vivek bhargava

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DISSERTATION PROJECT REPORTON

LIFE COVERAGE BY LIFE INSURANCE

CORPORATION AND PRIVATE INSURANCE COMPANIES

Report submitted in partial fulfillment of therequirements for

Graduate in Management

PROJECT GUIDED: SUBMITTED BY:

Dr. R.K.Singh VIVEK BHARGAVA

FMT VNS BBA IV Sem


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CONTENTS

Acknowledgement

Introduction

Concept of Insurance

Global Insurance Industry

Performance of Indian Industry

Insurance sector reforms in India

New avenues for growth of theInsurance industry

Research Methodology

Research Objectives

Research Design

Research ProcessLimitations of the Study

Significance of the study

Analysis and Interpretation

Findings & ConclusionsReferences


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ACKNOWLEDGEMENT

I must acknowledge my indebtedness to various personalities, butfor whom, this project could not have seen the light of the day.

I am profoundly grateful to Mr Y.M.Tripathi, Faculty of Management and Technology, HCPG Varanasi. who agreed tobecome my mentor and guide for the project and gave me theopportunity to work on this project. I am also grateful, for hissupport and guidance throughout this project with valuableinformation and giving me a better insight of the things, withoutwhich the successful culmination of this project would not have been

possible. Not only did he inspired me throughout the progress of theproject, but, also motivated me to get an insight into the field of mywork.

I would also like to extent my immense gratitude to respected Director Prof. R.C.Sharma, Faculty of Management andTechnology, HCPG Varanasi who allowed me to choose the topic formy Dissertation.

VIVEK BHARGAVA


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CHAPTER 1INTRODUCTION


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1. CONCEPT OF INSURANCE :

Life has always been an uncertain thing. To be secure against unpleasantpossibilities, always requires the utmost resourcefulness and foresight onthe part of man. To pray or to pay for protection is the spirit of thehumanity. Man has been accustomed to pray God for protection andsecurity from time immemorial. In modern days Insurance Companieswant him to pay for protection and security. The insurance man says"God helps those who help themselves"; probably he is correct. Too manypeople in this country are not in employment; and work for too many nolonger guarantees income security. Several millions are part-time, selfemployed and low-earning workers living under pitiable circumstanceswhere there is no security cover against risk. Further the inherentchanging employment risks, the prospect of continual change in the workplace with its attendant threats of unemployment and low pay especiallyafter the adoption of New Economic Policy and the imminent life cyclerisks - a new source of insecurity which includes the changing demands of family life, separation, divorce and elderly dependents aretormentingthe society. Risk has become central to one's life. It is within thisbackground life insurance policy has been introduced by the insurance

companies covering risks at various levels. Life insurance coverage isagainst disablement or in the event of death of the insured, economicsupport for the dependents. It is a measure of social security to livelihoodfor the insured or dependents. This is to make the right to life meaningful,worth living and right to livelihood a means for sustenance. Therefore, itgoes without saying that an appropriate life insurance policy within thepaying capacity and means of the insured to pay premium is one of thesocial security measures envisaged under the Indian Constitution. Hence,right to social security, protection of the family,economic empowermentto the poor and disadvantaged are integral part of the right to life and

dignity of the person guaranteed in the constitution. Man finds hissecurity in income (money) which enables him to buy food, clothing,shelter and other necessities of life. A person has to earn income not onlyfor himself but also for his dependents, viz., wife and children. He has to provide legally for his family needs, and so he has to keep asidesomething regularly for a rainy day and for his old age. Thisfundamental need for security for self and dependents proved to be themother of invention of the institution of life insurance.


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What is Insurance :The business of insurance is related to the protection of the economicvalues of assets. Every asset has a value. The asset would have beencreated through the efforts of the owner. The asset is valuable to theowner, because he expects to get some benefit from it. The benefit may bean income or some thing else. It is a benefit because it meets some of hisneeds. In the case of a factory or a cow, the product generated by is soldand income generated. In the case of a motor car, it provides comfort andconvenience in transportation. There is no direct income. Every asset is

expected to last for a certain period of time during which it will perform.After that, the benefit may not be available. There is a life-time for amachine in a factory or a cow or a motor car. None of them will last forever. The owner is aware of this and he can so manage his affairs that bythe end of that period or life-time, a substitute is made available. Thus, hemakes sure that the value or income is not lost. However, the asset mayget lost earlier. An accident or some other unfortunate event may destroyit or make it non-functional. In that case, the owner and those derivingbenefits from there, would be deprived of the benefit and the plannedsubstitute would not have been ready. There is an adverse or unpleasantsituation. Insurance is a mechanism that helps to reduce the effect of such

adverse situations. Insurance, in law and economics, is a form of riskmanagement primarily used to hedge against the risk of a contingentloss. Insurance is defined as the equitable transfer of the risk of apotential loss, from one entity to another, in exchange for a premium.Insurer, in economics, is the company that sells the insurance. Insurancerate is a factor used to determine the amount, called the premium, to becharged for a certain amount of insurance coverage. Risk management,the practice of appraising and controlling risk, has evolved as a discretefield of study and practice.


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Origin of Insurance

PRACTICE OF INSURANCE IN INDIA: 1818-1956

It is claimed that insurance was practiced in India even in Vedictimes in one form or theother. The Sanskrit term "Yogakshema" inthe Rigveda meant some kind of insurance, which was practiced bythe Aryans in India nearly 3000 years ago. During the Mughal

period insurance took firm roots. There are even references to thecover against war risks. Losses due to the passage of royal troopsthrough farms were compensated by the State as a gesture ofgoodwill.

The year 1818 is an epoch -making year in the history of ourcountry. The first Life Insurance Company on India soil appears tohave been started in this year. A group of Europeans pioneered theestablishment of the Oriental Life Insurance Society to afford reliefto the distressed relatives of European. The venture was not quitesuccessful but the company was reformed in 1829.The renewedCompany also got into trouble in 1833 when Agency House ofCalcutta, partners of the same, fell.

Prince Dwarkanath Tagore was the only solvent partner & the soleresponsibility for carrying on the institution developed on him.

Meanwhile, early in Janury1834, the Government made up its mindto establish a Public Insurance Company & a Committee was set up

for this purpose .A number of foreign Insurance Companies thenoperating in the country viewed this move with alarm. They set upCommittees of their own enquire into their individual affairs.

Dwarkanath Tagore, too, had a Committee appointed to look intothe affairs of the Oriental. As a result, another company was born

out of the previous one in the name of "New Oriental Company"

In the reorganization of the "Oriental" in the year 1834, two othergentlemen were associated. One was Ramtanu Lahiri and the other

Rustamjee Cowasjee. The latter was another prominent figure of thebusiness world. Rustamjee entered insurance business in 1828, hewas already known to the community and the Government as a


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wealthy Parsi merchant. Rustamjee's connection with insurancealso started with "Laudable Societies", but he was later onassociated with Companies like "Sun Life Office (1834) ", NewOriental (1835),Universal Life (1835) , New Laudable (1840) , and

Indian Laudable (1841) . He was also on the Committee of the UnionInsurance Company which was formed by a group of five persons.This Company was issuing policies covering river-risks only. Hewas intimately connected with the Committee of Insurance Offices inCalcutta. Rustamjee Cowasjee & Dwarkanath Tagore was probablythe first Indians to join in partnership business with the Europeans& in the field of insurance they were pioneers on this side of thecountry.

Apart from Calcutta, several enterprising people in Bombay started

in 1823 the "Bombay Life" Assurance Company. The company wentinto liquidation soon and could not revive. In 1829, the "Madras

Equitable "was formed. It finally ceased to function in 1921 due tofinancial difficulties after the First World War.

The effort to set up a public insurance company at the governmentlevel also went in vain, mainly from objection of private operators.

Majority of the early attempts to form insurance offices were in the province of Bengal. This was due to its political & economicimportance at that time.

The contribution of Raja Ram Mohan Roy, one of the greatest socialreformers of India, to the development of life insurance is verygreat. He was deeply concerned about the sad plight of desperatewidows and helpless orphans.

OVERSEAS INSURERS

Initially, when Life Offices were established in large numbers in Britain, some of them ventured to issue sterling policies to theBritish residents in India. Premiums collected here were credited to England largely for British beneficiaries. Business seems to havebeen brisk and profitable and was usually under short term policies.

Insurance mortality tables and insufficient mortality data of


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commenced business in India. Sir Charles Forbes was its first agent,succeeded by M/s. Forbes, Forbes and Campbell. It accepted only

European lives and commenced insuring Indian lives only after1929.This too, was mainly to oblige good agents of the Company forclasses other than life business. The North British and Mercantilewas the next company to appear on the Indian scene.

It started fire insurance business in the year 1861 and life business1864. The London Assurance started life business in 1864, limited

principally to European lives and closed down its life departmentwhen the Life Assurance Companies Act 1912 made submission ofreturns compulsory.

On 3rd December, 1870, seven earnest men of Bombay with just

seven rupees for initial expenses gave shape to a plan of offeringinsurance to the public without the risk of ruin and the "Bombay

Mutual Life Assurance Society" came into existence. This was followed by the Oriental Life Assurance Company in1874, theBharat in 1896 and the Empire of India in 1897.

THE BIRTH OF INDIAN INSURERS

With the advent of the 20th century, the glorious renaissance ofswadeshi days dawned. At the same time, well- to do Indiansrealized the potentiality of Indian Insurance business. The Swadeshimovement of 1905-1907 gave rise to more insurance companies. TheUnited India in Madras, National Indian and National Insurance inCalcutta and the Co-operative Assurance at Lahore were establishedin 1906. In 1907, Hindustan Co-operative Insurance Company tookits birth in one of the rooms of the Jorasanko House of the great poet

Rabindranath Tagore, in Calcutta. The Indian Mercantile (1907)was started in Bombay, General Assurance (1908) at Ajmer and the

Swadeshi Life (Later Bombay Life) in Bombay in 1908.

The end of the First World War (1914-18) witnessed an influx ofinsurance companies in India. Famous Indian business housesstarted new insurance companies. Industrial and Prudential

Bombay, Western India, Satara, were floated before the war, but by


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1919, companies like Jupiter General, New India, Vulcan InsuranceCompany etc. came into being. Pandit K.Santhanam with blessing of

Lala Lajpat Rai and Pandit Motilal Nehru started Laxmi InsuranceCo. Similarly, Andhra Insurance was started in Masulipatnam, withthe initiative of stalwarts like Dr. Pattabhi Sitaramaiah. From

political platforms also, national leaders supported this cause. It isduty to every Indian to support only Indian Insurance. Th keynoteof our Swaraj is in placing all our insurance with our Indiancompanies", said Mahatma Gandhi in his message. "I hope Indianswill realize the importance of patriotism only through Indianinsurance institution", stated Pandit Jawaharlal Nehru. Thus, thecause of Indian insurance became a national issue. The pursuit toboost Indian insurance represented a crusade to extricate the Indianeconomy from foreign domination.

PROGRESS IN INSURANCE BUSINESS

The growth of Life Insurance in concrete terms could be said tobeing during the first two decades of twentieth century when mostof the major companies were founded. They grew in terms of rise inthe number of companies, in terms of number of policies and sumassured as well as total life fund. Indian Insurance Year Book,

published for the first time in 1914, gives the figure of the total

business-in -force as 22.44 crore which grew to Rs. 298 crore in1938. In 1914, there were only 44companies transacting insurancebusiness in India, and during the next 25 years their number rose to176. The total progress on all the primary heads, viz. life fund (Rs.

50.50 crore), premium income (Rs. 10.50 crore) and new business(Rs. 43.30 crore) indicate that Indian Insurance Business had beenmaking a definite headway during this years. The inter-war -yearsthus saw rapid growth life insurance in India.

The promotion of new life insurance companies continued to bealmost a craze and insurance companies mushroomed. In this

period, 176 insurance companies were formed and many of themfailed. Thus unhealthy growth was harmful to the interest of thepolicy holders and insurance business in India. Feeling concernedabout it, the All India Life Assurance Offices' Association urged uponthe Government in 1932 to undertake the insurance legislation to

(a) Compulsorily register all Life Insurance companies.


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(b) Secure a deposit of Rs.2 lakh from all Life Insurancecompanies.

(c) Compel foreign companies doing business in India to keepsufficient funds in India securities to meet their liabilities under all

policies issued in India.

I N S U R A N C E A C T , 1 9 38

The Insurance Act, 1938, was the first comprehensivelegislation governing not only life but also non- life branchesof insurance to provide strict state control over insurancebusiness. In sub- sections to dealt with provident companies,mutual offices and co-operative societies as well.

The silent features of the Act were as follows:

(A) Constitution of a Department of Insurance under asuperintendent vested with wide powers of supervision andcontrol over all kinds of insurance companies.

(B) Regulation for the compulsory registration ofinsurance companies and for filingof returns of investment and financial conditions.

(C) Provisions for deposit, to prevent insurers ofinadequate financial resources ofspeculative concerns for commencing business.

(D) Provisions that 55% of the net life fund of an Indianor non- Indian insurer should invested in IndianGovernment and approved securities with at least 25% inIndian Government Rupee securities.. All other companies,i.e., foreign companies must invest 100% of their Indianliabilities in Indian Government and approved securities,with at least 33.3% Indian Government securities.


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(E) Prohibition of rebating, restriction of commission,licensing of agents etc. Maximum rates of commissionwere fixed at 40% of the first premiums and 5% of the

renewal premium in respect of life assurance business. Theagent must be licensed, to improve the status of theprofession.

(F) Periodical valuation of Indian Insurance business offoreign companies and the business of Indian companies.

(G) Provision for policyholders' directors, making itpossible for the representatives of policyholders to be onthe Board of directors.

(H) Standardization of policy conditions required allcompanies to file standard forms and tables of premiumapproved by an Actuary. Under this requirement, the initialdeposit for life insurance business was raised from Rs.25000 in Government securities to Rs. 50000 in cashapproved securities, which was subsequently to be raisedby installments to Rs. 2 lakh within a specified time limit.

Nationalization

THE LIFE INSURANCE CORPORATION OF INDIA: 1956

This was the first step taken towards the nationalization oflife insurance business in India. On 20th January, 1956 alllife insurance companies were taken over by 43 nominated

custodians. The custodians were experienced seniorexecutives of private insurance companies, reporting directlyto the Finance Ministry. From the word go, the complex taskof running the industry on a permanent basis and continuingthe services to policy holders without interruption were theirmajor concerns. The actual work of integration had to await


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legislation. The custodians managed the insurancecompanies till 1-09-1956, when Life Insurance Corporationwas established under the general direction and control ofthe Ministry of Finance. The Ordinance provided for the

transfer of the control of 154 Indian insurers, 16 non Indianinsurers and 75 provident societies. These arrangementswere designed to ensure that no inconvenience whatsoeverwas caused to the policy holders. With the Government takeover the management aimed towards the evolution of acommon uniform premium rate, policy conditions andservice and working procedures and above all to helppromote team spirit. The corporation, a body corporate shall

consist of not more than 15 members appointed by theCentral Government, one of them being appointed by thegovernment as chairman. The capital of the corporation wasat Rs 5 crore provided by the central government.

INSURANCE SECTOR REFORMS

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N.Malhotra was formed to evaluate the Indian Insurance industry and recommended its futuredirection. The Malhotra committee was set up with the objective of complementing the

reforms initiated in the financial sector. The reforms were aimed at "creating a more efficientand competitive financial system suitable for the requirements of the economy keeping inmind the structural changes currently underway and recognizing that insurance is animportant part of the over all financial system where it was necessary to address the need forsimilar reforms...". In 1994, the committee submitted the report and some of the keyrecommendations included:(1) STRUCTURE

Government stake in the Insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that thesesubsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate

(2) COMPETETION Private Companies with minimum paid up capital of Rs.1 bn should be allowed to enter theindustry. No Company should deal in both Life and General Insurance through a single entry. Foreign Companies may be allowed to enter the industry in collaboration with the domesticcompanies. Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state.


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(3) REGULATORY BODY

The Insurance Act should be changed An Insurance Regulatory Body should be set up. Controller of Insurance (Currently a part from the Finance Ministry)should be madeindependent

(4) INVESMENTS

Mandatory Investments of LIC Life Fund in government securities to be reduced from 75%to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (There currentholdings to be brought down to this level over a period of time).

(5) CUSTOMER SERVICE

LIC should pay interest on delays on payments beyond 30 days. Insurance Companies must be encouraged to set up unit linked pension plans Computerization of operations and updating of technology to be carried out in the insuranceindustry.

The committee emphasized that in order to improve the customer service and increase thecoverage of insurance industry should opened up to competition. But at the same time, thecommittee felt the need to exercise caution as any failure on the part of new players couldruin the public confidence in the industry.

Hence, it was decided to allow competition in a limited way by stipulating the minimumcapital requirement of Rs. 100 crores. The committee felt the need to provide greaterautonomy to insurance companies in order to improve their performance and enable them toact as independent companies with economic motives. For this purpose, it had proposedsetting up an independent regulatory body.

Liberalization :

OPENING UP OF INSURANCE SECTOR 1999 THE INSURANCE

REGULATORY AND DEVELOPMENT AUTHORITY

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill inParliament in December 1999. The IRDA since its incorporation as a statutory body in April2000 has fastidiously stuck to its schedule of framing regulations and registering the privatesector insurance companies. The other decision taken simultaneously to provide thesupporting systems to the insurance sector and in particular the life insurance companies wasthe launch of the IRDA's online service for issue and renewal of licenses to agents. Theapproval of institutions for imparting training to agents has also ensured that the insurance

companies would have a trained workforce of insurance agents in place to sell their products,which are expected to be introduced by early next year. Since being set up as an independentstatutory body the IRDA has put in a framework of globally compatible regulations. In theprivate sector 14 life insurance companies have been registered.

ENTRY OF PRIVATE COMPANIES


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Under the IRDA Act, private companies can now operate in India's insurance industry.However, they must obtain a license from the IRDA before being permitted to write business.To have its license application considered, a domestic private company must be registered inaccordance with the Companies Act of 1956 and have approximately US$ 20 million ofinvestment capital. The specific licensing requirements that Private Indian Companies mustfulfill are set forth in the Registration on Indian Insurance Companies Regulations, publishedby the IRDA 2000.

LIFTING OF BARRIERS TO FOREIGN INVESTMENT

The IRDA Act also lifts certain barriers to foreign direct investment in Indianinsurance industry. Global insurers are now permitted to set up and register a domesticcompany in order to write business in India. However, regulations stipulate that they havecapital base of at least US $ 20 million, and their investment in such company is capped at 26percent. Thus, to participate in the market, they must form a joint venture with an Indianpartner that is able to invest the remaining funds. The equity investments limit is the same forglobal reinsures seeking to write business in India, but they are required to put up a capital of

approximately US$ 45 million in order to establish a domestic company.Since the IRDA first enacted these rules, 13 new life insurance companies haveentered themarket.On the other hand, no global reinsurer has established a domestic company.Instead,most of the top international reinsurance companies operate from theiroverseas offices bysharing the reinsurance risks picked up by the GIC. A recentproposal has been put forwardto increase foreign direct investment to 49 percent.In addition, global companies are pushingfor the right to establish branch offices in India. These changes are likely to substantiallyincrease the presence of international insurers, reinsurers, and brokers in India. The IRDAInsurance Brokers Act in India 2002 permitted overseas insurance andreinsurance brokers toenter the market, but with the same equity cap as thatgoverning the operations of foreigninsurers and reinsurers. Thus, foreign brokersmust also form a joint venture with an Indianpartner in order to establish an Indianbroking house.The 2002 IRDA legislation establishedfour broker categories, one of whichbrokers must select when applying for a license:1. Category 1A : Direct General Insurance Broker2. Category 1B : Direct Life Insurance Broker3. Category 2 : Reinsurance Broker4. Category 3: Composite Broker5. Category4: Others, for example Insurance Consultants and RiskManagement Consultants.Each category has different solvency margins and capital adequacy ratios, and allcategories need to carry professional indemnity insurance at different minimumlevels.In the years since market liberalization was initiated, the insurance sector has

witnessed some impressive changes. The needs of insurance and reinsurancebuyers have grown; the market is introducing new products to address these needs;and the services of brokers are now seen as critical to making informed insuranceand reinsurance decisions.


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OVERVIEW OF THE CURRENT INSURANCE MARKET

In the years since the IRDA Act initiated market reforms, the insurance sector hasexperienced some remarkable changes.The entry of a large number of Indian and Foreignprivate companies in life insurance business has to lead greater choice in terms of productsand services Increased consumer awareness of the benefits and importance of insurance andreinsurance has generated many more buyers; and new distribution channels_among them brokers, bank assurance, the Internet, and corporate agents_ haveprovided additional ways of getting products and services to customers.Private insurance companies have to date written a small percentage of business inthis sector during the last three years, but they have ushered in a competitiveenvironment that has accelerated market growth.State owned insurers still write the bulk of insurance business, and they have the

net worth required to underwrite large corporate risks without depending almostentirely on reinsurance support. However, their focus on restructuring is beginningto put them at a disadvantage against private competitors.Over the next few years, the share of the market held by the public insurers isexpected to drop substantially, with private companies assuming a growingpercentage of the business written.At present there are 15 private insurers with two standalone private players andremaining private-foreign joint venture.

Purpose and Need of Insurance :Assets are insured, because they are likely to be destroyed through accidental occurrences.Such possible occurrences are called perils. Fire, floods, breakdowns, lightening,

earthquakes, etc, are perils. If such perils can cause damage to the asset, we say that the assetis exposed to that risk. Perils are the events. Risks are the consequential losses or damages.The risk to a owner of a building, because of the peril of an earthquake, may be a few lakhsor a few crores of rupees, depending on the cost of the building and the contents in it.The risk only means that there is a possibility of loss or damage. The damage may or may nothappen. Insurance is done against the contingency that it may happen. There has to be anuncertainty about the risk. Insurance is relevant only if there are uncertainties. If there is nouncertainty about the occurrence of an event, it cannot be insured against. In the case ofhuman being, death is certain, but the time of death is uncertain. In the case of person who isterminally ill, the time of death is not uncertain, though not exactly known. He cannot beinsured.Insured does not protect the asset. It does not prevent its loss due to peril. The peril cannot be

avoided through insurance. The peril can sometimes be avoided through better safety anddamage control management. Insurance only tries to reduce the impact of the risk on theowner of the asset and those who depend on that asset. It only compensates the losses andthat too, not fully.Only economic consequences can be insured. If the loss is not financial, insurance may notbepossible. Example of non-economic losses are love and affection of parents, leadership ofmanagers, sentimental attachments to family heirlooms, innovative and creative abilities, etc.


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How Insurance Works?The mechanism of insurance is very simple. People who are exposed to the same risks come

together and agree that, if any one of them suffers a loss, the others will share the loss andmake good to the person who lost. All people who send goods by ship are exposed to thesame risks, which are related to water damage, ship sinking, piracy, etc. Those owningfactories are not exposed to these risks, but they are exposed to different kinds of risks like,fire, hailstorms, earthquake, lightning, burglary, etc. Like this, different kinds of risks can beidentified and separate groups made, including those exposed to such risks. By this method,the heavy loss that any one of them may suffer (all of them may not suffer such losses at thesame time) is divided into bearable small losses by all. In other words, the risk is spreadamong the community and the likely big impact on one is reduced to smaller manageableimpacts on all.If a Jumbo Jet with more than 350 passengers crashes, the loss would run into several croresof rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jets

will crash at same time. If 100 airline companies flying Jumbo Jets, come together into aninsurance pool, whenever one of the Jumbo Jets in the pool crashes, the loss to be borne byeach airline would come down to a few lakhs of rupees. Thus, insurance is a business of

sharing.There are certain principles, which make it possible for insurance to remain a fairarrangement. The first is that it is difficult for any one individual to bear the consequences ofthe risks that he is exposed to. It will become bearable when the community shares theburden. The second is that the perils should occur in an accidental manner. Nobody should bein a position to make the risk happen. In other words, none in the group should set fire to hisassets and ask others to share the costs of damage. This would be taking unfair advantage ofan arrangement put into place to protect people from risks they are exposed to. Theoccurrence has to be random, accidental, and not the deliberate creation of the insuredperson.The manner in which the loss is to be shared can be determined before-hand. It may beproportional to the risk that each person is exposed to. This would be indicative of the benefithe would receive if the peril befell him. The share could be collected from the members afterthe loss has occurred or the likely shares may be collected in advance, at the time ofadmission to the group. Insurance companies collect in advance and create a fund from whichthe losses are paid.The collection to be made from each person in advance is determined on assumptions. Whileit may not be possible to tell beforehand, which person will suffer, it may be possible to tell,on the basis of past experiences, how many persons, on an average, may suffer losses. Thefollowing two examples explain the above concept of insurance:

Example 1


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In a village, there are 400 houses, each valued at Rs. 20000. Each year, on the average, 4houses get burnt, resulting into a total loss of Rs. 80000. If all the 400 owners come togetherand contribute Rs. 200 each, the common fund would be Rs. 80000. this is enough to pay Rs.20000 to each of the 4 owners whose houses got burnt. Thus, the risk of 4 owners is spreadover 400 house-owners of the village.

Example 2

There are 1000 persons who are all aged 50 and are healthy. It is expected that of these, 10persons may die during the year. If the economic value of the loss suffered by the family ofeach dying person is taken to be Rs. 20000, the total loss would work out to Rs. 200000. Ifeach person in a group contributed Rs. 200 a year, the common fund would be Rs. 200000.This would be enough to par Rs. 20000 to the family of each of the ten persons who die.Thus, the risks in the case of 10 persons, are shared by 1000 persons.

Insurance of Human Asset

A human being is an income generating asset. Ones manual labour, professional skills andbusiness acumen are the assets. This asset also can be lost through unexpectedly early deathor through sickness and disabilities caused by accidents. Accidents may or may not happen.Death will happen, but the timing is uncertain. If it happens around the time of onesretirement, when it could be expected that the income will normally cease, the personconcerned could have made some other arrangements to meet the continuing needs. But if ithappens much earlier when the alternate arrangements are not in place, there can be losses tothe person and dependents. Insurance is necessary to help those dependent on the income.A person, who may have made arrangements for his needs after his retirement, also wouldneed insurance. This is because the arrangements would have been made on the basis of someexpectations like, likely to live for another 15 years, or that children will look after him. Ifany of these expectations do not become true, the original arrangement would becomeinadequate and there could be difficulties. Living too long can be as much a problem as dyingtoo young. Both are risks, which need to be safeguarded against. Insurance takes care.

Insurance of Intangibles :The concept of insurance has been extended beyond the coverage of tangible assets.Exporters run risk of losses if the importers in the other country default in payments or incollecting the goods. They will also suffer heavily due to sudden changes in currencyexchange rates, economic policies or political disturbances in the other country. These risks

are insured. Doctors run the risk of being charged with negligence and subsequent liabilityfor damages. The amounts in question can be fairly large, beyond the capacity of individualsto bear. These are insured. Thus, insurance is extended to intangibles. In some countries, thevoice of a singer or the legs of a dancer may be insured.

Types of Insurance :

Any risk that can be quantified can potentially be insured. Specific kinds of risk that maygive rise to claims are known as "perils". An insurance policy will set out in detail which


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perils are covered by the policy and which are not.Below is a (non-exhaustive) list of the many different types of insurance that exist. A singlepolicy may cover risks in one or more of the categories set forth below. For example, autoinsurance would typically cover both property risk (covering the risk of theft or damage tothe car) and liability risk (covering legal claims from causing an accident). A homeowner'sinsurance policy in the U.S. typically includes property insurance covering damage to thehome and the owner's belongings, liability insurance covering certain legal claims against theowner, and even a small amount of health insurance for medical expenses of guests who areinjured on the owner's property.

Automobile insurance known in the UK as motor insurance, is probably the most commonform of insurance and may cover both legal liability claims against the driver and loss of ordamage to the insured's vehicle itself. Throughout most of the United States an autoinsurancepolicy is required to legally operate a motor vehicle on public roads. In some jurisdictions,bodily injury compensation for automobile accident victims has been changed to a no-faultsystem, which reduces or eliminates the ability to sue for compensation but providesautomatic eligibility for benefits.

Aviation insurance insures against hull, spares, deductible, hull war and liability risks.

Boiler insurance (also known as boiler and machinery insurance or equipment breakdowninsurance) insures against accidental physical damage to equipment or machinery.

Builder's risk insurance insures against the risk of physical loss or damage to propertyduring construction. Builder's risk insurance is typically written on an "all risk" basiscovering damage due to any cause (including the negligence of the insured) not otherwiseexpressly excluded.

Business insurance can be any kind of insurance that protects businesses against risks.Someprincipal subtypes of business insurance are (a) the various kinds of professional liabilityinsurance, also called professional indemnity insurance, which are discussed below underthatname; and (b) the business owners policy (BOP), which bundles into one policy many of thekinds of coverage that a business owner needs, in a way analogous to how homeownersinsurance bundles the coverage that a homeowner needs. Casualty insurance insures against accidents, not necessarily tied to any specific property. Credit insurance repays some or all of a loan back when certain things happen to theborrower such as unemployment, disability, or death. Mortgage insurance (which see below)is a form of credit insurance, although the name credit insurance more often is used to refer topolicies that cover other kinds of debt.

Crime insurance insures the policyholder against losses arising from the criminal acts ofthird parties. For example, a company can obtain crime insurance to cover losses arising fromtheft or embezzlement.

Crop insurance "Farmers use crop insurance to reduce or manage various risks associatedwith growing crops. Such risks include crop loss or damage caused by weather, hail, drought,frost damage, insects, or disease, for instance."

Defense Base Act Workers' compensation or DBA Insurance provides coverage forcivilianworkers hired by the government to perform contracts outside the US and Canada. DBA isrequired for all US citizens, US residents, US Green Card holders, and all employees orsubcontractors hired on overseas government contracts. Depending on the country, Foreign


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Nationals must also be covered under DBA. This coverage typically includes expensesrelated to medical treatment and loss of wages, as well as disability and death benefits.

Directors and officers liability insurance protects an organization (usually a corporation)from costs associated with litigation resulting from mistakes incurred by directors andofficers for which they are liable. In the industry, it is usually called "D&O" for short.

Disability insurance policies provide financial support in the event the policyholder isunable to work because of disabling illness or injury. It provides monthly support to help paysuch obligations as mortgages and credit cards.o Total permanent disability insurance provides benefits when a person is permanentlydisabled and can no longer work in their profession, often taken as an adjunct to lifeinsurance.

Errors and omissions insurance: See "Professional liability insurance" under "Liabilityinsurance".

Expatriate insurance provides individuals and organizations operating outside of theirhomecountry with protection for automobiles, property, health, liability and business pursuits. Financial loss insurance protects individuals and companies against various financial

risks.For example, a business might purchase cover to protect it from loss of sales if a fire in afactory prevented it from carrying out its business for a time. Insurance might also cover thefailure of a creditor to pay money it owes to the insured. This type of insurance is frequentlyreferred to as "business interruption insurance." Fidelity bonds and surety bonds are includedin this category, although these products provide a benefit to a third party (the "obligee") inthe event the insured party (usually referred to as the "obligor") fails to perform itsobligations under a contract with the oblige.

Health insurance policies will often cover the cost of private medical treatments if theNational Health Service in the UK (NHS) or other publicly-funded health programs do notpay for them. It will often result in quicker health care where better facilities are available.

Home insurance or homeowners insurance: See "Property insurance".

Liability insurance is a very broad superset that covers legal claims against the insured.Many types of insurance include an aspect of liability coverage. For example, a homeowner'sinsurance policy will normally include liability coverage which protects the insured in theevent of a claim brought by someone who slips and falls on the property; automobileinsurance also includes an aspect of liability insurance that indemnifies against the harm thata crashing car can cause to others' lives, health, or property. The protection offered by aliability insurance policy is twofold: a legal defense in the event of a lawsuit commencedagainst the policyholder and indemnification (payment on behalf of the insured) with respectto a settlement or court verdict. Liability policies typically cover only the negligence of theinsured, and will not apply to results of willful or intentional acts by the insured.o Environmental liability insurance protects the insured from bodily injury, property damage

and cleanup costs as a result of the dispersal, release or escape of pollutants.o Professional liability insurance also called professional indemnity insurance, protectsprofessional practitioners such as architects, lawyers, doctors, and accountants againstpotential negligence claims made by their patients/clients. Professional liability insurancemay take on different names depending on the profession. For example, professional liabilityinsurance in reference to the medical profession may be called malpractice insurance.Notaries public may take out errors and omissions insurance (E&O). Other potential E&Opolicyholders include, for example, real estate brokers, home inspectors, appraisers, and


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website developers.

Life insurance provides a monetary benefit to a decedent's family or other designatedbeneficiary, and may specifically provide for burial, funeral and other final expenses. Lifeinsurance policies often allow the option of having the proceeds paid to the beneficiary eitherin a lump sum cash payment or an annuity.o Annuities provide a stream of payments and are generally classified as insurance becausethey are issued by insurance companies and regulated as insurance and require the samekindsof actuarial and investment management expertise that life insurance requires. Annuities andpensions that pay a benefit for life are sometimes regarded as insurance against the possibilitythat a retiree will outlive his or her financial resources. In that sense, they are the complementof life insurance and, from an underwriting perspective, are the mirror image of lifeinsurance. Locked funds insurance is a little-known hybrid insurance policy jointly issued bygovernments and banks. It is used to protect public funds from tamper by unauthorizedparties. In special cases, a government may authorize its use in protecting semi-private fundswhich are liable to tamper. The terms of this type of insurance are usually very strict.

Therefore it is used only in extreme cases where maximum security of funds is required. Marine insurance and marine cargo insurance cover the loss or damage of ships at sea oroninland waterways, and of the cargo that may be on them. When the owner of the cargo andthe carrier are separate corporations, marine cargo insurance typically compensates the ownerof cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can berecovered from the carrier or the carrier's insurance. Many marine insurance underwriterswillinclude "time element" coverage in such policies, which extends the indemnity to cover lossof profit and other business expenses attributable to the delay caused by a covered loss.

Mortgage insurance insures the lender against default by the borrower.

National Insurance is the UK's version of social insurance (which see below).

No-fault insurance is a type of insurance policy (typically automobile insurance) whereinsurers are indemnified by their own insurer regardless of fault in the incident.

Nuclear incident insurance covers damages resulting from an incident involving radioactivematerials and is generally arranged at the national level. (For the United States, see the Price-Anderson Nuclear Industries Indemnity Act.)

Pet insurance insures pets against accidents and illnesses - some companies coverroutine/wellness care and burial, as well.

Political risk insurance can be taken out by businesses with operations in countries inwhichthere is a risk that revolution or other political conditions will result in a loss.

Pollution Insurance A first-party coverage for contamination of insured property either by

external or on-site sources. Coverage for liability to third parties arising from contaminationof air, water or land due to the sudden and accidental release of hazardous materials from theinsured site. The policy usually covers the costs of cleanup and may include coverage forreleases from underground storage tanks. Intentional acts are specifically excluded

Property insurance provides protection against risks to property, such as fire, theft orweather damage. This includes specialized forms of insurance such as fire insurance, floodinsurance, earthquake insurance, home insurance, inland marine insurance or boiler


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insurance.

Purchase insurance is aimed at providing protection on the products people purchase.Purchase insurance can cover individual purchase protection, warranties, guarantees, careplans and even mobile phone insurance. Such insurance is normally very limited in the scopeof problems that are covered by the policy.

Retrospectively Rated Insurance is a method of establishing a premium on largecommercialaccounts. The final premium is based on the insured's actual loss experience during the policyterm, sometimes subject to a minimum and maximum premium, with the final premiumdetermined by a formula. Under this plan, the current year's premium is based partially (orwholly) on the current year's losses, although the premium adjustments may take months oryears beyond the current year's expiration date. The rating formula is guaranteed in theinsurance contract. Formula: retrospective premium = converted loss + basic premium taxmultiplier. Numerous variations of this formula have been developed and are in use. Social insurance can be many things to many people in many countries. But a summary ofits essence is that it is a collection of insurance coverage (including components of lifeinsurance, disability income insurance, unemployment insurance, health insurance, and

others), plus retirement savings, that mandates participation by all citizens. By forcingeveryone in society to be a policyholder and pay premiums, it ensures that everyone canbecome a claimant when or if he/she needs to. Along the way this inevitably becomes relatedto other concepts such as the justice system and the welfare state. This is a large, complicatedtopic that engenders tremendous debate, which can be further studied in the following articles(and others):o Social welfare provisiono Social securityo Social safety neto National Insuranceo Social Security (United States)o Social Security debate (United States) Terrorism insurance provides protection against any loss or damage caused by terroristactivities. Title insurance provides a guarantee that title to real property is vested in the purchaserand/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunctionwith a search of the public records performed at the time of a real estate transaction.

Travel insurance is an insurance cover taken by those who travel abroad, which coverscertain losses such as medical expenses, lost of personal belongings, travel delay, personalliabilities, etc.

Workers' compensation insurance replaces all or part of a worker's wages lost andaccompanying medical expense incurred because of a job-related injury.

Advantages of Life Insurance :

Life insurance has no competition from any other business. Many people think that lifeinsurance is an investment or a means of saving. This is not a correct view. When a personsaves, the amount of funds available at any time is equal to the amount of money set aside inthe past, plus interest. This is so in a fixed deposit in the bank, in national savings certificates,in mutual funds and all other savings instruments. If the money is invested in buying sharesand stocks, there is the risk of the money being lost in the fluctuations of the stock market.


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Even if there is no loss, the available money at any time is the amount invested plusappreciation. In life insurance, however, the fund available is not the total of the savingsalready made (premiums paid), but the amount one wished to have at the end of the savingsperiod (which is the next 20 or 30 years). The final fund is secured from the very beginning.One is paying for it later, out of the savings. One has to pay for it only as long as one lives orfor a lesser period if so chosen. There is no other scheme which provides this kind of benefit.Therefore life insurance has no substitute.Even so, a comparison with other forms of savings will show that life insurance has thefollowing advantages.

In the event of death, the settlement is easy. The heirs can collect the moneys quicker,because of the facility of nomination and assignment. The facility of nomination is nowavailable for some bank accounts.

There is a certain amount of compulsion to go though the plan of savings. In other forms,ifone changes the original plan of savings, there is no loss. In insurance, there is a loss. Certain cannot claim the life insurance moneys. They can be protected against attachmentsby courts.

There are tax benefits, both in income tax and in capital gains.

Marketability and liquidity are better. A life insurance policy is property and can betransferred or mortgaged. Loans can be raised against the policy.The following tenets help agents to believe in the benefits of life insurance. Such faith willenhance their determination to sell and their perseverance.

Life insurance is not only the best possible way for family protection. There is no otherway.

Insurance is the only way to safeguard against the unpredictable risks of the future. It isunavoidable. The terms of life are hard. The terms of insurance are easy. The value of human life is far greater than the value of property. Only insurance canpreserve it.

Life insurance is not surpassed by many other savings or investment instrument, in termsofsecurity, marketability, stability of value or liquidity.

Insurance, including life insurance, is essential for the conservation of many businesses,justas it is in the preservation of homes.

Life insurance enhances the existing standards of living.

Life insurance helps people live financially solvent lives.

Life insurance perpetuates life, liberty and the persuit of happiness.

Life insurance is a way of life.

The Business of Insurance :

Insurance companies are called insurers. The business of insurance is to (a) bring togetherpersons with common insurance interests (sharing the same risks), (b) collect the share orcontribution (called premium) from all of them, and (c) pay out compensation (called claims)to those who suffer. The premium is determined on the same lines as indicated in theexamples above, but with some further refinements.In India, insurance business is classified primarily as life and non-life or general. Life


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For economic development, investments are necessary. Investments are made out of savings.A life insurance company is a major instrument for the mobilization of savings of people,particularly from the middle and lower income groups. These savings are channeled intoinvestments for economic growth.As on 31.3.2002, the total investments of the LIC exceeded Rs. 245000 crores, of whichmorethan Rs. 130000 crores were directly in Government (both State and Centre) relatedsecurities, more than Rs. 12000 crores in the State Electricity Boards, nearly Rs. 20000 croresin housing loans and Rs. 4000 crores in water supply and sewerage systems. Otherinvestments included road transport, setting up industrial estates and directly financingindustry. Investments in the corporate sector (shares, debentures and term loans) exceededRs. 30000 crores. These directly affect the lives of the people and their economic well-being.A life insurance company will have large funds. These amounts are collected by way ofpremiums. Every premium represents a risk that is covered by that premium. In effect,therefore, these vast amounts represent pooling of risks. The funds are collected and held intrust for the benefit of the policyholders. The management of life insurance companies are

required to keep this aspects in mind and make all its decisions in ways that benefit thecommunity. This applies also to its investments. That is why successful insurance companieswould not be found investing in speculative ventures. Their investments, as in the case of theLIC, benefit the society at large.Apart from investments, business and trade benefit through insurance. Without insurance,trade and commerce will find it difficult to face the impact to major perils like fire,earthquake, floods, etc. Financiers, like banks, collapse if the factory, financed by it, isreduces to ashes by terrible fire. Insurers cover also the loss to financiers, if their debtorsdefault.

2. GLOBAL INSURANCE INDUSTRY :

The global insurance industry is one of the largest sectors of finance. It ranges fromconsumer to corporate and industrial insurance, and even reinsurance, or insurance of

insurance.

The major insurance markets of the world are obviously the US, Europe, Japan, and SouthKorea. Emerging markets are found throughout Asia, specifically in India and China, and arealso in Latin America.With the internet and other forms of high-speed communication, companies and individualsare now able to purchase insurance and related financial products from almost anywhere inthe world. Increasing affluence, especially in developing countries, and a risingunderstanding of the need to protect wealth and human capital has led to significant growthinthe insurance industry.

Given the evolving and growing socio-economic conditions worldwide, insurance companiesare increasingly reaching out across borders and are offering more competitive andcustomized products than ever before.Over the past ten years, global insurance premiums have risen by more than 50%, withannual growth rates ranging between 2 and 10%.In 2004, global insurance premiumsamounted to $3.3 trillion.The majority of insurance comes from developed nations such as most of Europe, the US,and Japan. In 2004, premiums in North American amounted to $1,217 billion, while the


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European Union generated $1,198 billion, and Japan produced $492 billion. The UKamounted to $295 billion.The four biggest generators of insurance premiums comprised almost two-thirds of premiumsfor 2004, the US and Japan amount to half, while they only make up 7% of the worldspopulation.In contrast, the emerging markets that make up 85% of the worlds population producedonly 10% of the premiums.The leading global insurance companies are: Zurich Financial Services, AXA Berkshire Hathaway/ Berkshire Hathaway Re Allianz Aviva ING Group Munich RE Group American International Group (AIG) Nippon Life Insurance

Assicurazioni Generali

LIFE INSURANCE COMPANIES

Sl. No. Insurers Foreign Partners Regn.

No.

Date of

Registration

Year of

Operation

1. HDFC Standard Life

Insurance Co. Ltd.

Standard Life

Assurance, UK

101 23.10.2000 2000-01

2. Max New York LifeInsurance Co. Ltd.

New York Life,USA

104 15.11.2000 2000-01

3. ICICI-Prudential LifeInsurance Co. Ltd.

Prudential , UK 105 24.11.2000 2000-01

4. Om Kotak LifeInsurance Co. Ltd.

Old Mutual, SouthAfrica

107 10.01.2001 2001-02

5. Birla Sun LifeInsurance Co. Ltd.

Sun Life, Canada 109 31.01.2001 2000-01

6. Tata-AIG LifeInsurance Co. Ltd.

AmericanInternationalAssurance Co.,USA

110 12.02.2001 2000-01


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No.

Date of

Registration

Year of

Operation

7. SBI Life InsuranceCo. Ltd.

BNP ParibasAssurance SA,

France

111 29.03.2001 2001-02

8. ING Vysya LifeInsurance Co. Ltd.

ING InsuranceInternational B.V.,Netherlands

114 02.08.2001 2001-02

9. Allianz Bajaj LifeInsurance Co. Ltd.

Allianz, Germany 116 03.08.2001 2001-02

10. Metlife India

Insurance Co. Ltd.

Metlife

InternationalHoldings Ltd.,USA

117 06.08.2001 2001-02

11. Reliance LifeInsurance Co. Ltd.(Earlier AMPSanmar LifeInsurance Co. from3.1.2002 to29.9.2005)

--- 121 03.01.2002 2001-02

12. AVIVA Aviva InternationalHoldings Ltd., UK

122 14.05.2002 2002-03

13. Sahara Life InsuranceCo. Ltd.

--- 127 06.02.2004 2004-05

14. Shriram LifeInsurance Co. Ltd.

Sanlam, SouthAfrica

128 17.11.2005 2005-06

15. Bharti AXA LifeInsurance Co. Ltd.

AXA Holdings,France

130 14.07.2006 2006-07

16. Future Generali IndiaLife InsuranceCompany Ltd.

Generali, Italy 133 04.09.2007 2007-08


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No.

Date of

Registration

Year of

Operation

17. IDBI Fortis LifeInsurance Company

Ltd.

Fortis, Netherlands 135 19.12.2007 2007-08

18. Canara HSBC OBCLife InsuranceCompany Ltd.

HSBC, UK 136 08.05.2008 2008-09

19. Aegon Religare LifeInsurance CompanyLtd.

Religare,Netherlands

138 27.06.2008 2008-09

20. DLF Pramerica LifeInsurance Co. Ltd.

Prudential ofAmerica, USA

140 27.06.2008 2008-09

21. Star Union Dai-ichi Dai-ichi MutualLife Insurance,Japan

142 26.12.2008 2008-09

22. IndiaFirst lifeinsurance company

Legal & GeneralMiddle EastLimited, UK

143 05.11.2009 2009-10

23. Life InsuranceCorporation of India

--- 512 01.09.1956 1956-57


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3. PERFORMANCE OF INDIAN INSURANCE INDUSTRY :

Performance of Indian Life Insurance Sector in 2008-09

Reckoned among the fastest growing industries, the Life InsuranceIndustry of India has 23 license-holders running their business in thissector. The Life Insurance Corporation of India (LIC), which is theonly player in the public sector, contributes over 70% to the business.The remaining area is covered by the 22 private sector companies.

While considering the performance of the insurance industry in the

fiscal year 2008-09, it will be seen that the life insurance sector ofIndia registered a growth rate of 10.15% in the area of overallpremium collection to Rs 221791.26 crore. In 2007-08, the industryhad accounted for 29.0% growth posting Rs.201351.41 crore. There

was a marginal rise as per new policy sales are concerned. Itwitnessed a nominal growth of 0.1% to 5.09 crore in the year 2008-09as against 10.23% in previous financial year.

In the period ranging from April-December 2009, the total newpremium income soared to Rs 67557.61 crore posting a growth of

29.2%. In the same period of the previous year, the premiumcollection stood at Rs 52298.86 crore.

On looking at the performance of the life insurance sector in April-December 2009, it was found that the new premium income wasconsiderably more than the 15% growth suggested by the LifeInsurance Council for the period 2009-10..ADDITION OF SMTHNG

Building a Vibrant Insurance Market in India :

India's insurance industry is an example of the positive effects of competition and newinvestors in the marketplace. As we know, India opened its insurance market to theprivate sector in 1999 when parliament passed a new law establishing an independentregulatory body to oversee the insurance market. The law opened the door forparticipation of private insurance companies and a limited participation of foreigninsurance companies through joint ventures with Indian companies. The law also chargedinsurance companies to make available insurance products and services to the huge


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segment of the population that are vulnerable and not necessarily part of the formal economy.The results of the liberalization are there for everyone to see. The insurance markets -- bothlife and non-life -- have grown impressively. IRDA is working on a regulatoryframework that helps level the playing field for all types of insurance companies,irrespective of their ownership. Since 1999, IRDA has licensed 22 new private Indianinsurance companies, an overwhelming number of which have global insurancecompanies as their partners. To date, the industry has attracted foreign direct investmentof $235 million.In 2006, Indian insurance companies mobilized over $29 billion, nearly four times asmuch as in 1999 ($8 billion). In other countries, this kind of capital mobilization providescrucial resources for investment in infrastructure, corporate businesses, long-term bonds,and municipal projects. Once India does more to free insurance companies to invest insuch important sectors, it too can gain benefit from this long-term financial resource.Other improvements are occurring as well. New insurance products such as productliability insurance, professional liability insurance, small/medium size enterpriseinsurance, weather insurance, and group health insurance for the poor have beenlaunched. Private insurance companies are also using banks, microfinance institutions and

cooperatives to increase their market share and compete with well-entrenched stateownedinsurance companies.The marketplace is getting competitive, but the market share of private insurancecompanies remains very low in the 10-15 percent range. The heavy hand of governmentstill dominates the market, with price controls, limits on ownership, and other restraints.We have seen what happens in India when a market is truly opened up. We saw it in theIT sector, we saw it in the telecom sector, and we are seeing it in the aviation sector. Whycan't insurance be next? India's insurance market remains very small compared with someof the major emerging markets. South Africa and South Korea, with a fraction (onetwentieth)of India's population, do at least twice as much insurance business as Indiancompanies did in 2004. This is a major missed opportunity for India's economy. A vibrantinsurance market can support the economy by providing long-term capital -- equity anddebt -- to the private sector. For example, in the U.S. over two-thirds of financial assets ofinsurance companies are in corporate bonds and equities, municipal securities andcommercial mortgages.Insurance also shields households and businesses from irrecoverable loss, such as frommajor natural disasters, illness and death. In India, 80 percent of health care is privatelyprovided, yet only 10 percent of the population has access to health insurance. Therefore,many individual households have to pay the full out-of-pocket costs for health treatment.What will expand the insurance industry and help it contribute to the economy? Major policy and institutional issues have to be addressed and changed.Insurance is a capital-intensive industry. It is also a long-gestation business. India'sinsurance industry needs capital, and a major source of capital would be from foreign

investors, who are now limited to 26 percent ownership. India needs to raise the cap onForeign Direct Investment (FDI) to attract capital for the industry. For some time therehas been an understanding that the FDI cap will be raised to 49 percent, and manycompanies entered the Indian market with this expectation. Failure to follow through inraising the cap is increasingly seen by investors as a breach of faith.This promise needs to be delivered, not 5 years from now, but soon, if India wishes toregain its credibility in the eyes of foreign investors. Increasing the cap on FDI will bothenhance the growth of the insurance industry and improve global confidence in India as a


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business and investment destination.The cap should be raised above 50 percent within a short period so that foreign investorswould have management control commensurate with their investment and the flow of FDIto the sector will increase. Leading foreign companies bring more than capital to theinsurance industry. They also bring generations of successful experience in managing andgrowing the industry.The benefit of the long-term capital that the insurance industry mobilizes is also beinglost as a source of long-term capital. In India, over 60 percent of the insurance industry'sfinancial assets are locked in government securities. Investment guidelines for insurancecompanies prescribed by the regulator must be changed to allow and promote access toinsurance funds by the corporate sector and infrastructure projects.There is also a strong case for raising the FDI cap for reinsurance and auxiliary insuranceservices, such as brokerage and actuarial services.Major lines of non-life insurance business such as fire and car continue to be governed bya pricing regime that is administered and not risk-based. This distorts the market andmakes it inefficient. It has prevented the emergence of a culture of underwriting ininsurance companies. The IRDA needs to dismantle this regime to make these segments

of the market truly competitive.The IRDA should also seek to create a regulatory regime that promotes the most efficientuse of capital, eliminates avoidable micro-management of business practices, allowscompanies to price their products prudentially, and levels the playing field betweenprivate and state-owned insurance companies. When markets are competitive andresponsive to consumer demand and preference, it is the consumer that benefits in termsof lower cost and increased ability to manage risks.Health is an area that is underserved by the insurance industry. India as an economy hashigh health spending but poor health outcomes. With no pooled risk sharing frominsurance policies and a health care system that is primarily private, the cost toindividuals becomes a major economic burden. For this reason, many microfinanceinstitutions are finding that a primary use of micro loans to the poor is to pay medicalbills.The current minimum capital requirement of $22 million capital for setting up a healthinsurance company is a significant barrier to entry, particularly when FDI is restricted to26 percent. The lack of data from both health providers and from existing claims makesrisk-based pricing of health insurance products difficult. The absence of an appropriateregulatory framework that enforces a minimum level of service and hygiene standards is animportant reason the health insurance market in India is so underdeveloped. It is notsurprising that not a single health insurance company is among the 22 new privateinsurance companies licensed since 1999. Clearly, the IRDA and the Ministry of Healthneed to work in tandem to solve these problems.Another area where the insurance industry is not doing its job is helping mitigate the risks

for personal and business loss from natural catastrophes. In the past decade, India andChina accounted for one-fourth of the global economic losses from natural disasters.Insurance availability in India for natural catastrophes is almost negligible. As we haveseen with the Indian Ocean tsunami, the absence of a "safety net" for property lost in adisaster has led to substantial personal loss and slowed economic recovery.

Insurance Sector Reforms in India: Challenges and Opportunities :


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Insurance in India started without any regulations in the nineteenth century. It was atypical story of a colonial era: a few British insurance companies dominating the marketserving mostly large urban centers. After the independence, the Life Insurance Companywas nationalized in 1956, and then the general insurance business was nationalized in1972. Only in 1999 private insurance companies were allowed back into the business ofinsurance with a maximum of 26 per cent of foreign holding (World Bank EconomicReview 2000). The entry of the State Bank of India with its proposal of bank assurancebrings a new dynamics in the game. On July 14, 2000 Insurance Regulatory andDevelopment Authority bill was passed to protect the interest of the policyholders fromprivate and foreign players. The following companies are entitled to do insurancebusiness in India.The private insurance joint ventures have collected the premium of Rs.1019.09 crore withthe investment of just Rs.3,000 crore in three years of liberalization. The privateinsurance players have significantly improving their market share when compared to 50years Old Corporation (i.e. LIC). As per the figures compiled by IRDA, the LifeInsurance Industry recorded a total premium underwritten of Rs. 10,707.96 crore for theperiod under review. Of this, private players contributed to Rs.1, 019.09 crore, accounting

for 10 percent. Life Insurance Corporation of India (LIC), the public sector giant,continued to lead with a premium collection of Rs.9,688.87 crore, translating into amarket share of 90 per cent. In terms of number of policies and schemes sold, privatesector accounted for only 3.77per cent as compared to 96.23 per cent share of LIC (TheEconomic Times, 21March04).he ICICI Prudential topped among the private players in terms of premium collection. Itrecorded a premium of Rs. 364.9 crore and a market share of 25 per cent, followed byBirla Sun Life with a premium underwritten Rs.170 crore and a market share of 15percent, HDFC Standard with 132.7 crore and Max New York Life with Rs.76.8 crorewith a market share of approximately 15 per cent each. Unlike their counterpart in the lifeinsurance business, private non-life insurance companies have not yet started addressingthe retail market. All is set to change in the coming years. Like in the banking sector, nonlifeinsurance companies will soon have no choice but to focus on individual buyers.The latest series of bomb attacks, attack on parliament, attack on Ayodhya, attacks of theMaoists, nature calamities like tsunami, floods and drought, ragging are prevailed in thecountry and need not to say about the farmer who has been insecure about rains, seeds,crops and suitable price for his crop. In developed countries, the owners have insured evenpet dogs. Whereas in India about 80 percent of human beings and major naturalresources have not been insured in globalization era.It is, therefore, an urgent need to explore the challenges and opportunities faced by theinsurance sector in India.

Indias Insurance Industry Likely To Jump By 500% In 2010:

ASSOCHAM :

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) hasprojected about 500% hike in the size of domestic insurance business which will grow toUS$ 60 billion by 2010 from the current size of around US$ 10 billion as the growingcompetitive age is developing a larger appetite among people for wider insurancecoverage.The projections of the Chamber are based on feedback that it received from its various


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constituents, engaged in the insurance business, highlighting that Indias life insurancepremium as a percentage of GDP is currently estimated at 1.8% against 5.2% in US, 6.5%in UK and about 8% in South Korea.Releasing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that ruraland semi-urban India will contribute US $35 billion to the Indian insurance industry by2010, including US $20 billion by way of life insurance and the rest US $15 billionthrough non-life insurance schemes.A large part of rural India is still untapped due to poor distribution, large distances andhigh costs relative to returns. Urban sector insurance is estimated to reach US $25 billionby 2010, life insurance US $15 billion and non-life insurance US $10 billion, added Mr.Dhoot.ASSOCHAM findings reveals that in the coming years the corporate segment, as a wholewill not be a big growth area for insurance companies. This is because penetration isalready good and companies receive good services. In both volumes and profitabilitytherefore, the scope for expansion is modest.ASSOCHAM has suggested that insurers strategy should be to stimulate demand in areasthat are currently not served at all. Insurance companies mostly focus on manufacturing

sector; however, the services sector is taking a large and growing share of India

s GDP.This offers immense opportunities for expansion opportunities.To understand the prospects for insurance companies in rural India, it is very important tounderstand the requirements of India's villagers, their daily lives, their peculiar needs andtheir occupational structures. There are farmers, craftsmen, milkmen, weavers, casuallabours, construction workers and shopkeepers and so on. More often than not, they areinto more than one profession.The rural market offers tremendous growth opportunities for insurance companies andinsurers should develop viable and cost-effective distribution channels; build consumerawareness and confidence. The Paper found that there are a total 124 million ruralhouseholds. Nearly 20% of all farmers in rural India own a Kissan Credit cards. The 25million credit cards used till date offer a huge data base and opportunity for insurancecompanies. An extensive rural agent network for sale of insurance products couldestablished. The agent can play a major role in creating awareness, motivating purchaseand rendering insurance services.There should be nothing to stop insurance companies from trying to pursue their ownunique policies and target whatever needs that they want to target in rural India.ASSOCHAM suggests that insurance needs to be packaged in such a form that it appearsas an acceptable investment to the rural people. In the near future, when well see moreinnovations in agriculture in the form of corporatization or a more professional approachfrom the farmers side, insurance will definitely be one option that the rural Indian isgoing to accept.ASSOCHAM believes that insurers should enter into tie-ups or understandings with

government agencies to ensure the success of the insurance schemes. The need of thehour is to have innovative policies that have explicit benefits for the people to observe,understand and measure.

Indian Insurance Industry: New Avenues for Growth 2012 :

Description: With an annual growth rate of 15-20% and the largest number of lifeinsurance policies in force, the potential of the Indian insurance industry is huge. Total


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value of the Indian insurance market (2004-05) was estimated at Rs. 450 billion (US$10billion). According to government sources, the insurance and banking servicescontribution to the country's gross domestic product (GDP) is 7% out of which the grosspremium collection forms a significant part. The funds available with the state-ownedLife Insurance Corporation (LIC) for investments are 8% of GDP. Till date, only 20% ofthe total insurable population of India is covered under various life insurance schemes,the penetration rates of health and other non-life insurances in India is also well below theinternational level. These facts indicate the of immense growth potential of the insurancesector.The year 1999 saw a revolution in the Indian insurance sector, as major structural changestook place with the ending of government monopoly and the passage of the InsuranceRegulatory and Development Authority (IRDA) Bill, lifting all entry restrictions forprivate players and allowing foreign players to enter the market with some limits on directforeign ownership. Though, the existing rule says that a foreign partner can hold 26%equity in an insurance company, a proposal to increase this limit to 49% is pending withthe government. Since opening up of the insurance sector in 1999, foreign investments ofRs. 8.7 billion have poured into the Indian market and 21 private companies have been

granted licenses.Innovative products, smart marketing, and aggressive distribution have enabled fledglingprivate insurance companies to sign up Indian customers faster than anyone expected.Indians, who had always seen life insurance as a tax saving device, are now suddenlyturning to the private sector and snapping up the new innovative products on offer.The life insurance industry in India grew by an impressive 36%, with premium incomefrom new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiffcompetition from private insurers. This report,Indian Insurance Industry: New Avenuesfor Growth 2012, finds that the market share of the state behemoth, LIC, has clocked21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policies in

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2004-05. But this was still not enough to arrest the fall in its market share, as privateplayers grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in2003-04. Though the total volume of LIC's business increased in the last fiscal year(2004-2005) compared to the previous one, its market share came down from 87.04 to78.07%. The 14 private insurers increased their market share from about 13% to about22% in a year's time. The figures for the first two months of the fiscal year 2005-06 alsospeak of the growing share of the private insurers. The share of LIC for this period hasfurther come down to 75 percent, while the private players have grabbed over 24 percent.There are presently 12 general insurance companies with four public sector companiesand eight private insurers. According to estimates, private insurance companiescollectively have a 10% share of the non-life insurance market. Though the focus of thismarket research report is on the potential growth on the Indian Insurance Sector, it alsotalks about the market size, market segmentation, and key developments in the marketafter 1999.


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CHAPTER 2

RESEARCHMETHODOLOGY


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RESEARCH OBJECTIVES:1. To compare the performance of LIC and private insurance companies in India.2. To find out the performances of LIC and private insurance companies in eachcategory (size. growth, productivity and efficiency)3. To compare grievance management of LIC and private insurance companies.

RESEARCH DESIGN :a. Type of research design : Analytical Researchb. Data collection : Secondary Sourcesc. Statistical Tools : Ratio AnalysisBar Graph

RESEARCH PROCESSIn this research my research objective was to compare the performance of LIC and Privateinsurance companies. For this purpose I decided the four broad categories under which I havecompared the LIC and Private insurance companies. These are:1. Size2. Growth3. Productivity4. Grievance HandlingUnder these Broad Categories I have analyzed 13 factors which are:1. Size

Total Premium

Total Income Size of Balance Sheet

Total number of Policies

Total number of Branches2. Growth

Growth in Premium

Growth in Income


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40 Growth in number of Policies

Growth in Market share3. Productivity

Business per Branch

Income per Branch

New Premium per Branch

4. Grievance HandlingI have used the Secondary data of last five financial years. I have collected data from thevarious balance sheet of LIC and other private insurance companies, web sites and in somecases I personally met some employees of some insurance companies. I tried to find out mostof the information required to compare the LIC and private insurance companies.In Analysis I have found all the required data and on the basis of performance gave the rankto LIC and Private Insurance Companies on each factor and then points. Now these Pointshave been multiplied with the weightage of that factor. And then after the analysis of eachfactor a consolidated point table has been prepared to know that which sector is performingbetter than other.The Weightage for different categories are:

Factors WeightageSize 25%A. Total Premium 5%B. Total Income 5%C. Balance Sheet Size 5%D. Total No. of Policies 5%E. Total No. of Branches 5%Growth 40%A. First Premium 10%B. Growth in Income 10%C. Increase in No. of Policies 10%

D. Growth in Market Share 10%Productivity 15%A. Business per Branch 5%B. Income Per Branch 5%C. First Premium per Branch 5%Grievance Handling 20%

41


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LIMITATIONS:1. Could reach to a limited number of documents of different insurance companies inregard to the management and other policies and resultant figures so as to identifythe exact cause of their lag in performance.2 . D u e to the limited time could not study all the insurance companies originaldocuments individually.

3. Non-Proficiency in technical aspects of insurance companies might have hindered thebest analysis of the findings.

SIGNIFICANCE OF THE STUDY:The Detailed Study has been done with the purpose of finding out the relative share of LICandPrivate Insurance in India. It is useful for the people associated with the Insurance Industryandthe research associates related to the Insurance Sector in India. This study will acquaintthemwith the data of all the banks complied at one place along with the findings, conclusion andrecommendations.


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CHAPTER 3

ANALYSIS AND


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INTERPRETATION1. SIZE :(A) TOTAL PREMIUM : (Rs. In crores)

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC 63533 75127 90792 127822 149789

Private

Insurers

3120 7727 15083 28253 51561

TOTAL 66653 82854 105875 156075 201350635337512790792

127822149789020000400006000080000100000120000140000160000FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

PREMIUM OF LIC312077271508328253515610100002000030000400005000060000FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

PREMIUM OF PVT INSURERS]


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Avg. Premium( In Crores) Rank pointspoints aftermultiplying byweightage

(7.5%)LIC 101412.20 1 1 7.5Private Insurance Co. 21148.80 2 0.5 3.75Average premium of LIC is much more than that of all insurance companiesaltogether. LICs average premium of the last five years is nearly five timesthe average premium of the all other private insurance companies.It can be said that up to that time their were less number of private players inthe field of insurance but then also undoubtedly LIC is the king.

(B) TOTAL INCOME :(Rs. In crores)FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC93089 112393 132147 174425 206363

Private

Insurers4323 9049 18863 24242 52648

TOTAL 97412 121442 151010 198667 259011930891123931321471744252063630

50000100000150000200000250000FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08


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INCOME OF LICAvg. Income( In Crores) Rank pointspoints aftermultiplying by

weightage(7.5%)

LIC 143683.40 1 1 7.5Private Insurance Co. 21825.00 2 0.5 3.75All over income of LIC is much more than than of private players.It is due to the fact that LIC being a government agency is beingtrusted by lot of companies and has large number of shares in bigcorporates.432390491886324242

515610100002000030000400005000060000FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

INCOME OF PVT INSURERS


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BALANCE SHEET SIZE OF LIC6585136532891053048100774

020000400006000080000100000120000FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

BALANCE SHEET SIZE OF PVT

INSURERSAvg. Balance SheetSize( In Crores) Rank pointspoints aftermultiplying byweightage (7.5%)

LIC 539436.40 1 1 7.5Private Insurance co. 40594.00 2 0.5 3.75Total average size of balance sheet of LIC in the last five years is certainlyhigher than that of private insurance companies. There is a huge gap in this

value. It is obvious that LIC has bigger balance sheet as being working in theinsurance field for quite large time. As compared to average balance sheet sizeof 40,594 crores of private insurance companies, LICs average balance sheetsize goes to much high as that of 5,39,436.4 crores.(D) TOTAL NUMBER OF POLICIES :FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC


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26968069 23978123 31590515 38229292 37612599

Private

Insurers1658847 2233075 3871410 7922294 13261558

TOTAL 28626916 26211198 35462117 46151586 50874157

(C) SIZE OF BALANCE SHEET :

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Avg. number ofpolicies Rank pointspoints aftermultiplying byweightage(7.5%)

LIC 31675670 1 1 7.5Private Insurance Co. 5789437 2 0.5 3.75LIC is an undoubted leader in the field of average number of policiesper year in the last five years. It is seen that private insurance companies aregaining momentum and are trying to defeat LIC in case of new insurances.

Main reason behind LIC having such a large number of policies is the trust of acommon man. LIC being a government agency has got a faith of indian mass.People are not yet prepared to give their savings in the hands of private players.2862691626211198354621174615158650874157010000000


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2000000030000000400000005000000060000000FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

TOTAL NUMBER OF POLICIESLICPVT.INSURERS

INDUSTRY(E) NUMBER OF BRANCHES :

FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08

LIC2196 2197 2220 2301 2522

Private

Insurers416 804 1645 3072 6391

TOTAL 2612 3001 3865 5373 8913%growth innumber of

branches Rank pointspoints aftermultiplying byweightage(7.5%)

LIC 14.8 2 0.5 3.75Private Insurance Co. 1436 1 1 7.5When the matter of total number of branches comes its very much


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obvious that LIC, being the oldest existing insurance company in India, has thelarge number of offices in the countryby any single insurance company. Sincethe number of private insurance companies is increasing, with continuousexpansion in their business, now the number of branches of all private playershas crossed the number of branches

vivek bhargava

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