29841154 Competitive Study of LIC vs Private Players in Life Insurance Sector

ContentContent

Concept Of InsuranceConcept Of Insurance History Of InsuranceHistory Of Insurance Insurer’s Business ModelInsurer’s Business Model Insurance Sector In IndiaInsurance Sector In India Company ProfileCompany Profile Research MethodologyResearch Methodology Main Competitors Of LICMain Competitors Of LIC ComparisonComparison Findings And ConclusionFindings And Conclusion Bibliography Bibliography

Concept Of InsuranceConcept Of Insurance

Human life is subject to riskHuman life is subject to risk Loss of Human life means loss of incomeLoss of Human life means loss of income Risk has element of unpredictabilityRisk has element of unpredictability The concept of insurance is that the losses The concept of insurance is that the losses

of a few are made good by contribution of a few are made good by contribution from many. It is based on the law of large from many. It is based on the law of large numbers. It stemmed from the need of man numbers. It stemmed from the need of man to find a solution for mitigation of losses. It to find a solution for mitigation of losses. It also reflects the nature of man to find a also reflects the nature of man to find a solution collectively.solution collectively.

History Of InsuranceHistory Of Insurance History of insurance refers to the development of History of insurance refers to the development of

a modern laws and market in insurance against a modern laws and market in insurance against risks. In some sense we can say that insurance risks. In some sense we can say that insurance appears simultaneously with the appearance of appears simultaneously with the appearance of human society.human society.

It has its origins in ancient RomeIt has its origins in ancient Rome As European civilization progressed, its social As European civilization progressed, its social

institutions and welfare practices also got more institutions and welfare practices also got more and more refined and more refined

Insurance as we know it today owes its existence Insurance as we know it today owes its existence to 17th century England. to 17th century England.

Insurance in India can be traced back to the Vedas Insurance in India can be traced back to the Vedas Bombay Mutual Assurance Society, the first Indian Bombay Mutual Assurance Society, the first Indian

life assurance society, was formed in 1870. life assurance society, was formed in 1870.

Insurer’s Business ModelInsurer’s Business Model Profit = earned premium + investment Profit = earned premium + investment

income - incurred loss - underwriting income - incurred loss - underwriting expenses.expenses.

Insurers make money in two ways:Insurers make money in two ways: (1) Through underwriting, the process by (1) Through underwriting, the process by

which insurers select the risks to insure and which insurers select the risks to insure and decide how much in premiums to charge for decide how much in premiums to charge for accepting those risks accepting those risks

(2) By investing the premiums they collect (2) By investing the premiums they collect from insured parties.from insured parties.

Most complicated aspect of the insurance Most complicated aspect of the insurance business is the underwriting of policies. business is the underwriting of policies.

Insurance Sector In Insurance Sector In IndiaIndia

Some of the important milestones in the life Some of the important milestones in the life insurance business in India are:insurance business in India are:

1818:1818: Oriental Insurance company first insurance company in Oriental Insurance company first insurance company in India.India.

1870:1870: Bombay mutual life assurance company first Indian Bombay mutual life assurance company first Indian Insurance company. Insurance company.

1912:1912: The Indian Life Assurance Companies Act enacted as the The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.first statute to regulate the life insurance business.

1928:1928: The Indian Insurance Companies Act enacted to enable The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life the government to collect statistical information about both life and non-life insurance businesses.and non-life insurance businesses.

1938:1938: Earlier legislation consolidated and amended to by the Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the Insurance Act with the objective of protecting the interests of the insuring public.insuring public.

1956:1956: 245 Indian and foreign insurers and provident societies 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. LIC taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.contribution of Rs. 5 crore from the Government of India.

ContCont……

The overall business growth has been more than 36%.The overall business growth has been more than 36%. By the mid-1950s, there were around 170 insurance By the mid-1950s, there were around 170 insurance

companies and 80 provident fund societies in the companies and 80 provident fund societies in the country's life insurance scene. However, in the country's life insurance scene. However, in the absence of regulatory systems, scams and absence of regulatory systems, scams and irregularities were almost a way of life at most of these irregularities were almost a way of life at most of these companies. As a result, the government decided companies. As a result, the government decided nationalise the life assurance business in India. The nationalise the life assurance business in India. The Life Insurance Corporation of India was set up in 1956 Life Insurance Corporation of India was set up in 1956 to take over around 250 life companies.to take over around 250 life companies.

Upto year 2001 private sectors were not allowed to Upto year 2001 private sectors were not allowed to enter in Life insurance business. Lic was having 100% enter in Life insurance business. Lic was having 100% market share but after 2001 IRDA allows private market share but after 2001 IRDA allows private sector to enter into insurance business.sector to enter into insurance business.

Death

Disability

Accident

Sickness

Old age

Misc

Accident

Motor

Marine

Fire

ContCont……

The IRDA which is Insurance The IRDA which is Insurance Regulatory and Development Regulatory and Development Authority has Provided three levels Authority has Provided three levels in the Insurance sector.in the Insurance sector.

Insurance Company (insurer)Insurance Company (insurer) Insurance BrokerInsurance Broker Insurance Agent.Insurance Agent.

LegislationLegislation (as on 1.4.2000): (as on 1.4.2000): Insurance is a federal subject in Insurance is a federal subject in India. The primary legislation that India. The primary legislation that deals with insurance business in deals with insurance business in India is: India is: 

Insurance Act, 1938, and Insurance Act, 1938, and Insurance Regulatory & Insurance Regulatory & Development Authority Act, Development Authority Act, 1999.1999.

ContCont……

SR.no. Reg. no Date of reg. Name of the company

1 101 23.10.2000 HDFC Standard Life Insurance Company Ltd.

2 104 15.11.2000 Max New York Life Insurance Co. Ltd. 

3 105 24.11.2000 ICICI Prudential Life Insurance Company Ltd. 

4 107 10.01.2001 Kotak Mahindra Old Mutual Life Insurance Limited 

5 109 31.01.2001 Birla Sun Life Insurance Company Ltd. 

6 110 12.02.2001 Tata AIG Life Insurance Company Ltd. 

7 111 30.03.2001 SBI Life Insurance Company Limited .

8 114 02.08.2001 ING Vysya Life Insurance Company Private Limited 

9 116 03.08.2001 Bajaj Allianz Life Insurance Company Limited 

10 117 06.08.2001 Metlife India Insurance Company Ltd. 

11 121 03.01.2002 Reliance Life Insurance Company Limited.

12 122 14.05.2002 Aviva Life Insurance Co. India Pvt. Ltd.

13 127 06.02.2004 Sahara India Insurance Company Ltd.

14 128 17.11.2005 Shriram Life Insurance Company Ltd.

15 130 14.07.2006  Bharti AXA Life Insurance Company Ltd. 

16 133 04.09.2007 Future Generali India Life Insurance Company Limited

17 135 19.12.2007 IDBI Fortis Life Insurance Company Ltd.

18 136 08.05.2008 Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd.

19 138 27.06.2008 Aegon Religare Life Insurance Company Ltd.

20 140 27.06.2008 DLF Pramerica Life Insurance Company Ltd.

21 142   Star Union Dai-ichi Life Insurance Co. Ltd.,

Life InsuranceLife Insurance

It is insurance on human beingIt is insurance on human being Human life cannot be valuedHuman life cannot be valued Monetary sum determined based on Monetary sum determined based on

loss of future incomeloss of future income Individual can also protect his old Individual can also protect his old

age with life insuranceage with life insurance

Life insurance procuctsLife insurance procucts

Term insuranceTerm insurance Endowment assuranceEndowment assurance Money back assuranceMoney back assurance Annuity Annuity LinkedLinked

There are a variety of life insurance product There are a variety of life insurance product to suit the needs of various categories of to suit the needs of various categories of people- children, youth, women, middle age people- children, youth, women, middle age person, old people; and also rural people, person, old people; and also rural people, film actors and unorganised labourers.film actors and unorganised labourers.

Why Is It Superior To Other Why Is It Superior To Other Forms Of Savings?Forms Of Savings?

ProtectionProtection Aid to thriftAid to thrift LiquidityLiquidity Tax reliefTax relief Money when u need itMoney when u need it

Company ProfileCompany Profile On the 19th of January, 1956, that life On the 19th of January, 1956, that life

insurance in India was nationalized. About 154 insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian Indian insurance companies, 16 non-Indian companies and 75 provident were operating in companies and 75 provident were operating in India at the time of nationalization. India at the time of nationalization.

Nationalization was accomplished in two Nationalization was accomplished in two stages; initially the management of the stages; initially the management of the companies was taken over by means of an companies was taken over by means of an Ordinance, and later, the ownership too by Ordinance, and later, the ownership too by means of a comprehensive bill. means of a comprehensive bill.

The Parliament of India passed the Life The Parliament of India passed the Life Insurance Corporation Act on the 19th of June Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of 1956, and the Life Insurance Corporation of India was created on 1st September, 1956 India was created on 1st September, 1956

LIC had 5 zonal offices, 33 divisional LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart offices and 212 branch offices, apart from its corporate office in the year from its corporate office in the year 1956. 1956.

Today LIC functions with 2048 fully Today LIC functions with 2048 fully computerized branch offices, 100 computerized branch offices, 100 divisional offices, 8 zonal offices and divisional offices, 8 zonal offices and the Corporate office. the Corporate office.

ContCont……

Mission:Mission: "Explore and enhance the quality of "Explore and enhance the quality of

life of people through financial life of people through financial security by providing products and security by providing products and services of aspired attributes with services of aspired attributes with competitive returns, and by rendering competitive returns, and by rendering resources for economic development.“resources for economic development.“

Vision:Vision: "A trans-nationally competitive "A trans-nationally competitive

financial conglomerate of significance financial conglomerate of significance to societies and Pride of India."to societies and Pride of India."

ContCont……

4 Tier Structure of LIC4 Tier Structure of LICCentral Office

NZ NCZ CZ EZ SCZ SZ WZ EZ

100 Divisional offices

2048 Branch Offices

Research MethadologyResearch Methadology Objective:Objective: The objective of study is to know the market position and The objective of study is to know the market position and

financial position of LIC compare to other Private Players. financial position of LIC compare to other Private Players.

Types of Data:Types of Data: I have used secondary data, as the nature of the project I have used secondary data, as the nature of the project

is study approach.is study approach. Data collection tools:Data collection tools: I have used various internal reports. As well as I have I have used various internal reports. As well as I have

used chairperson’s report of last 4 years and an intranet used chairperson’s report of last 4 years and an intranet site of LIC and IRDA to gather information that I needed.site of LIC and IRDA to gather information that I needed.

Type of Study:Type of Study: The type of study is comparative analysis of LIC and The type of study is comparative analysis of LIC and

other Private Players. other Private Players.

Main Competitors of LICMain Competitors of LIC

SBI Life Insurance CompanySBI Life Insurance Company ICICI Prudential Life Insurance ICICI Prudential Life Insurance

CompanyCompany Birla Sun Life Insurance CompanyBirla Sun Life Insurance Company HDFC Standard Life Insurance HDFC Standard Life Insurance

CompanyCompany Reliance Life Insurance companyReliance Life Insurance company

ComparisonComparison1.1. Policies Policies 2.2. PremiumPremium3.3. ExpensesExpenses 3.13.1 Commission Expenses Commission Expenses 3.23.2 Operating Expenses Operating Expenses4.4. RatiosRatios 4.14.1 Commission Expense Ratio Commission Expense Ratio 4.2 4.2 Operating Expense RatioOperating Expense Ratio5.5. Market ShareMarket Share6.6. Claims PaidClaims Paid7.7. Profit Of year 2007-08Profit Of year 2007-088.8. Life Fund Life Fund

New Policies IssuedNew Policies Issued

31

59

07

07

38

71

41

0

38

22

92

92

79

22

27

4

37

61

25

99

13

26

15

58

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

2005-06 2006-07 2007-08

LIC Privace Players

PremiumPremiumFirst year premiumFirst year premium

28515.87

10269.67

56223.56

19425.65

59996.57

33715.95

0

10000

20000

30000

40000

50000

60000

2005-06 2006-07 2007-08

LIC Private players

Single PremiumSingle Premium

14787.8

4

2742.78

26337.2

1

3921.1

33774.5

6

5049.8

0

5000

10000

15000

20000

25000

30000

35000

2005-06 2006-07 2007-08

LIC Private Players

Regular PremiumRegular Premium

13728.0

6 7526.8

8

29886.3

5

15474.8

3

26222

28666.1

5

0

5000

10000

15000

20000

25000

30000

2005-06 2006-07 2007-08

LIC Private Players

`

Renewal PremiumRenewal Premium

62276.3

5

4813.86

71599.2

7

8825.05

89793.4

2

17845.47

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2005-06 2006-07 2007-08

LIC Private Players

Total PremiumTotal Premium

99792.2

2

15083.5

3

127822.8

4

28218.7

5

149789.9

9

51561.4

2

0

20000

40000

60000

80000

100000

120000

140000

160000

2005-06 2006-07 2007-08

LIC Private Players

Commission ExpensesCommission ExpensesFirst Year Premium First Year Premium

ExpensesExpenses

3630.3

3

1362.9

1

5203.7

5

2802.6

9

4963.8

1

4511.1

5

0

1000

2000

3000

4000

5000

6000

2005-06 2006-07 2007-08

LIC Private Players

Single Premium Single Premium CommissionCommission

162.0

8 29.3

3

411.4

2

42.5

1

504.3

3

50.8

50

100

200

300

400

500

600

2005-06 2006-07 2007-08

LIC Private Players

Regular Premium Regular Premium CommissionCommission

3468.25

1333.57

4792.32

2760.17

4459.48

4460.49

0

5001000

1500

20002500

3000

35004000

4500

5000

2005-06 2006-07 2007-08

LIC Private players

Renewal Premium Renewal Premium CommissionCommission

3469.85

180.19

3969.82

306.96

4650.89

578.46

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2005-06 2006-07 2007-08

LIC Private players

Total Premium Total Premium CommissionCommission

7100.1

9

1543.1

9173.5

8

3109.6

5

9614.6

9

5089.6

1

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2005-06 2006-07 2007-08

LIC Private players

Operating ExpensesOperating Expenses

6041.6

5

3569.4

8

7080.8

6

6520.0

4

8309.3

2

12032.4

6

0

2000

4000

6000

8000

10000

12000

14000

2005-06 2006-07 2007-08

LIC Private players

Commission Expense Ratio

Operating Expense Ratio

Commission Expense

Operating Expense

Premium Underwritten

Premium Underwritten

X

X

100

100

Commission Expense RatioCommission Expense RatioFirst year PremiumFirst year Premium

12.7313.27

9.26

14.3

8.27

13.38

0

2

4

6

8

10

12

14

16

2005-06 2006-07 2007-08

LIC Private players

Single Premium Single Premium

1.1 1.07

1.57

1.08

1.49

1

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2005-06 2006-07 2007-08

LIC Private players

Regular PremiumRegular Premium

25.26

17.7216.03

17.68 17.0115.56

0

5

10

15

20

25

30

2005-06 2006-07 2007-08

LIC Private players

Renewal PremiumRenewal Premium

5.57

3.74

5.54

3.48

5.18

3.24

0

1

2

3

4

5

6

2005-06 2006-07 2007-08

LIC Private players

Total PremiumTotal Premium

7.82

10.23

7.18

10.98

6.42

9.42

0

2

4

6

8

10

12

2005-06 2006-07 2007-08

LIC Private Players

Operating Expense Ratio Operating Expense Ratio

6.65

23.66

5.54

23.01

5.55

23.34

0

5

10

15

20

25

2005-06 2006-07 2007-08

LIC Private players

Market shareMarket shareFist year PremiumFist year Premium

LIC, 59996.57,

64.02%

Private Players,

33715.97, 35.98%

LIC Private Players

Single PremiumSingle Premium

Privatte players, 5049.8, 13.01%

LIC, 33774.56,

86.99%

LIC Privatte players

Regular PremiumRegular Premium

Private players,

28666.15, 52.23%

LIC, 26222, 47.77%

LIC Private players

Renewal PremiumRenewal Premium

Private Players,

17845.47, 16.58%

LIC, 89793.42,

83.42%

LIC Private Players

Total PremiumTotal Premium

Private Players,

51561.42, 25.61%

LIC, 149789.99, 74.39%

LIC Private Players

Claims Paid By life InsurersClaims Paid By life Insurers

96.71

1.13 0.062.1

78.93

10.17

0.01

10.88

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

LIC Private Players

Claims Paid Claims Repudiated

Claims Written Back Claims Pending

Market share* from 2000-01 Market share* from 2000-01 to 2007-08to 2007-08

100%

0

99.46%

0.54%

97.99%

2.01%

95.32%

4.68%

90.67%

9.33%

85.75%

14.25%

81.90%

18.01%

74.39%

25.61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

LIC Private Players*

In T

erm

s of

Tota

l P

rem

ium

-445

-1395

-191-244

-257

-768

-297

34

-78

-339

21

-202

3 5

-242

-30 -26

845

-1500-1400-1300-1200-1100-1000

-900-800-700-600-500-400-300-200-100

0100200300400500600700800900

Profit of year 2007-08

Life Fund Of LICLife Fund Of LIC

463147.62

560806.33 686616.45

0

100000

200000

300000

400000

500000

600000

700000

2005-06 2006-07 2007-08

2005-06 2006-07 2007-08

Findings And ConclusionFindings And Conclusion There is only 1 public company exist in There is only 1 public company exist in

Indian life insurance market which is Indian life insurance market which is LIC and there are 21 other private LIC and there are 21 other private companycompany

Since, 1958 LIC is playing role as life Since, 1958 LIC is playing role as life insurance so that it has created its insurance so that it has created its monopoly in the Indian Life Insurance monopoly in the Indian Life Insurance Market.Market.

As things stand today LIC is still on As things stand today LIC is still on strong footing vis-à-vis its competitors. strong footing vis-à-vis its competitors.

To retain its market leader status the To retain its market leader status the LIC needs to acquire competitiveness. LIC needs to acquire competitiveness.

Cont….Cont…. The new entrants with their aggressive The new entrants with their aggressive

penetration strategies are at least penetration strategies are at least contributing to the cause of LIC by contributing to the cause of LIC by creating insurance consciousness in the creating insurance consciousness in the minds of a wide cross section of minds of a wide cross section of consumers. consumers.

Privileged by its monopoly status LIC Privileged by its monopoly status LIC did not bother much about creating an did not bother much about creating an insurance consciousness, as its objective insurance consciousness, as its objective was to insure any how that was was to insure any how that was happening. This complacency now has to happening. This complacency now has to go and LIC must opt for marketing go and LIC must opt for marketing insurance as insurance.insurance as insurance.

Private sector increased their total Private sector increased their total premium from 28253.01 to 51561.42 that is premium from 28253.01 to 51561.42 that is 82.50% increase while LIC increased its 82.50% increase while LIC increased its premium income from 127822.84 to premium income from 127822.84 to 149789.99, which is increase of 17.19%.149789.99, which is increase of 17.19%.

Private players also increased their market Private players also increased their market share from 18.1% to 25.61%, which is share from 18.1% to 25.61%, which is increase of 41.50%.increase of 41.50%.

No mean performance given the fact that No mean performance given the fact that the new players are still in the process of the new players are still in the process of finding their feet. If the trend continuous finding their feet. If the trend continuous the LIC needs to take guard and prepare the LIC needs to take guard and prepare for strike.for strike.

Cont….Cont….

BibliographyBibliography Research Methodology – Kothari Research Methodology – Kothari

C.R.2007, Research Methodology, C.R.2007, Research Methodology, Techniques and Methods, New Delhi, Techniques and Methods, New Delhi, 20072007

www.licindia.comwww.licindia.com www.birlasunlife.comwww.birlasunlife.com www.sbilife.co.inwww.sbilife.co.in www.reliancelife.co.inwww.reliancelife.co.in www.hdfcinsurance.comwww.hdfcinsurance.com www.iciciprulife.comwww.iciciprulife.com www.irda.orgwww.irda.org