
Insurance industry had ten and six entrants in life and non-life sector respectively
in the year 2000-2001. The industry again saw two and three entrants in the life
and non-life business respectively in the year 2001-2002. One additional entrant
was made both in the life and in non-life business in 2004 and 2005 respectively.
At present there are fourteen companies each in Life and General Insurance. The
Funds earlier generated by the state owned insurers have been diversified with
other new insurers.
2.) Competition:-
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Private and Foreign entrants in the Insurance Industry made others difficult to
retain their market. Higher customer aspirations lead to new expectations and
compel him to move towards the insurer who provides him the best service in time.
It becomes less viable for them even to maintain the functional networks or
competitive standards and services. To survive in the Industry they analyse, the
emerging requirements of the policyholders / insurers and they are in the forefront
in providing essential services and introducing novel products. Thereby they
become niche specialists, who provide the right service to the right person in right
time.
The following table shows the market share of life and non-life insurers
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In the above table shows, the private players in the life insurance business have
increased their market share to 23.93 per cent. Among them ICICI prudential is
ranked first in capturing the market followed by Bajaj Allianz and HDFC Standard.
In the General Insurance sector the private players have captured 27.35 per cent.
Among them ICICI-Lombard is ranked first, followed by Bajaj Allianz and
IFFCO-Tokio.
The healthy competition in the sector enabled the State owned insurers of our
mother country to reduce its market share to 76.07 per cent and 72.65 percent in
life and non-life business respectively. Moreover, private insurers have planned to
increase their market share in the next five years. The public insurers have to
enrich its approach to withhold its share.
New technology gives the policyholders / insured better, wider and faster access to
products and services. The impact of Information Technology in Insurance
business is being felt at an accelerating pace. In the initial years IT was used more
to execute back office functions like maintenance of accounts, reconciling broker
accounts, client processing etc. With the advent of "database concepts", these
functions are better integrated in an administrative efficiency.
The real evolution is however emerged out of Internet boom. The Internet has
provided brand new distribution channels to the Insurers. The technology has
enabled the Insurer to innovate new products, provide better customer service and
deeper and wider insurance coverage to them. At present, Insurance companies are
giving customers a distinct claim id to track claims on-line, entertaining on-line
enrollment, eligibility review, financial reporting, and billing and electronic fund
transfer to its benefit clan customers.
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While companies have been successful in product innovation, most of them are
still grapping with right mix of Distribution Channels for capturing maximum
market share to build brand equity, building strong and effective customer
relationships and cost effective customer service. While the traditional channel of
tied up advisors or agents would be the chief distribution channel, insurer should
innovate and find new methods of delivering the products to customers. Corporate
agency, brokerage, Banc assurance, e-insurance, cooperative societies and
panchayats are some of the channels, which can be tapped by the insurers to reach
the appropriate market segments. Now days, the urban masses are tapped with the
new techniques provided by Information Technology through Internet. Rural
masses are attracted by the consultative approach adopted by the Insurers.
Moreover, they attract the customers through telephone and mobile also.
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Insurance is a unique service industry. The key industry drivers are related to life
style issues in terms of perceiving insurance as a savings instrument rather than for
risk cover, need based selling, quality of service and customers awareness.
In the present competitive scenario, a key differentiator is the professional
customer service in terms of quality of advice on product choice along with policy
servicing. Servicing focus is on enhancing the customer's experience and
maximizing his convenience. This calls the effective CRM system, which
eventually creates sustainable competitive advantage and enables to build long
lasting relationship.
BIBLIOGRAPHY
(1) Insurance : Ajit Ranade and Rajeev Ahuja; India Development Report 1999-
2000
(2) Insure for life: Navjit Gill : Business World, 28 February 2000.
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