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EXECUTIVE SUMMARY
Insurance is defined as the contract between Insurance co. (Insurer)
and the customer (Insured). In this legal contract, the insurer agrees to
indemnify (compensate) the insured in lieu of payment of premium, for
any
financial loss due to risks covered in the Policy.

Since 1956, with the nationalization of insurance industry, the state-

run Life Insurance Corporation of India (LIC) has held the monopoly in
that country's life insurance sector. General Insurance Corporation of
India (GIC), with its four subsidiaries, was its counterpart in the general
insurance sector. In 1999, the government passed the IRDA Bill to
open up the insurance sector in India.

In the last year, the country saw a large number of Indian and foreign
players rushing to enter this lucrative and untapped insurance market
of India. The Indian Insurance sector is thus at the beginning of a new
era. It has been only a year since the new players became active and it
is difficult to say whether the reforms were successful. But it is
believed that the country has a vast untapped potential and the new
players will surely use this to their best advantage.

This project aims to study the topic of Insurance and the Indian
Insurance Sector in particular. The first part of the project covers the
concept of insurance, the need for insurance, the types of insurance. In
the second part, we study the Indian insurance sector. Under the study
of the insurance sector, we will look at why the government decided to
open up the sector, a brief overview of the reforms, the potential of the
sector, the requirement for entry into the market and the new players
in the market. We will also give a brief insight into the investment
regulations, the new regulatory authority, the distribution channels and
a look at the times to come.

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TABLE OF CONTENT

SR. NO TOPIC PG.NO

1 Introduction 3
2 Concept of insurance 4
3 Types of Insurance 10
4 Brief History of Insurance Sector in India 12
5 Reasons for Opening of Insurance Sector 15
6 Potential For Insurance Sector in India 17
7 Reforms in the Sector 19
8 Regulatory Authority 21
9 Investment Regulations 24
10 Current Players 26
11 Distribution Channels 28
12 Challenges Faced by the Insurance 31
Companies
13 Future Scenario of Insurance Industry 34
14 Cases 35

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INTRODUCTION

The Government of India (GoI) opened the insurance sector to private

players on October 24. 2000, thus unraveling a new chapter in this
field. This new policy of GOI is an outcome of India’s policy of
liberlisation and also the result of its obligation as a signatory to the
WTO to conform to its principles and guidelines relating to the
reduction of barriers to trade in services. This epoch-making decision
has ushered in a new era that has transgressed four decades of
complete control by the public sector over the insurance sector (life
insurance was nationalized in 1956 by merging 245 private insurance
companies to form the life Insurance Corporation Of India (LIC), while
general insurance was nationalized with the formation of general
Insurance Corporation (GIC) in 1972).

This decision of the GOI has been accompanied by a set of laws and
regulations governing this domain. Accordingly the Insurance
Regulatory and Development Authority Act 1999 (The IRDA Act) was
enacted with the predominant aim of setting up an autonomous body
known as the Insurance Regulatory and Development Authority (the
IRDA) to regulate, promote and ensure orderly growth of the insurance
industry.

The influx of new players in both life and non-life sectors has made the
insurance market a consumers paradise. All new players are striving to
introduce innovative products. Where the old players (LIC and GIC)
have a first mover advantage and have a wide spread network, the
new players are banking on their innovative products and superior
services to surge them ahead.

It is too soon to say which of the new players will succeed and which of
them will perish. But the opening up of the sector is a step that will be
beneficial both to the insured as well as the insurer.
THE CONCEPT OF INSURANCE

"Insurance is a contract between two parties whereby one party called insurer
undertakes in exchange for a fixed sum called premiums, to pay the other party called
insured a fixed amount of money on the happening of a certain event."

Insurance is a protection against financial loss arising on the

happening of an unexpected event. Insurance companies collect
premiums to provide for this protection. A loss is paid out of the
premiums collected from the insuring public and the Insurance
Companies act as trustees to the amount collected.

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For Example, in a Life Policy, by paying a premium to the Insurer, the

family of the insured person receives a fixed compensation on the
death of the insured. Similarly, in a car insurance, in the event of the
car meeting with an accident, the insured receives the compensation
to the extent of damage.

It is a system by which the losses suffered by a few are spread over

many, exposed to similar risks. Insurance is a mechanism for
transferring risk and reducing risk by having a large number of
individuals who share in the financial losses of the group. Risk inhibits
action and is highly subjective on an individual basis. Insurance
objectifies risk. People trade the possibility of financial loss for the
relative certainty of the premium paid and reimbursement for loss.
Insurance frees people to take action even in the face of possible
financial loss. Thus, insurance provides utility even if no loss ever
occurs.

Some people believe insurance is similar to gambling or opening a

savings account. Neither is true. When you place a bet, you create a
risk and you have the chance of losing all or making more than your
wager. Insurance companies write policies for pure not speculative
risks and indemnify you when you have a covered loss. In the
insurance industry, the word "indemnify" means you cannot be put in a
better position than you were before the loss.

BASIC INSURANCE TERMINOLOGIES

• Insured
The person known as the policyholder, a person with insurance
coverage.

• Insurer
A company licensed to transact the business of insurance and
issue insurance policies.

• Policy
It's the written contract between an insurance company and its
insured. It defines what the company agrees to cover for what
period of time and describes the obligations and responsibilities
of the insured.

• Premium
It's the amount of money a policyholder pays for insurance
protection.

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• Claim
It's the notice to the insurance company that under the terms of
a policy, a loss maybe covered.

• Indemnity
Legal principle that specifies an insured should not collect more
than the actual cash value of a loss but should be restored to
approximately the same financial position as existed before the
loss.

• Agent
A licensed person or organization who sells insurance and
represents the insurance company to the policyholder.

• Broker
An organization or person paid by the policy holder to look for
insurance on their behalf.

• Deductible
It's the amount of the loss which the insured is responsible to
pay before the insurance company pays the benefits.

• Expiration Date
This is the date on which the policy ends.

• Grace Period
A period (usually 30 or 31 days) following each insurance
premium due date, other than the first due date, during which an
overdue premium may be paid. All provisions of the policy
remain in force throughout this period.

• Limit
It's the maximum amount paid by the insurance company under
the terms of a policy.

• Underwriting
The process of classifying applicants for insurance by identifying
characteristics such as age, gender, health, occupation and
hobbies. People with similar characteristics are grouped together
and are charged a premium based on the group's level of risk.

REQUIREMENTS OF AN INSURABLE RISK

1. From the perspective of the insured:

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 The risk must be high. Losses with extremely high odds and
extremely low odds might best be handled in other ways.

 The loss must be unaffordable.

 The premium must be affordable or, at least, low in comparison

with the possible loss.

2. From the perspective of the insurer:

 The loss must be fortuitous (unexpected in terms of timing and

magnitude).

 The loss must non-catastrophic with neither the possibility of many

losses at one time or any one loss of overwhelming magnitude.
 The losses must be personal because only people can suffer losses.

 The loss must be definite in time, place and amount. This allows for
a reasonably accurate prediction of loss and thus calculation of
premium.

CONCEPT OF INSURABLE INTEREST

 The insured party must have an insurable interest in the person or

property covered. This means that he or she must stand to suffer a
loss should the peril occur.

 Generally, insurable interest must exist at the time that the loss
occurs.

 Requiring insurance supports the principle of indemnity, which

states that an insured should collect no more than the actual loss.

CONCEPT OF INSURANCE INDUSTRY

The important feature of insurance industry is the fact that not much
capital is required to start and develop the business the equity base is
always much smaller than the liabilities undertaken and the resources
generated. The resources accumulation in the form of reserves
investment
and other assets are much more enormous than the equity base. The
need for
additional capital infusion in response to inflation and consequent
increase in management expenses and other input is very little and
non-existence. The premium income generated and proper husbanding
of the
resources take care of this aspect.

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WHY DO PEOPLE IN INDIA TAKE INSURANCE

People in India have been viewing Insurance, especially life insurance

as a form of Investment . These are the common reasons why people
in India take up insurance:

1 Insurance safeguards a person /his family /his business against

possible losses on account of risks and perils. It provides financial
compensation for the losses suffered due to the happening of any
unforeseen events.
2 Tax Relief:
a. Under Section 88 of Income Tax Act , a portion of
premiums paid for life insurance policies (LIC) are deducted
from tax liability. Similarly, exemption is available for
Health Insurance Policy premiums.
b. Money paid as claim including Bonus under a life policy is
exempted from payment of Income Tax.
3 Encourages Savings : An insurance scheme encourages thrift
among individuals. It inculcates the habit of saving compulsorily,
unlike other saving instruments, wherein the saved money can be
easily withdrawn.
4 The beneficiaries to an insurance claim amount are protected from
the claims of creditors by affecting a valid assignment.
5 Life Policies are accepted as a security for a loan. They can also be
surrendered for meeting unexpected emergencies.
6 Based on the concept of sharing of losses, the society will benefit as
catastrophic losses are spread globally.

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TYPES OF INSURANCE

Insurance has been classified into:

• Life Insurance
• General Insurance or Non-Life insurance

LIFE INSURANCE

Life insurance is a written contract between the insured and the

insurer, that provides for the payment of the insured sum on the date
of the maturity of the contract or on the unfortunate death of the
insured, whichever occurs earlier.

The different types of life insurance are:

• Whole Life Assurance Plans

• Term Assurance Plans

• Annuities

NON LIFE INSURANCE

There are various broad categories of non-life or general

Insurance as follows:

Health Insurance:
Just like one looks to safeguard ones wealth, these policies ensure
guarding the insurer's health against any calamities that may cause
long term harm to ones life and even hamper ones earning ability for a
lifetime. Some examples of this type of policy are mediclaim policy,
personal accident, group accident, traffic accident, etc.

Business Insurance:
Risks of loss of profits/business, goods, plant and machinery are most
profound in case of business. Under this head they cover the most
widely used policies that cover a business from any loss of the above
kind. Some of these policies are burglary insurance, shopkeepers
insurance, key-man insurance, marine insurance, public liability
insurance, workmen compensation insurance, air transit insurance,
fidelity guarantee insurance etc.

Automobile Insurance:

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Auto Policy is required to be taken to cover the risks that arise to the
owner, vehicle and third party. This includes the Compulsory Vehicle
Policy (In India, by the Motor Vehicles Act, every car owner is required
to covered against Act risks) and the Comprehensive Vehicle Policy.

Fire Insurance:

This policy is required to be taken to prevent any loss of profits /

property from incidental fire. Eg: fire insurance and fire consequential
loss policy.

Travel Insurance

Every year number of tourists die while travelling. They lose their
baggages, passports etc are left stranded in unfamiliar environments.
Medical attention in a foreign land while very expensive is also very
difficult to find in foreign land. Travel policies are designed to take care
of all the problems that generally occur while travelling, whether
domestic or foreign.

BRIEF HISTORY OF THE INSURANCE SECTOR IN INDIA

The insurance sector in India has come a full circle from being an open
competitive market to nationalisation and back to a liberalised market
again. Tracing the developments in the Indian insurance sector reveals
the 360 degree turn witnessed over a period of almost two centuries.
Till the end of 1999-2000, two government insurance companies,
namely, Life Insurance Corporation (LIC) and General Insurance
Corporation (GIC) were the monopoly insurance (both life and non-life)
providers in India.

In the year 2000-01, the Indian Government lifted all entry restrictions
for private sector investors. Foreign investment insurance market was
also allowed in the Indian market and the face of the Indian Insurance
sector changed dramatically.

We will first take a brief look at the old players in the market and
understand the position they were in before the opening up of the
Insurance Sector.

LIFE INSURANCE CORPORATION OF INDIA (LIC)

In 1956, 245 Indian and foreign insurers and provident societies that
were prevalent in India were taken over by the central government and
nationalised to form the Life Insurance Corporation of India (LIC) with a

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contribution of Rs. 5 crore from the Government of India. LIC was

formed to spread the message of life insurance in the country and
mobilise people's savings for nation-building activities. A monolith
then, the corporation, enjoyed a monopoly status and became
synonymous with life insurance.

Today LIC has its central office in Mumbai and seven zonal offices at
Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur and Bhopal and
operates through 100 divisional offices in important cities and 2,048
branch offices. LIC has 5.59 lakh active agents spread over the
country. The Corporation also transacts business abroad and has
offices in Fiji, Mauritius and United Kingdom. LIC is associated with joint
ventures abroad in the field of insurance, namely, Ken-India Assurance
Company Limited, Nairobi; United Oriental Assurance Company
Limited, Kuala Lumpur; and Life Insurance Corporation (International),
E.C. Bahrain. It has also entered into an agreement with the Sun Life
(UK) for marketing unit linked life insurance and pension policies in U.K

LIC sold 2,32,50,078 individual policies and earned a first premium

income of Rs.14,844.05 crore during the financial year 2001-02.
Post liberalisation, the company is bound to face stiff competition from
the newer players in the market. However, LIC has the first mover
advantage and today the common man relates life insurance with LIC
and this will be the companies biggest advantage.

GENERAL INSURANCE CORPORATION OF INDIA (GIC)

The General Insurance business in India was nationalized with effect

from 1.1.1973 by the General Insurance Business (Nationalization) Act,
1972 and a Government company known as General Insurance
Corporation of India was formed. 107 Indian and foreign insurers which
were operating in the country prior to nationalisation, were grouped
into four operating companies namely
1. National Insurance Company Ltd.

2. Oriental Insurance Company Ltd.

3. New India Assurance Company Ltd.

4. United India Insurance Company Ltd.

The Government of India subscribed to the capital of GIC. GIC, in turn,

subscribed to the capital of the above four companies. All the four
companies are government companies registered under the
Companies Act.

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All the above four subsidiaries of GIC operate all over the country
competing with one another and underwriting various classes of
general insurance business except for aviation insurance of national
airlines and crop insurance which is handled by the GIC
GIC and its subsidiaries have representation either directly or through
branches in 18 countries and through associate/ locally incorporated
subsidiaries in 14 other countries. A subsidiary company of GIC India
International Pvt. Ltd. is operating in Singapore and their joint venture
company, Kenindia Assurance Company Ltd. in Kenya. On the whole,
the foreign operations of the general insurance industry have been
profitable.

GIC was converted into India's national reinsurer from December,

2000 and all the subsidiaries working under the GIC umbrella were
restructured as independent insurance companies.

Indian Parliament has cleared a Bill on July 30,2002 delinking the four
subsidiaries from GIC. A separate Bill has been approved by Parliament
to allow brokers, cooperatives and intermediaries in the sector.
Currently insurance companies- both private and public-- has to cede
20 percent of its reinsurance with GIC. GIC is planning to increase re-
insurance premium by 20 percent which works out at Rs. 3000 cr. GIC
is actively considering entry into overseas markets including West
Asia, South-east Asia and SAARC region.
REASONS FOR OPENING UP OF THE SECTOR

INDUCE COMPETITION

It was seen that though the waves of competition were sweeping

across the economy, LIC and GIC remain overstaffed, hierarchial
monolithic monopolies with little competition even between the
subsidiaries. As a result, the consumers are deprived of benefits such
as wider range of products, efficient service and lower price of
insurance covers.

LIBERALISATION EFFORT

The opening up of Insurance sector was a part of the on going

liberalization in the financial sector of India. The changing face of the
financial sector and the entry of several companies in the field of life
and non life Insurance segment are one of the key results of these
liberalization efforts. Insurance business by way of generating
premium income adds significantly to the GDP.

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HIGH PREMIUM AND LOW RETURNS

Pointing out that the insurance industry's funds are preempted through
government-mandated investments with low yield, the report said this
affects the financial results of the insurance companies. This is why
rates of insurance premia are so high and returns on savings invested
in life insurance are so low. In the absence of competition, LIC's vast
marketing and services network was inadequately responsive to
customer needs and there was excessive lapsation of policies.

INSURANCE MOBILISATION

The entry of several private insurance companies, particularly

international insurance companies, through joint ventures, will speed
up the process of insurance mobilisation. The competition will unleash
new schemes and benefits, which will give consumers a better chance
to save as well as insure. The penetration of Insurance in India is
extremely low and the opening up of the sector was seen as a way
increasing penetration.

FLOW OF FDI

The policy of the government to open up the financial sector and the
Insurance sector is expected to bring greater FDI inflow in to the
country.

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POTENTIAL OF THE INSURANCE SECTOR IN INDIA

LIFE INSURANCE STATISTICS
Indian Population 1 bn
GDP as on 2000 (Rs billion) 20000
Gross Domestic Savings as a % of 23%
GDP
Estimated Market by 2005 650 million
Source: Indiainfoline.com and NCAER

India has an enormous middle-class that can afford to buy life, health,
and disability and pension plan products. The low level of penetration
of life insurance in India compared to other developed nations can be
judged by a comparison of per capita life premium. Despite the fact
that the market is vast in India for the Insurance business, the
coverage is far less compared with the international standards.
Estimates show that a meagre 35-40 million, out of a population of 950
million, have come so far under the umbrella of the insurance industry.

India has traditionally been a high savings oriented. Insurance sector in

the Unites States is as big in size as the banking industry there. This
gives us an idea of how important the sector is. Insurance sector
channelises the savings of the people to long term investments. In
India where infrastructure is said to be of critical importance, this
sector will bring the nations own money for the nation.

Life Insurance sector is one of the key areas where enormous business
potential exists. In India currently the life insurance premium as a
percentage of GDP is 1.3 percentage against 5.2 per cent in the US.
But in the liberalized scenario, the life insurance premiums were
projected to grow at around 18% to 20% from Rs. 215 billion in 1998-
99 to Rs.592 billion in 2004-05 and to Rs.1450 billion by 2009-10.
Corporate non-life premium was projected to grow from Rs.84 billion in
1998-99 to Rs.386 billion in 2009-10 and personal line non-life from
Rs.4 billion to Rs.51 billion.

The potential market is so huge that it can grow by 15 to 17 per cent

per annum. Now with the entry of private insurance companies, the
Indian Insurance Market may finally be able to make deeper
penetration into newer segments and expand the market size
manifold.

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REFORMS IN THE SECTOR

The eagerly awaited Insurance Regulatory and Development Authority
(IRDA) Bill to open the insurance sector in India to private and foreign
players, was passed by the Lok Sabha on December 2, 1999 and by
the Rajya Sabha on December 7, 1999.

The Bill seeks to grant statutory status to the interim Insurance

Regulatory Authority and amend the 1938 Insurance Act, the 1956 Life
Insurance Corporation Act and the 1972 General Insurance Business
(Nationalization) Act to end the public sector monopoly. The IRDA Bill
incorporates the recommendations made by the parliamentary
Standing Committee on Finance.

Salient Features of Insurance Sector Reform Bill:

 The bill seeks to regulate, promote and ensure orderly growth of

the insurance industry and provides for solvency norms and
specifies that the funds of policyholders would be retained within
the country.

 The minimum capital requirement for life and general insurance

has been retained at Rs 100 crore ($23.02 million) and for
reinsurance firms at Rs 200 crore ($46.04 million) as provided in the
earlier IRA Bill.

 It has been stipulated that the aggregate foreign holding in an

Indian insurance company shall not exceed 26 per cent of the paid-
up equity. Moreover, to provide a level playing field, It has been
proposed that the Indian promoters would also be required to bring
down their equity holding to 26 percent after a period of 10 years
from the commencement of business.

 The Bill has proposed solvency margins of Rs. 50 crores (US $

11.51 million) for life and general Insurance and Rs. 100 crores (US
$ 23.02 million) for reinsurance companies.

 IRDA, in addition to other functions, would supervise the

functioning of the Tariff Advisory Committee (TAC) and specify the
percentage of premium income of the insurers to be set aside to
finance schemes for promoting and regulating professional
organizations in the insurance sectors.

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REGULATORY AUTHORITY
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

IRDA is formed as an authority to protect the interests of holders of

insurance policies, to regulate, promote and ensure orderly growth of
the insurance industry.

With the Insurance Regulatory and Development Act, the focus shifted
to the following:

• The Insurance Regulatory and Development Authority (IRDA)

should give priority to health insurance while issuing certificates
of registration

• Policyholders' funds will be invested in the social sector and

infrastructure. The percentage may be specified by the IRDA and
such regulations will apply to all insurers operating in the
country;

• Insurers will be expected to undertake a certain percentage of

business in the rural or social sector and provide policies to
persons residing in rural areas, workers in the unorganised and
informal economically back;

• In case the insurers fail to meet the social sector obligation a fine
of Rs.2.5 mn would be imposed the first time. Subsequent
failures would result in cancellation of licenses.

Duties, powers and functions of IRDA

The following are the powers and the functions of the IRDA are as
follows:

(a) The IRDA issues, modifies, renews, suspends, withdraws

and cancels all certificate of registration for all parties that
apply.

(b)They are also responsible for the protection of the interests

of the policy holders in matters concerning assigning of
policy, nomination by policy holders, insurable interest,
settlement of insurance claim, surrender value of policy
and other terms and conditions of contracts of insurance.

(c) The IRDA specifies requisite qualifications, code of conduct

and practical training for intermediary or insurance
intermediaries and agents.

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(d)It also specifies the code of conduct for surveyors and loss
assessors.

(e) The IRDA has been given the responsibility of promoting

efficiency in the conduct of insurance business.

(f) It is in charge of promoting and regulating professional

organisations connected with the insurance and re-
insurance business;

(g) It has been entrusted with the control of the Insurance

sector by calling for information from, undertaking
inspection of, conducting inquires and investigations
including audit of the insurers, intermediaries, insurance
intermediaries and other organisations connected with the
insurance business;

(h)It will also be responsible for the control and regulation of

the rates, advantages, terms and conditions that may be
offered by insurers.

(i) The IRDA will specify the form and manner in which books
of account shall be maintained and statement of accounts
shall be rendered by insurers and other insurance
intermediaries.

(j) One of the most important functions is that of regulating

investment of funds by insurance companies and the
maintenance of margin of solvency.

(k) The other function is that of adjudication of disputes

between insurers and intermediaries or insurance
intermediaries.

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INVESTMENT REGULATIONS
Source : IRDA (Investment) Regultions,2000
All insurance companies in India have to follow certain norms and
limitations with regards to the investments they make. We studied
the regulations laid down by the IRDA and given below are the
various sectors or types of investments and their minimum
requirements that the companies are supposed to follow.

(1) Life Business: Every insurer carrying on the business of life-

insurance has to invest in the following manner:

S.No Type of Investment Percentage

i) Government Securities 25%
ii) Government Securities or other Not less than 50%
approved securities (including (i)
above)
iii) Approved Investments as specified in
Schedule I *
a) Infrastructure and Social Sector Not less than 15%
b) Others to be governed by Exposure/ Not exceeding 20%
Prudential Norms specified in
Regulation 5 #
iv) Other than in Approved Investments to Not exceeding 15%
be governed by Exposure/ Prudential
Norms specified in Regulation 5#

* Schedule I is a part of the Notification issued by the IRDA for

all Insurance companies in India. This Schedule lists the
approved investments for all businesses providing life
insurance in India.

# Regulation 5 is a section in the Notification issued by the

IRDA for all Insurance companies in India. The section lays
down exposure and prudential norms with respect to
investments in shares, bonds, debentures, long term and short
term loans.

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(2) Pension and General Annuity Business: Every insurer shall

maintain invested assets of Pension Business, General Annuity
Business and Group Business in the following manner:

S.N Type of Investment Percentage

o
i) Government securities, being not less than 20%
ii) Government Securities or other approved 40%
securities inclusive of (i) above, being not less
than
iii) Balance to be invested in Approved Not exceeding
Investments as specified in Schedule I* and to 60%
be governed by Exposure/ Prudential Norms
specified in Regulation 5#

(3) General Business: Every insurer carrying on the business of

general insurance has to invest and maintain investments in the
manner given below:

S.No Type of Investment Percentage

i) Central Government Securities, being not less 20%
than
ii) State Government securities and other 30%
Guaranteed securities including (i) above, being
not less than
iii) Housing and Loans to State Government for 5%
Housing and Fire Fighting equipment, being not
less than
iv) Investments in Approved Investments as specified in Schedule
II **
a) Infrastructure and Social Sector Not less than
10%
b) Others to be governed by Exposure/ Prudential Not
Norms specified in Regulation 5 exceeding
30%
v) Other than in Approved Investments to be Not
governed by Exposure/ Prudential Norms exceeding
specified in Regulation 5 25%
** Schedule II lists the approved investments for companies
providing general Insurance in India.

CURRENT PLAYERS

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In the first year of insurance market liberalisation (April 2-December

31, 2001) as much as 16 private sector companies including joint
ventures with leading foreign insurance companies have entered the
Indian insurance sector. Of this, 10 were under the life insurance
category and six under general insurance. Since then, till June, 2002
two more joined the life insurance sector. Thus in all there are 18
players (12 life insurance and 6 general insurance) in the Indian
insurance industry till date.

Life Insurance Companies:

• Life Insurance Corporation of India

• ICICI Prudential
• HDFC Standard Life Insurance
• Max New York Life
• Birla Sun Life Insurance
• SBI Life
• Tata AIG Insurance
• ING Vysya Life Insurance
• Allianz Bajaj
• Amp Sanmar
• Old Kotak Mahindra Life
• MetLife India Insurance

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General Insurance Companies:

• Bajaj Allianz General Insurance Co. Ltd
• ICICI Limited
• IFFCO-TOKIO General Insurance
• National Insurance
• New India Insurance
• United Insurance
• Oriental Insurance
• Royal Sundaram
• TATA AIG Insurance

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DISTRIBUTION CHANNELS

In the liberalized insurance market, there will be multiple distribution

channels, which will include agents, brokers, corporate intermediaries,
bank branches, affinity groups and direct marketing through telesales
and Internet. Some channels will be cheaper than others. Hence there
will be competition among the channels. The new insurers will operate
with the help of multiple distribution channels but the existing insurers
may be forced to operate only with the help of agents. Hence, intense
competition will grow among the old and new insurers in the market to
win the consumers. Firms will need to forge relationships with the
partners for strategic advantage. They need to have strong partner
relationship management. For example, local partners may have
strong distribution channel in their line of business. That can be used
to sell insurance also in a cost-effective manner.
All these will pose a great challenge to the insurers in the liberalized
insurance market.

DISTRIBUTION THROUGH BANKS

Distribution of insurance products through banks are considered to be

the most popular banks are considered to be the most popular medium
as the private players prefer to utilise the wide network of banks for
the distribution of insurance policies in India.
Like in the European market, bancassurance can be an effective
channel. In countries like Italy, France and Spain, insurance companies
have taken advantage of customers' typical loyalty to single banks and
pattern of long-term banking relationships by successfully selling their
products through these banks. Here banks can leverage their existing
resources and earn supplementary fees while widening their range of
available services. In the face of strong profitability pressures in their
traditional banking services, banks will likely seize upon opportunities
to expand their offerings by including insurance products.

DISTRIBUTION THROUGH INSURANCE AGENTS

Insurance agents and development officers provide another vital link in

insurance selling and various surveys have proven this aspect. These
intermediaries help the insurance companies to keep in touch with
policyholders, assist claimants, and act as advisors to those who invest
their claim proceeds.

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NEW CHANNELS

Other approaches, like call-center, direct marketing, and the Internet

will grow dramatically in importance over the next several years. These
ensure direct contact with the customers. It will enable firms to
acquire, retain and build loyalty among customers while lowering
transaction costs. To make multiple channel delivery work, all channels
must be integrated tightly to deliver on the promise of service
anytime, anywhere. Information gathered by each channel must be
combined to provide a consolidated view of the customer relationship
and identify likely financial needs. The online media is definitely
considered to be one of the most effective modes of distribution as a
number of websites have already started offering policies online. At
present, 12 per cent of the world's insurance products are sold through
the Internet, a figure likely to grow exponentially with a likely increase
in customer usage of the Internet for their own research and product
comparisons.

Extensive use of information technology can make the role of these

intermediaries more effective and buyer-friendly.

OTHER MODES OF DISTRIBUTION

Marketing alliances with people/companies having a strong physical

presence is gaining popularity and is considered to be a good
distribution strategy as well.

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CHALLENGES BEFORE THE INDUSTRY

The new as well as the old insurers will have to face a number of
challenges in the liberalized market.

New Insurers
The new insurers will have to invest a minimum capital of Rs. 100
crores. The normal gestation period is of five years. The generation of
profit normally starts in the sixth year. Hence the new insurers will
have to be ready for locking up their capital for at least 5 years before
earning any profits. Besides they will face problems of shortage of
trained manpower for the insurance industry. The setting up of various
offices and distribution network is a time consuming process. Further
the new insurers will have to compete with the established insurance
companies like LIC and GIC which have a corporate image and market
presence for several years.

Expectation of the consumers

Today LIC has more than 60 products and GIC has more than 180
products to offer in the market. But most of them are outdated, as they
are not suitable to the needs of the consumers. Hence old as well as
new insurers will have to offer innovative products to the consumers.
The consumers are particularly expecting good pension plans, health
insurance, term insurance and investment products like unit-linked
insurance, from the life insurers. Similarly the consumers expect
innovative products from the general insurers for managing
healthcare, property insurance, accident insurance and other products
related to the personal line of insurance.

The consumers also expect reduction in the premium of the insurance

products as the mortality rate in India has come down by three times
in the last 50 years.

Distribution Channel
In the liberalized insurance market, there will be multiple distribution
channels, which will include agents, brokers, corporate intermediaries,
bank branches, affinity groups and direct marketing through telesales
and Internet. Some channels will be cheaper than others. Hence there
will be competition among the channels. The new insurers will operate
with the help of multiple distribution channels but the existing insurers
may be forced to operate only with the help of agents. Hence, intense
competition will grow among the old and new insurers in the market to
win the consumers. This will pose a great challenge to the insurers in
the liberalized insurance market.

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Consumer Education
Very soon the market will be flooded by a large number of products by
a fairly large number of insurers operating in the Indian market. Even
with limited range of products offered by LIC and GIC, the consumers
are confused in the market. Their confusion will further increase in the
face of a large number of products in the market. The existing level of
awareness of the consumers for insurance products is very low, it is so
because only 62% of the population of India is literate and less than
10% well educated. Even the educated consumers are ignorant about
the various products of insurance. Hence it is necessary that all the
insurers should undertake the extensive plan for education of
consumers. The consumer organizations and the media also can play
very important role in education of the consumers. This will result in
expansion of the insurance market and will also enable the needy
consumer to purchase appropriate products.

Consumer Grievance Redressal

The insurers will have to face an acute problem of the redressal of the
consumers, grievances for deficiency in products and services. The
Insurance Regulatory Development Authority (IRDA), the regulatory
body has already appointed Ombudsman for looking into the
grievances of the policyholders, his judgement will be binding on
insurers. Further, under Consumer Protection Act 1986, the consumer
courts are operating at district, state and the national level. In the
competitive market, awareness level of the consumers will increase
and it will help consumers to fight for their legal right for deficiency in
services. Hence the number of legal cases filed by the consumers
against insurers is likely to increase substantially in future. This will be
a challenge to the insurers.

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FUTURE SCENARIO OF INSURANCE INDUSTRY

The size of the existing insurance market is very large and is growing
at the rate of 10% per year. The estimated potential of the Indian
insurance market in terms of premium was around Rs. 3,44,000 crores
in the year 1999. Only 10% of the market share has been tapped by
LIC and GIC and the balance 90% of the market still remains untapped.

This vast potential can be tapped only by a large number of insurers.

To serve 100 crores of population, Indian insurance market offers
tremendous opportunities to prospective insurers. Hence, the regulator
should issue licenses to a large number of insurers if the insurance
market has to grow at a fast rate.

With the increase in the life span of individuals and disintegration of

the joint family system, each Individual now has arranged insurance
cover for himself and for his family. Hence, coverage of insurers, which
was around 7% of the population in 1999, has to grow very fast. In fact
all the citizens in the middle class, estimated around 314 million can
afford insurance from their own financial resources. The remaining
population has to be given subsidized insurance with the help of the
government as well as the insurers.

The huge fund from insurance investments can be utilized for financing
the infrastructure industry as well as a support to other industries in
the country. Hence insurance industry is likely to play a key role in
changing the economic landscape of the country. However the success
of the insurance industry will primarily depend upon meeting the rising
expectations of the consumers who will be the real king in the
liberalized insurance market in future.

PROJECT COMPILED BY
SR. NAME ROLL NO
NO

1 OMIKA MEHRA

2 JENNET M

3 BINITA RUPANI

4 AKHILESH SETHI

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5 PRIYADARSHINI SHINDE

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