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Insurance sector in India is one of the active sectors of the economy and is growing at the rate of 15-20% annum. mutually with banking services, it contribute to about 7% to the country's GDP. Insurance is a central subject in India and Insurance industry in India is governed by Insurance Act, 1938, the
Life Insurance Corporation Act, 1956 and
General Insurance Business Act, 1972,
Insurance Regulatory and Development Authority (IRDA) Act, 1999.
The origin of life insurance in India can be traced back to 1818 with the business of the Oriental Life Insurance Company in Calcutta. It was conceive as a means to supply for English Widows. In those days a higher premium was touching for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage.
The Bombay Mutual Life Insurance Society that in progresses itsÂ business in 1870 was the first company to blame same premium for both Indian and non-Indian lives. In 1912, insurance regulation officially began with the passing ofÂ Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s and 1930s infected the image of insurance industry in India. In 1938, the first comprehensive legislation about insurance was introduced with the passing of Insurance Act of 1938 that supply strict State Control over insurance business. Insurance sector in India grew at a faster pace after independence.
In 1956, Government of India brought together 245 Indian and foreign insurers and wise societies under one nationalized monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5crore.
The (non-life) insurance general insurance remained with the private sector till 1972. There were 107 private companies involved in the business of general operations and their operations were restricted to organized trade and industry in large cities. The General Insurance Business Act, 1972 nationalized the general insurance business in India with effect from January 1, 1973.
Insurance companies were complex and grouped into four companies:
National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiary of the General Insurance Company (GIC).In 1993; the first step towards insurance sector reforms was initiate with the formation of Malhotra Committee, head by former Finance Secretary and RBI Governor R.N. Malhotra. The committee was formed to evaluate the Indian insurance industry and recommend its future direction with the object of complementing there forms initiated in the financial sector.
Table of content
PART - 1
GROWTH AND EVOLUTION OF INSURANCE INDUSTRY IN INDIA.
DEMAND DETERMINATION OF INSURANCE INDUSTRY IN INDIA.
4.1) PROMOTION SCHEME
PLAYERS IN THE INSURANCE INDUSTRY
DISTRIBUTION CHANNEL IN THE INSURANCE INDUSTRY.
KEY ISSUES AND CURRENT TRENDS.
Insurance industry has always been a development oriented industry globally. On the Indian prospect too, the insurance industry has always recorded evident increase other Indian industries.
The Triton General Insurance Co. Ltd. was the first broad insurance company to be usual in India in 1850, which was a wholly British-owned company. The first general insurance company to be located up by an Indian was Indian Mercantile Insurance Co. Ltd., which was recognized in 1907. There emerged many a player on the Indian scene later.
The general insurance business was state after the transmission of General Insurance Business Act, 1972. The post-nationalization general insurance business was undertaken by the General Insurance Corporation of India (GIC) and its 4 subsidiaries:
Insurance may be described as a social mechanism to decrease or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk attached to individuals. The risks which can be insured against include fire, the perils of sea death and accidents and burglary.
Insurance is a plan by which large number of people correlates themselves and transfer to the shoulders of all, risks that join to individual.
Insurance may be definite as a social device providing financial return for the effects of misfortune, the payment person made from the accumulated contributions of all parties participating in the scheme.
Insurance is a contract in which a sum of money is paid to the assured as thought of insurer's incurring the risk of paying a large sum up on a given contingency.
GROWTH OF INSURANCE INDUSTRY IN INDIA:-
India's positive demographics help build up market penetration the life insurance coverage in India is very low, and many of those insure are underinsured. There is huge potential as the working population is probable to increase from 675.8 million to 795.5 million in the next 20 years. They require for insurance products is projected to increases in light of the increases in purchasing power.
The Indian health insurance industry was valued at 51. 2 billion Rs. During the period the growth of the industry was recorded at a CAGR of 32.59%. The share of health insurance was 20.8% of the total non-life insurance premiums in health insurance premiums are expected to increase to RS. 300 by 2015.
Individuals generated new business premium worth Rs. 365.7 million under 2.15 million policies and the group insurance business amounted to RS.2059.5 million under 126 million lives. LIC contributed most of the business procured in this portfolio by garnering Rs. 311.9 million of individual premium from 1.54 million lives and 1726.9 premium of group premium under 11.1 million lives.
EVOLUTION OF INSURANCE IN INDIA:
Life insurance traces its basis in India to the early nineteenth century when companies in India insured the lives of Europeans income here. Finally these companies began to face Indians as well but required them to pay higher premiums. Regulations were passed to police the Indian insurers and to allocate collection of information about insurance companies thus facilitate comparison amongst them.
The Government takes over the reins of the industry in its individual hands analysis that insurance was a joint enterprise and should be within the purview of the state in order to supply improved services to the open at lower costs. It was also envision that the nationalization of this sector would direct to more effective recruitment of funds to enable capital to be owed to increase projects Besides the charter of freedom also plead the control of the state on key industry such as banking and insurance.
In the last decade of the 20th century India watched history repeat itself. With the Government implementing the New Industrial Policy in 1991, the countries undergo a major wave of globalization. Strategic sectors such as the banking and the financial sector were converted. Time had come for the policymakers to introspect the current policies in the Indian insurance industry as well. Committees on insurance sector reform followed suit and it was found that India had sustained to be one of the least insure countries till the late 20th century.
PRODUCT PROFILE OF INSURANCE INDUSTRY:-
Life insurance made its debut in India well over 100 years ago. Insurance is no longer measured to be a mere tax saving tool. Increasing urbanization and nuclearisation of family has led to a state where insurance has become an essential. And this is not just true for Life Insurance but also for protection of vehicles is the motivation that people are increasingly opt for insurance on their own.
Insurance may be described as a social device to reduce or remove risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attach to individuals. This can be insured against, include fire, the perils of sea, death and accidents and burglary any risk subject upon these may be insured beside at a premium commensurate with the risk involved. Thus joint bearing of risk is insurance.
The person who buys the policy of the insurance and agrees to track all the terms and conditions levy by the insurance company and also agrees to pay the essential premium is called the insure. In short, it is a customer of the insurance product.
The supplier of the insurance treatment or the seller of the insurance policy is called as insurer. In short, they are the unusual insurance companies shaped under the IRDA act.
Types Of Policies :
Endowment Assurance Plan
It is a participating plan that offers the following features:
Provides financial prop up to the family by way of a bump sum payment in case of a regrettable death of the life certain within the term of the policy.
Provides a piece sum payment to the life assured on the endurance up to the maturity. This lump sum is basic sum assured and bonuses.
Money Back Plan
It is a participating policy that offers following features:
Payment of lump sum each of which is a quantity of the basic sum assured, at 5 years interval during the term of the policy.
On endurance up to the maturity, a payment equal to basic sum assured plus any bonus add-ons less the cash lump sum paid earlier is provided.
In case of the adverse death of the life assured within the word of the policy, the basic sum sure plus any bonus accompaniments is provided. This is over and above the earlier payouts.
Children's Plan is calculated to provide a lump sum to the teen at maturity. It also provides financial defense to the child in the future, even in case of the insured parent's adverse death during the policy term. Children's Plan receives simple reversionary bonuses, which are regularly added annually. This is supple plan with three options for you to wish from, depending on your requirements.
It is a participating [with Profit] insurance plan that offers the following features.
Investor's money will be invested in with profit fund. This fund aim to provide secure and firm long-term growth.
Even after choosing policy, investor can decide on the policy term. For 4 weeks after any one of the 10th, 15th, 20th and subsequent 5 years anniversary, life assured can choose to obtain the sum assured plus any attaching bonuses, in full. Once the money has been received, your policy will finish.
In case of adverse death, nominee gets the sum certain secured by premium, plus any attach bonuses.
It does not want any medical test.
TA plan is a plan below which a sum insured is owed in case of decease of the life certain during the term of the contract. One can want the lump sum that would replace the income lost to one's family in the adverse event of one's death. Since this non-participating plan is a clean risk cover plan, no benefits are payable on survival to the end of the term of the policy.
Loan Cover Term Assurance Plan
These plans supply a lump sum on the unfavorable death of the life assured during the term of the life confident during the term of the plan. The inflammation sum will be a decrease percentage of the preliminary sum assured. As the superb loan decrease as per the loan plan, the cover under the policy decreases as per the policy plan. Since this is a non-participating pure risk cover plan, no benefits are billed on survival to the end of the policy.
Personal Pension Plan
This plan is a participating plan, which is mostly a savings contract, intended to supply an income for the life after withdrawal. It provides a national lump sum on leaving, comprising of sum certain plus any attaching bonus. Subject to the popular regulations, part of this lump sum can be full in form of cash and the rest renewed to an annuity at the rate then obtainable by HDFC Standard Life Insurance or with any other insurance company will believe such business.
The rider profit can only be in use out in combination with an Endowment Assurance, Money Back, Personal Pension Plan or Protection Series Product and not on a stand-alone basis. These riders present extra protection and are describe in more detail below.
Waiver of Premium Benefit
If the life certain is disabled and is unable to trail any occupation for a period of more than twenty six consecutive weeks then, under this clause all premiums falling due after the first twenty six weeks of such continuous disability are waived, but before the earliest of
The improvement of the life assured
The expiry date
The execution of the policy
The decease of the life on whose disability the waiver claim is based
Critical illness Benefit (CI)
This benefit provides for the payment of an quantity equal to the basic sum assured on analysis of serious disease. The life assured must be alive 30 days after notice of the serious disease. The 6 serious diseases are mentioned by the co.
Coronary road bypass
Major organ transplant (as recipient)
Accidental Death Benefit (ADB)
This benefit provide for the payment of an extra amount equal to the basic sum assured on the casualty as a result of an accident. Death must come about within 90 days of the accident.
Double Sum Assured (DSA)
This benefit provides for the sum of an amount equal to the basic sum assured as result of loss by any cause.
Accelerated Sum Assured Benefit (ASA)
This benefit can be taken in union with a protection series invention. It provides an amount, equal to the death profit on diagnosis of a critical disease. The infection covered under this qualification is same as the Critical illness rider.
DEMAND DETERMINATION of INSURANCE INDUSTRY IN INDIA:-
Employee's unions have opposite the amendments to the promotion schemes of four public sector general insurance companies.
As per General Insurance Officers All India Association (GIOAIA), management's conclusion to introduce 'Lateral entry' for employment of officers at senior level is next to the interest of the PSU insurance companies. Instead of giving opportunities to the offered officers of the companies, the hiring of the officers from outside is not justifiable.
PLAYERS IN INSURANCE INDUSTRY:-
HDFC standard Life Insurance:-
HDFC Standard Life Insurance Company ltd. Is one of India's leading private insurance companies? It is a joint venture of Housing Development Finance Corporation Limited, India's leading housing finance institution and a group company of the standard life in UK. The company has covered over 8,77,000 lives year ending march 31,2010.
Create corporate agents during HDFC bank in India.
Create agents to provide total financial consultancy.
Introduce low price group schemes for companies and NGOs.
Reliance life insurance:-
Reliance Life Insurance Company limited is a part of Reliance Capital Ltd. Of the Reliance -Anil Dhirubhai Ambani Group. Reliance capital is one of India's leading
Private sector financial services companies. And ranks among the top 3 private sector financial services and banking companies, in terms of net worth.
C) Aviva Life Insurance:
Aviva is UK'S major and the world's fifth largest insurance group. It is one of the leading providers of life and pensions goods to Europe and has large businesses elsewhere about the world. Aviva has a joint venture of Dabur. One of India's oldest and country's leading producer of usual healthcare products. .
D) MetLife Insurance:
MetLife India insurance company limited is an partner of MetLife, inc. and was incorporated as a joint venture between MetLife international investment inc, and a range of innovative product to persons and group customers at more than 600 location through its bank partners and company-owned offices. MetLife has more than 32000 financial advisors. It has about 70 million customers all over world.
Long term relationship.
Customer centered and result alert vision.
Creating high performance association.
H) Bajaj Allianz Life Insurance:
Bajaj Allianz life insurance company ltd is a joint venture of Allianz AG, one of the world's largest insurance companies and Bajaj auto, one of the largest two and three wheeler manufacturing companies in the world. Company is having over 440000 content customers in India. Company is having 550 branches across the country and over 60000 advisors.
Distribution channel in the industry:-
The effectiveness and cost of diverse distribution strategies of different players is crucial in ensuring the success of players in the insurance business, particularly in the retail lines of business. The low differentiation among retail insurance products suggests the criticality of distribution reach and efficiency for success in this business. The factors that determine the choice of the distribution channel of an insurance company are:
â€¢ Where are the customers?
â€¢ What is target customer profile?
â€¢ Which product (linked, traditional, term, etc.) can be sold through distribution channel?
â€¢ Which channel provides best buying experience and value to target customer segment?
â€¢ What is the operational cost involved in each type of channel?
Role of distributors
Insurance has to be sold the world over, and the Indian market is no exception. The touch point with the ultimate customer is the distributor or the producer, and the role played by them in insurance markets is critical. Insurance distribution is not simply about pushing products. An outsized share of the value across the entire insurance industry value chain is added in distribution. For customers,
it is in distribution that needs are understood and assessed, options (from full risk transfer to self insurance and more exotic methods of managing risk) are identified, and counsel on the choice of carriers and other providers is given. It
is because of distribution that relationships and trust are built with agents, brokers and customers, opportunities are identified and created, and products and services are sold. It is the distributor who makes the difference in terms of
the quality of advice for the choice of product, servicing of policy post sale and the settlement of claims. In the Indian market, with their distinct cultural and social ethos, these conditions play a major role in shaping the distribution
channels and their effectiveness. The figure below provides an estimate of the current market share of the various distribution channels used by life insurers, and gives a view of how these channels could develop in the future.
A) POLITICAL FACTORS:
Increased service tax on premium:-
The obligation of service tax on the services provided by the insurance has been increased significantly over past few years by the government.
Ending of government monopoly:-
A great uprising in the insurance sector came in the year 1999 when IRDA agreed the bill, lift in gall entry constraint for private players and allowing foreign players to enter the market with some limits on direct foreign tenure.
Increase in FDI Limit:-
The hike in the insurance foreign direct investment limit to 49% from 26% has proved to be very beneficial for the insurance industry in india. It has encouraged foreign investors to invest in Indian insurance industry
Favorable regulations for rural insurance:;-
To support insurance sector to increase its extend in rural India. Government has made parameter more favorable for rural people by decreasing the amount of top, introducing new group insurance plans and various other special devices for farmers.
B) ECONOMIC FACTORS:
Increase in Gross Domestic saving :-
The gross domestic savings of people in india have increased significantly, due to which they are moving toward new ways of investing money for the future benefit including various insurance plans.
Contribution to country's G.D.P:-
Accordingly to government sources, the insurance and banking services giving to the country's gross domestic products is 7% out of which the gross premium group b various insurance companies forms a major part.
Role in government securities market:-
Insurance companies are test up-and-coming as one of the most prominent players in the government securities market. The split of insurance companies in overall investment in the G-sec market has more than double to 23% from 9% during the fiscal year.
Biggest domestic player in equity market:-
The insurance company invests Rs. 35880cr. In the G sec market which is over 173.06% high than Rs 13880 cr. They invested in 2008-09. Thus insurance have emerge as the largest domestic institutional player in the equity markets.
C) SOCIAL FACTORS:
Low insurance coverage:-
In India insurance is careful as which is hard-pressed upon the customers to buy. People are reluctant to buy insurance due to lack of awareness.
Increase in life span and rise in elderly population:-
In India lifespan has bigger over past few years owing to which the elderly population in India is rising day by day. To be alive a happy and independent life, more no. of educated peoples is affecting towards investing in insurance to guarantee a respectful and independent life even in old age.
Uncertainty about life:-
Due to increasing no. of events of terrorist attcks in various parts of the county people have started viewing life as more uncertain. It has development a kind of factor in the mines of people leaving them more worried about their family and kids. Due to this reason the are moving more and more towards buying insurance policies in order to secure their family's future.
Changing Indian perception;-
In India earlier people used to vision insurance as a tax saving device or as a scheme of investment. But a great change in the perception has come. People have started realizing the importance of being paid insured. Now more no. of people is presentation it as a transfer of risk for a good future.
D) TECHNOLOGICAL FACTORS:
Automation of processes:-
Today, with advancement in technology the whole process of insurance has become automated. Earlier it used to take 15 days to 45 days for the issuance of policy document. But now a day the whole process gets completed within 5 to 7 days.
Internet driven information Era;;-
With an increase in internet usage and its increasing spread. It has become easier for people to get informed about everything at their home only. Now they don't have to waste time in gathering information before taking any financial step. Every information is now 3-days is available on the pet.
Business process monitoring:-
It has become easier for people to track every event in a business process.. it has resulted in more transparency in every aspect of business processing.
E) LEGAL FACTORS:
IRDA keeps on changing policies related to insurance which makes difficult for the companies to adopt quickly.
Renewal of Registration:-
An insure, who has been granted a certificate of registration, should have the registration renewed annually with each year ending on march 31 after the commencement of the IRDA act.
While these regulatory changes were attractive for customers, they required companies to fine tune their strategy including product mix, cost structures and
The mix of business is important in that it will determine future levels of New business strain, expense absorbency, profits and sensitivity to Persistency risk. The company has put additional focus on a balanced mix Of single premium and conventional products and reduced the proportion Of regular premium ULIPs. Over the medium to long term, we expect unit Linked products to remain the most significant product category. Retail new is Business Weighted Premium - Received retail premium with a Weight of 10% for single premium policies.
Distribution Strategy and Mix:
The Company has always believed in maintaining a robust multi-channel distribution network to reach out to customers. This enabled us to provide multiple touch-points which customers could access at their convenience and preference. Equal proportions of our new business came from the Agency channel as well as other alternate channels including Banks, Corporate Agents, Brokers and our Proprietary Sales Force. The company also launched its online sales channel this fiscal.
Focus on Efficiencies:
The Company has been focusing on enhancing efficiencies for the last several years. This fiscal the company laid additional focus on:
1) Enhancing employee & distribution channel productivity.
2) Right-sizing infrastructure.
3) Variablising spends.
4) Consolidation of spends and centralized negotiation.