Enhancing Competitiveness: The Case of the Indian Life Insurance Industry

Shilpa Rastogi*
Runa Sarkar*,**

Abstract: Insurance industry contributes to the financial sector of an economy and also provides
an important social security net in developing countries. The consistent sub-optimal performance
of this sector in India from independence through the 1990s has led to different sets of reforms,
with each model adopted focusing on distinct competitive strategies. This study identifies the
causes and the objectives with which the sector was reformed in 2000 to conclude that only in the
last decade, the hybrid model of privatization with regulation adopted by the Government has
yielded positive results and the sector has started to look up. The sector in its present form looks
promising for the consumers, the insurers and the nation as a whole.

Keywords: life insurance, regulation, competitiveness, Governmental reforms

Theme: Enhancing Competitiveness
Sub-Theme: Strategies for Enhancing Competitiveness of Firms, Industry Sectors and Country

Introduction
The insurance industry affects money, capital markets and the real sectors in an economy, making
insurance facility necessary to ensure the completeness of a market. It is an industry with strategic
importance for any country as it contributes to the financial sector (and hence the GDP) as well as
confers social benefits on the society. At the micro-level, an insurance policy protects the buyer
against financial loss arising from a specified set of risks at some cost. It thus reduces anxiety and
promotes financial stability by providing a much needed social security net, especially in times of
crumbling family ties and nuclear households in developing countries. Despite the obvious
advantages of insurance, India was one of the least insured countries in the last few decades of the
20th century. In 1999 per capita insurance premium in developed countries was very high ($ 4800
for Japan, $ 887 for Singapore and $ 144 for Malaysia), whereas in India it was only $8. The
premium as a percentage of GDP stood at 2% for India whereas it was 14% for Japan, 13% for
South Africa and 9% for UK (Vijayakumar, 2007).
It was evident that something needed to be done to tap the potential for further growth. With
privatization of traditional public sector businesses like banking, power, telecom and airlines
gaining momentum in 1991, the Government also realized that the opening up of the insurance
sector could lead to enhancement of insurance penetration within the country by leveraging on the
rising per capital incomes and rising literacy rates. The life insurance sector was thus opened for
private entry in the year 2000 with the passing of the IRDA Act. Opening of the sector to private
firms was aimed at fostering competition and innovation through a greater variety of products. It
was also looked at as an avenue for generating greater awareness on the need for buying insurance
as a service.
With six years having passed since liberalization of the insurance sector, this study is an effort at
studying the trends emerging with in this sector and benchmarking its status with respect to that
prior to liberalization(2000). An attempt has been made to analyze whether the industry has
benefited from the Governmental reforms. One important aspect that we need to keep in mind is
that the insurance industry is characterized by high gestation periods and slow growth. Therefore
it will not be before a decade that the benefits of the transition materialize. Nonetheless trends
towards improvements in the sector should have been able to typify themselves with in a period of
six years. Hence this paper is an endeavor towards analyzing the industry in its present form and
comparing it with the pre-liberalized era, thereby understanding the alternate strategies that can
facilitate the development of sound policies and practices leading to a globally competitive
insurance industry within the country.
The next section of the report describes the methodology undertaken for the study, followed by an
overview of the evolution of the Indian Insurance industry. The fourth section encapsulates the
industry’s business environment. The fifth section analyses the impact of Governmental reforms

*Department of Industrial and Management Engineering,Indian Institute of Technology, Kanpur

**Correspondence: runa@iitk.ac.in
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by comparing the insurance industry in its present form with its avatar from the pre-liberalized era.
The last section concludes the study identifying the strategy that best fits the Indian Life
Insurance Industry.

Methodology
Based on the objectives of this project, information was gathered through published journals and
Government reports. These were analyzed to understand the factors that led the government to
nationalize the industry and later reverse its decision to bring the entire life insurance industry
under its control. The objectives of liberalization were objectively elucidated and suitable
quantitative and qualitative measures were identified and a comparative assessment was made.
Rather than clutter the research with all the players with in the industry(16 in all), some of which
are marginal, the study focused on assessing the top five industry players which are Life
Insurance Corporation(LIC), Bajaj Allianz, ICICI Prudential, HDFC Standard and SBI Life based
on market shares. These comprise 82% share in the industry together and therefore can be taken to
be representative of the industry practices and strategies. To gain insights into the company
offerings and changing consumer trends, discussions with agents of these companies were
initiated. Thus primary information about consumer perspectives and internal company
orientation about the market was obtained. The study is therefore based on secondary material
available on public domain as well as primary material collected through personal interviews of
employees in these firms.
However, the results from this study need to be interpreted with some amount of caution. Six
years may not be sufficient time for a complete overhaul of the industry, and many trends may
only be indicative. This study aims to conclude whether liberalization has resulted in any changes
in the status of the life insurance sector and whether the move has helped to enhance
competitiveness within the industry. While it may be difficult to demonstrate substantial changes,
one could comment on incremental improvements and trends.

EVOLUTION OF THE INDUSTRY

Life insurance traces its origins in India to the early nineteenth century when companies in India
insured the lives of Europeans living here. Eventually these companies began to cover Indians as
well but required them to pay higher premiums. Regulations were passed to regulate the Indian
insurers (but not the foreign companies providing insurance services in India) and to allow
collection of information about insurance companies thus facilitating comparison amongst them.
However the legislations became insignificant with time and the government nationalized the
sector by combining all the 154 Indian private insurance companies to give birth to one
behemoth: the Life Insurance Corporation of India.
Through this the Government strived to put an end to prevalent malpractices such as poor
servicing standards along with the appalling management of companies wherein funds were
simply being divested to all types of securities without any valuation of the borrowers. The
Government took over the reins of the industry in its own hands reasoning that insurance was a
cooperative enterprise and should be within the purview of the state in order to provide improved
services to the public at lower costs. It was also envisioned that the nationalization of this sector
would lead to more effective mobilization of funds to enable capital to be allocated to
development projects. Besides the charter of freedom also pleaded the control of the state on key
industries such as banking and insurance. Thus the industry was transformed from a competitive
one to a highly regulated monopoly.
In the last decade of the 20th century India watched history repeat itself. With the Government
implementing the New Industrial Policy in 1991, the country underwent a major wave of
globalization. Strategic sectors such as the banking and the financial sector were reformed. Time
had come for the policymakers to introspect the current policies in the Indian insurance industry
as well. Committees on insurance sector reforms followed suit and it was found that India had
continued to be one of the least insured countries till the late 20th century. Experts emphasized that
customer service, insurance coverage, allocation of resources needed to be improved within the
industry. Also more innovative products were needed to suit varied customer needs and to change
opinion of people towards insurance, from tax exemption product to a tool for mitigating risks and

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increasing savings. Thus it was recommended that the industry should be opened up to enhance
competition and autonomy be given to insurance companies to improve their performance and
enable them to act as independent companies with economic motives. Thus the life insurance
industry was liberalized with the aim of increasing contribution to the GDP and to the society.

CURRENT BUSINESS ENVIRONMENT

The Indian insurance industry is currently valued at Rs. 180000 crores ($400 billion) and gross
premium collection contributes to roughly 2% of the GDP. The life insurance sector premiums
grew at a rate of 41% in the last fiscal (2005-06) to Rs. 35896 crores1.
Within the sector, Life Insurance Corporation of India continues to be the market leader with the
highest premiums collected in FY 06 to the tune of Rs. 25645 crores. LIC is followed by Bajaj
Allianz with an 8% market share, ICICI Prudential with a 7.4%, HDFC Standard with a 3% and
SBI Life with a market share of 2.5% as shown in Figure 1 below. The private players have a long
way to go before they can challenge the largest player in the industry with only single digit
market shares to boast of. However with almost 30% share of the industry taken away from this
eternal player in a small period of 6 years, LIC has strived towards strengthening its foothold by
bringing in innovative products and services upbeat with the new kids on the block. LIC has thus
managed to increase its premium income consistently over the past years although its market
share has continued to slide downwards.

1.9%
1.2%
1.2%
LIC
1.3%
1.3% Bajaj Allianz
2.0% ICICI Prudential
2.5%
HDFC Standard
3.0%
7.4% SBI Life
Birla Sunlife
Tata AIG
Max New York
8.0% Aviva
Kotak Mahindra
70.2%
Others

Figure 1
Market share of life insurers in 2005-06, based on first year premiums
Source: Compiled from The Economic Times, Sept 1, 2006

The various factors which have largely led to the development of the insurance sector in its
present form can be broadly classified into two groups: market driven factors and the regulatory
driven factors.

Market Driven Factors

The role of insurance is undergoing a phenomenal change today as is evident from the product
bouquet and the product advertisements. The emphasis lies on insuring oneself and one’s close
family members for self-reliance more-so because nuclear families are the emerging trend in the
country today. To meet the varying needs of various individuals, the insurance players have a vast
foray of products in their bouquet. Besides this, almost all companies offer the flexibility to
customers to choose the most suitable product for themselves by combining features of a number
of products together. Thus the products can be customized to suit the customer as per their needs.

1
The Economic Times, Sept 1, 2006

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With this flexibility, comes the cost of comparing2 all the products (with their riders) across the
companies before judiciously investing in one of them.
To reach out to the consumers, the companies in the industry today have widened their
distribution channels by approaching prospective customers through agents, brokers and
bancassurance 3 . With Information Technology revolutionizing the financial sector, another
channel has been made available for selling which is the internet. ICICI Prudential offers Insta-
insurance through which a client can chose an insurance policy in mere 10 minutes. Similarly
other players have also been pushing their products through the internet.

Regulation Driven Factors

The industry is now open to private players under the Government mandate of a minimum capital
requirement of Rs.100 crores, of which a maximum of 26% stake can be held by a foreign partner
as equity. For license renewal, each company is required to file an application to IRDA on an
annual basis accompanied with a payment fee of 50000/- for each class of insurance business and
20% of the total gross premium written by the insurer in the previous year of operation in India or
Rs. 5 crores whichever is less.
IRDA also holds the right to cancel the license of any insurance company if it feels that the
company or insurer fails to conduct its business in a manner prejudicial to the interests of the
policyholders. To prevent any accidental or uninformed decisions in such circumstances, IRDA
appoints an enquiry officer who looks further into the matter before any verdict is taken. So far no
life insurance company has been challenged by the authority for violating any of the norms. By
not passing the verdict before validating, the Government has tried to keep the interests of the
players in mind along with the consumers. IRDA also clearly explains the reasons under which a
license can be cancelled. This transparency in the regulatory body proceedings helps to allay the
fears of any private enterprise subjected to Government regulations.
The insurance players today are expected to invest the funds judiciously with the combined
objectives of liquidity, maximization of yield and safety by conferring to the Authority’s
guidelines on investments. An investment policy has to be submitted to the Authority by an
insurer before the start of an accounting year to efficient resource allocation.
With moderate entry barriers prevalent in the industry and minimal Government interference
possible, more industrialists and public sector banks are planning to jump into this sector. Also
with the recent growth in the per capita income of the country and people becoming more aware
of the need for insurance as a protection and investment tool, the sector promises excellent returns
for the incumbent 16 players and prospective entrants.

IMPACT OF GOVERNMENTAL REFORMS OF 2000

The Government having tried various models for the insurance industry such as privatization with
negligible regulation (pre 1956) and nationalization (1956-2000) and having observed sub-
optimal performance of the sector, resorted to adopting a hybrid model of both these, resulting in
privatization of the sector with an efficient regulatory mechanism (post 2000).
This was initiated with the aim of making the industry competitive so that there are more players
offering a greater variety of products over a larger section of the population. Table 1 lists out five
objectives which were gleaned from the Government policy documents, with a

2
Also called search costs which is the cost incurred in comparing all available options, for instance, policies
across various insurers
3
Bancassurance is the term used to describe the sale of insurance products in a bank.

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Table 1
An Assessment of Reforms in the Life Insurance Industry

Objective Effort Observation Assessment

To encourage competition Low Entry barrier All companies operating with an equity substantially Equity requirement significant enough to
and improve insurance Stipulation of the minimum number of higher than the requirement appease the consumers & low enough to
penetration lives to be covered by the private insurers Insurers have consistently achieved higher figures than encourage new players
in the rural and the social sector the given targets The IRDA has successfully encouraged
the insurers to concentrate on hereto
ignored sectors resulting in improved
penetration
Innovation through products Insurers focusing on improving product Most insurers allow customers to customize terms of The products being offered today are far
which suit customers better range, benefits offered in terms of return, policies as per their needs more innovative and customer oriented
premium payment options The bouquet of products comprises Term Insurance,
Whole Life, Endowment, Single Premium Product,
Annuities, Pensions
Improve servicing standards Insurer to appoint Actuary, after approval The actuary appointed to fulfill the eligibility criteria Actuary made responsible for stability
in the industry of IRDA and the insurer not to transact insurance business unless and solvency of insurance company, to
Eligibility criteria stipulated by IRDA for it is so aid regulator in protecting the interest of
agent recruitment Insurance Training institute to certify an agent for the policyholders. The ombudsman is
Insurance Advertisement and Disclosure taking 100 hours of training classes. The appointment found to be highly functional with
Regulations formulated of the agent is subject to his clearing the exam improvement in the number of cases
Insurance Ombudsman set-up conducted by Insurance Institute of India resolved annually. Insurers have become
Insurers to comply with the Advertisement Code while selective in recruiting agents; ways exist
addressing policy-holders and prospects to forge training certificates without
Twelve such ombudsman centers set up countrywide to actually undergoing one. Other
address consumer grievances within 3 months distribution channels also should have
specified minimum eligibility
requirements
Efficient allocation of An investment policy has to be submitted All insurers’ investments found to confirm with Improvement the operating, profitability,
resources by dynamic to the Authority by an insurer before the regulators stipulations investment yield, marketing and actuarial
management of portfolios start of an accounting year efficiency ratios of the insurers over the
IRDA to stipulate the investment of past years
various funds
To bring about a change in Primary reason for buying insurance policies is not tax Some change in customer perception is
consumer outlook savings anymore reflected by the promotional schemes
More consumers approach insurers in periods from offered by insurers today. However
December to March insurance still remains a tax saving tool
to some extent

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qualitative assessment of the extent to which each of them have been met. We elaborate further
with specific evidence to justify our analysis below.
It had become apparent that the monopoly was inhibiting the growth of the industry within the
country. Hence the new policy sought to encourage more players into this sector. It achieved this
firstly by doing away with the legislation that disallowed private players and secondly by creating
minimum capital requirement criteria which was low enough to encourage more players and high
enough to safeguard the interests of the stakeholders. Thus a minimum of Rs. 100 crores of
contribution of equity capital was mandated by the regulatory body for any life insurer.
A cursory look at the last three entrants of the sector and their equity, shown in Table 2, suggests
that this mandate is anything but an entry barrier since all the insurers along with these entrants
maintain higher equity than mandated by the regulator. Figure 2 depicts capital bases of all the
players in the insurance industry. It is noteworthy that the incumbent LIC’s is the lowest. Hence
the Government has been successful in encouraging organizations to venture into the life
insurance business post liberalization, with mandatory equity capital not acting as a deterrent.
Table 2
The capital base of the last three entrants in the industry
Company Year of Initial Capital Remarks
incorporation Base( in cr)

Bharti AXA Life Joint venture between Bharti Enterprises and AXA
Insurance Co. Ltd. Aug, 2006 Rs. 1014 with 74:26 share in equity
Shriram Life Insurance Shriram Group has partnered with Sanlam with an
Co. Ltd. Jun, 2005 Rs. 125 equity ratio of 74:26
Sahara India Life Sahara Business group has 100% stake in this
Insurance Co. Ltd. Feb,2004 Rs.157 company
Source: Compiled from IRDA Annual Report 2003-04, 2005-06

800
700
600
Capital Base

500
400
300
200
100
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Figure 2
Capital base of life insurers in 2004-05
Source: Compiled from IRDA Annual Report 2003-04

The increase in the number of players within the sector also led to the expansion of the product
portfolio offered by them. Greater focus began to be laid on not only meeting the customer’s need
but surpassing his expectations in terms of product range, benefits offered in terms of return,
premium payment options etc. The whole industry is thus moving towards mass customization to
develop products which suit the customers’ needs perfectly.

4
Bharti AXA Life Insurance Co. Ltd. increased its capital base to Rs. 188 crore by Dec.,2006, available at
http://www.bharti-axalife.com/pressroom/hindu-businessline.asp, last accessed on 14th Apr.,2007

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Pre 2000, the sole Life Insurance player LIC operated as a virtual monopoly and there was little
need for it to pay attention to customer needs. The most popular policy or more appropriately the
only policy variants available were Pure Protection ‘Jeevan Suraksha’ policy (with or without the
money back guarantee). Endowment policies and Whole Life plans were also in place but the
term policies were the largest selling product of LIC. However after liberalization, there has been
a change in the mindset which can be understood by observing the product portfolio of the
insurers. The innovative products of some of the insurers are stated below in Table 3.
From 2000, there has been a plethora of products ranging from ULIPs5 to Traditional Products
which have been used by insurers to capture the market share.
Table 3. Product Portfolio of Leading Players in the Industry
Product Category ICICI Prudential Bajaj LIC
Endowment Invest Shield Unit Gain Plus Jeevan Mitra
Whole Life Life Long Life Time Care Jeevan Tarang/sathi
Child Plan Smart Kid Child Gain Jeevan Kishore
Pension Life link Super Pension Swarna Vishranti Future Plus
Women Kanyadaan Mahila Gain Jeevan Bharati
Health Diabetes Care Health Care
ICICI pru Suraksha
Rural Kavach Swarna Jeevan Jeevan Saral
Term Life Guard Swarna Raksha Amulya Jeevan
Group Superannuation
Group Plan Group Credit Shield Gratuity Plus

The expansion in the product bouquet enabled them to capture varying needs of different profiles
of customers.
To increase the penetration with in other hereto neglected sectors, IRDA has stipulated the
minimum number of lives in the rural and the social sector6 that the private insurers must cover
depending upon the year of operation of the company. For the government insurers the quantum
of insurance business to be done shall not be less than what has been recorded by them for the
accounting year ended 31st March, 2000.
For the rural sector, the minimum number of lives that the private insurers must cover is specified
as a percentage of the total number of policies written by the firm in the respective years and the
percentage gradually increases from the first to the fifth year of its operation.

Table 4
Percentage of Policies Issued in Rural Sector by Life Insurers in India
2001-02 2002-03 2003-04 2004-05
Insurer Target Achieved Target Achieved Target Achieved Target Achieved
Allianz Bajaj 5 18.13 9 16.7 12 12.95 14 15.84
SBI Life 5 4 9 15.48 12 14.03 14 21.92
HDFC
Standard 7 4.5 12 12.3 14 19.23 16 20.6
ICICI
Prudential 7 7.04 12 12.02 14 14.85 16 16
LIC 16.05 18.52 22.79 22.89

5
An ULIP - Unit Linked Insurance Plan - is a financial product that offers you life insurance as well as an
investment like a mutual fund
6
rural sector (as defined in the annual report of IRDA 2000-01) includes areas where the population is not
more than 5000; population density not more than 400 per Sq Km; and at least 75% of male working
population is engaged in agriculture
social sector includes unorganized sector, informal sector, economically vulnerable or backward classes
and other categories of persons, both rural and urban areas

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Source: www.indiastat.com
As can be seen, the penetration in the rural sector has increased at a CAGR of 24.5% which is
higher than expected by the authorities since the insurers have consistently achieved higher
figures than targeted through this sector.
Similarly for the social sector, IRDA stipulates the minimum lives to be covered by the insurers in
this sector. The following table shows the target set out by the authority for the insurers and the
numbers achieved.
Table 5. Number of Lives Covered in Social Sector by Life Insurers in India
2001-02 2002-03 2003-04 2004-05
Insurer Target Achieved Target Achieved Target Achieved Target Achieved
Allianz Bajaj 2500 2528 7500 11111 10000 24052 15000 16355
SBI Life 3958 Nil 7500 37478 10000 80927 15000 1222572
HDFC Standard 7500 7556 10000 10490 15000 17184 20000 28432
ICICI Prudential 7500 7604 10000 17964 15000 15050 20000 20139
LIC 754816 754816 761752 754816 1739722 754816 4212804
Source: www.indiastat.com

Thus looking at the number of lives covered by the insurance players in the social sector, it can be
observed that the penetration in the social sector due to these players has increased at a CAGR of
153%. Besides this except SBI Life insurance in 2001-02, at all other times the insurers have not
only met their target but have achieved much higher growth. Therefore through liberalization an
additional 1468302 lives have been covered by 4 out of the total 15 private insurers in all. This
number may seem insignificant considering the total size of the social sector in India nonetheless
the effort is in the right direction and has been able to achieve desirable results.
Another important change that the Government wanted to implement with in the sector was to
improve the servicing standards prevalent within the industry. A number of initiatives contributed
towards achieving the same. For instance the Government mandated that no life insurer could
operate without an Actuary and appointed after approval by IRDA. Besides this, to protect the
interests of the policy holders the authority has come out with the Insurance Advertisement and
Disclosure Regulations which ensure that the insurance companies adhere to fair trade practices
and transparent disclosure norms while addressing the policyholders or the prospects. Another
step in the same direction was that of ensuring that agents undergo a minimal training of 100
hours of course work before they make sales of insurance policies on behalf of the insurer to
consumers. Having taken adequate safeguards to protect stakeholder interests, the government
also set up Ombudsman cells to resolve the grievances of the customers. The percentage of cases
resolved by this body has increased over the past few years indicating improvement in customer
satisfaction, as shown in the figure below.
performance of ombudsman

6000 0.95
no. of complaints

5000 0.9 total no. of

cases resolved

4000 0.85 complaints

no. of complanits
3000 0.8
disposed
2000 0.75 percentage of cases
1000 0.7 resolved
0 0.65
2001-02 2002-03 2003-04 2004-05

year

Figure 3 Number of complaints filed and disposed from 2001

Source: Compiled from www.irdaindia.org
Lastly the Government has also stipulated investment norms for insurers to facilitate efficient
allocation of their resources. This has resulted in a significant enhancement in the insurers’
efficiency ratios.

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Table 6 Efficiency Ratios for Insurers in 2000-01 and 2004-05

Company LIC ICICI HDFC SBI Bajaj Allianz
S.No. Year/Ratios 00-01 04-05 00-01 04-05 00-01 04-05 00-01 04-05 00-01 04-05
1) Operating Operating Expense as % of .086 .088 .729 .195 1.233 .336 .768 .207 3.517 .214
efficiency Premium earned
2)Operating Commission expense as % of .091 .087 .124 .033 .198 .106 .013 .039 .329 .146
efficiency Premium earned
3)Profitability ROA (Net Operating Income / .003 .002 -0.318 -0.048 -.127 -0.77 -.002 -.011 -.103 -.035
measure Total Assets)
4) Profitability ROE (Net Operating Income / -.553 -.229 -.151 -.281 -.002 -0.033 -.105 -.245
measure equity)
5) Actuarial Benefits paid/ Premiums Earned .35 .4 .0055 .007 .00089 .2289 .0771 .056
efficiency

6)Investment Avg investment Assets / Net 23670 32793 8.387 100.4 5.078 98.91 9.052 90.562 10.75 43.475
efficiency Investment Income
7) Marketing Premium earned per agent 11.25 20.04 1.06 7.9 1.03 6.63 2.04 27.64 0.16 3.07
efficiency
Source: Compiled from IRDA Annual Report, 2000-2001 and 2004-2005

The Governmental reforms have thus tried to create a competitive environment in the industry and
have at the same time attempted to instill consumer’s confidence in the system. The measures
described above have not only contributed towards removing inefficiencies in the system but has
also made a positive impact on the citizens, industry and the nation.
Summing up all the sectors within life insurance, insurance premium per capita stood at Rs.590
(in 2004) as compared to Rs.280 (in 2000). The insurance premium as a percentage of GDP has
increased from 1.2 (in 2000) to 2.3 (in 2004)7. This improvement in the insurance statistics is
attributable to the strategy adopted by the Government to establishment a vibrant insurance
market in the country. The move has contributed towards instituting a sound social security
system. Thus more people today buy insurance policies for protection, investment purposes rather
than for tax savings. As reported by some of the employees of the insurers, there is an increase in
demand in December-March phase; however a change in consumer attitude is noticeable.
The progress has not only been at consumer level but also at the sector level. The shift in strategy
has also contributed towards an increase in the size of the sector.
Lastly, the industry is also being recognized globally for its efforts. This can be concluded from
the fact that majority of life insurers are partnerships of Indian and foreign firms. The foreign
partners with a maximum of 26% are in the sector, surely because it has returned or shows
promise of returning their investment manifold.

Conclusion
The Indian Government and policymakers have thus found themselves at cross-roads more than
once. The large scale fraudulent practices, mismanagement of companies in the first half of the
early twentieth century resulted in a major restructuring of the industry and caused the sector to
transform from an unregulated to a highly regulated one. The industry functioned under a
monopoly for several decades thereafter. However other problems surfaced such as limited reach
and penetration of enterprise and deteriorating servicing standards. In 1991, with the Indian
Government initiating liberalization of various other strategic industries, a possible change in
strategy was supported by various committees and experts. A milestone was achieved when the
nation decided to privatize the industry along with requisite regulations.

7
Compiled from IRDA Annual Report, 2000-2001 and 2004-2005

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Privatization More players More variety of Increase in

products Insurance
Penetration
Globally
Competitive
Industry

Regulation Improved Consumer

Industry Protection
Standards

Figure 4. A Hybrid Model for a Globally competitive Insurance Industry

With this hybrid model, the industry was thus privatized along with market regulation of players
who have the necessary financial strength to withstand the demands of a growing and nascent
market, the necessity to have 'fit and proper' persons in-charge of businesses, the implementation
of a solvency regime that ensures continuous financial stability, and above all, the presence of an
adequate number of insurers to provide competition and choice to customers has led to the
establishment of a regime committed to an overall development of the market in normal times.

Thus the firms, the industry and the nation are healthier than ever before having adopted this
model.

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on 2nd Dec., 2006
Palande,P. S.,Shah,R. S.&Lunawat, (date) M. L. Insurance in India, Sage Publications
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to Swaraj. CRIS Discussion Paper Series-2002 (X), Available at
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Conference on Global Competition & Competitiveness of Indian Corporate 568