INSURANCE

LIFE INSURANCE INDUSTRY IN INDIA

PRESENTED BY,

F.MOHAMMED SHARFUDEEN,

V.PONMANI,

A.RAJALAKSHMI,

K.SATHISH ADITHYA,

U.SUDALAI MUTHU,

G.VENKARESAN.

INSURANCE INDUSTRY

• Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum.

• It contributes to about 7 per cent to the country's GDP.

• The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta.

• In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage.

CONTD...............

• The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives.

INSURANCE:Life insurance is a contract between the policy

owner and the insurer.where the insurer agrees to pay a designated

beneficiary a sum of money upon the occurrence of the insured individual's or death.

In return, the policy owner agrees to pay a stipulated amount (at regular intervals or in lump sums)

WHY TAKE INSURANCE ?

Security for the family : Risk of life

Systematic Saving : Savings for the inevitable milestones in life like child education , marriage of children , life after retirement etc…

Investment : Benefit from good corporate performance , Be a Part of Indian growth story . Sensex has more than doubled in 2 yr. 20 times since inception.

Tax benefit : Exemption under section 80c and 10(10) d.

LIFE INSURANCE COMPANIES IN INDIA

CONTD…….

PRESENT SCENARIO OF INSURANCE INDUSTRY

• Direct selling• Corporate agents• Group selling• Brokers and cooperative societies• Bank assurance

BODIES THAT REGULATE THE SECTOR:

• IRA: Insurance Regulatory Authority.• IRDA: Insurance Regulatory and

Development Authority.• TAC: Tariff Advisory Committee.

IRA: INSURANCE REGULATORY AUTHORITY

• IRA, under the chairmanship of Rangachary, was set-up in January 1996.

• IRA, which will be responsible for awarding of, licenses i.e. little or no government or political interference in licensing process.

• The exhaustive guidelines have been issued for the appointment of intermediaries (brokers, agents, surveyors and actuaries).

IRDA: INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

• IRDA Act 1999, provided to protect the interest policyholders, to regulate, promote and ensure orderly growth of the life insurance industry.

• Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents.

• Grant of licenses to new companies, and cancellation, suspension and withdrawal of licenses given to insurance companies

TARIFF ADVISORY COMMITTEE

• The tariff advisory committee established under the Act is empowered to control and regulate the rates, terms, and etc.

• It is provided that in fixing, amending or modifying such rates etc.

Government regulations

• Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.

• Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.

• Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.

• Investment of asset should be: 25 % in government securities,At least 25% of the said sum in government securities

or other approved securities and The balance in any approved investment rated as

“very strong” or more by reputed rating agencies.

Ombudsman• The institution of Insurance Ombudsman was created by

a Government of India Notification dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured customers.

• The institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers.

• Appointment of insurance Ombudsman on the recommendations of the committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the Central Government.

• The offices of the twelve insurance Ombudsmans are located at (1) Bhopal, (2) Bhubaneswar, (3) Cochin, (4) Guwahati, (5) Chandigarh, (6) New Delhi, (7) Chennai, (8) Kolkata, (9) Ahmedabad, (10) Lucknow, (11) Mumbai, (12) Hyderabad.

Market structure

PORTERS FIVE-FORCE OF LIFE INSURANCE INDUSTRY

Competitive rivalry:

• There is cut thought competitions among rivals in life insurance industry.

• There are mainly 13 private organizations and 1 public organization in life insurance competition.

• Insurance companies deal in identical policies as service levels offered are similar

• Ministry of finance controls all the insurance companies that are in the industry at present hence there are less chance of exit.

Power of suppliers:• Policy designer tend to have less leverage to Bargain

over premium.• Insurance is tax exempted so that suppliers bargaining

power increases.• Solvency of private players is not certain.

Threat of Substitutes:• Customers deposits in their amount in to bank & post

deposits & purchase gold & silver.• Investment in government securities.• Money market investment• Capital market investment.

Power of buyer :• Market is highly segmented.• Insurance industry very return oriented and switches

easily. • High switching cost creates buyers lock in and makes a

buyers bargaining power.• Exercise bargaining leverage over premium.

Threat of new entrants:• Life insurance industry entry barriers is moderate. • The Indian market is highly brand oriented .so it is

difficult to introduce new brand.• The acceptability of new brand is also very low.• Economies of scale is difficult to find in the initial stage of

entry in to market.• Special permission is required from the government to

enter in the insurance sector.

GROWTH• The life insurance industry witnessed a steady growth in

2009-10 financial year, with an 18% increase in total premium received during the year to Rs 2,61,025 crore over the previous fiscal.

• Life insurance companies have also sold more than 2.8 crore policies in rural areas in FY'08 and FY'09.

• Up to the 2009-10 fiscal, life insurance firms opened more than 11,927 branches, 70% of which are in semi-urban or rural areas.

• The total assets held by life Insurance industry stood at about Rs 12,90,000 crores as on March 31, 2010.

• life insurance industry has become one of the main contributors towards the country's long-term infrastructure growth.

Contd…• After opening up of the sector the life insurance industry has

grown leaps and bounds. The industry has earned $ 540 billion total premium income during the F.Y 2009-10.

• The life insurance companies are the largest institutional investors in India.

• The life insurance companies have brought in huge capital for investment and expansion. They have generated good employment opportunities, both direct and in-direct.

• The latest technology is being introduced by all the companies thereby improving the servicing standards.

Growth of insurance industry

ENVIRONMENTAL ANALYSIS

• POLITICAL AND LEGAL FACTORS • ECONOMICAL FACTORS • SOCIO-CULTURAL FACTORS Population Life style Educational level Level of earning Societal benefits.

INTERNATIONAL SCENARIOCountries Insurance Penetration

(premium as a% of

GDP)

Insurance Density

(Per Capita

Premiums in USD)

United Kingdom 12.71 3028.5

Japan 8.70 3165.1

United States 4.48 1611.4

South Africa 14.04 392.9

Australia 6.04 1193.5

South Korea 9.89 935.6

India 1.77 7.6

China 1.12 9.5

Malaysia 2.13 86.4

Indonesia 0.54 4.0

Brazil 0.36 12.9

BCG MATRIXCompany Market share

(%)

Relative market

share

Relative

company sales

growth rate

(%)

Bajaj Allianz 26.49 1 215.17

ICICI Prudential 25.72 .97 156

Reliance 1.89 .07 105

SBI 8.08 .30 91

HDFC 10.04 .38 120

Shriram .10 .003 18

Sahara .21 .007 23

HIGH+437.5%

MEDIUM 0 (40.61%)

LOW-437.5%

BCG MATRIX (Only Private players) RELATIVE MARKET SHARE

IND

US

TR

Y S

AL

ES

GR

OW

TH

RA

TE

High 1.00 Medium 0.5 Low 0.00

SOURCE:IRDA March 2009

COST BREAK UP

30%

25%20%

15%

10%

Expenses in life insurance industry

commissiondistributon channelsemployee compensa-tionadvertisementrent and utilities

MARKET SHARE

KEY SUCCESS FACTOR

• Marginal Different Product• Designing New Strategies• Move towards Rural Market• Motivation of sales force• Use of Internet

Company analysis

Life insurance corporation

• In the year 1818 the Oriental Life Insurance Company was started at Kolkata.

• In 1912 the Indian Life Assurance Companies Act was enacted as the first statute to regulate the Life Insurance Business.

• In 1938 the earlier legislation was consolidated and amended to become the Insurance Act with the objective of protecting the interests of the insuring public.

• In 1956, the LIC of India was formed under the LIC Act,1956 with a capital contribution of Rs. 5 crores i.e $ 1.2 million at current rates from the Government of India.

Mission and Vision

• Mission:

"Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development." 

• Vision: "A trans-nationally competitive financial conglomerate of significance to societies and Pride of India."

Objectives of LIC

• Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes.

• Maximize mobilization of people's savings by making insurance-linked savings adequately attractive.

• Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders. 

• Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

Operation of LIC

Awards of LIC

CNBC Consumer awards 2010 Asia pacific

HRM congressNASCOM IT USER Award 2008

Golden Peacock Award

NDTV Profit Business Leadership Award 2008

Kinds of plan • Bima account • plans

Endowment • Plus

• Children • Plans

• Plans for • Handicapped

• Endowment

Assurance Plan

Plans for High

Worth Individuals

Money Back

Plans

Special Money

Back for Women

• Whole Life• Plans

• Term• Assurance Plan

• Joint Life Plan

• Pension Plans

• Unit Plans

• Golden Jubilee• Plan

Special Plan

Health Plan

Micro Insurance

Plan

Group Scheme

LIC Highlights

Assets as on 31.03.2010 : $ 494.78 billion

No. of policies : 650 million

No. of employees : 1,15,966No. of agents : 1.4

million

Contd…

• Innovative and market driven products are being offered by life insurance corporation.

• LIC is building the distribution channels with strong tied agency network.

• India has a total of 2.8 million agents of which 50% are with LIC alone.

• There is a sharp increase in the remuneration of life insurance professionals in LIC.

Expenses of LIC

BCG Matrix of LIC:Stars:

•Jeevan Anand•Money plus ploicy•Pension plus

Question Mark:

•New Bima Nivesh.•New Jeevan Shree.

Cows:

•Group scheme •Health plan

Dogs:

•Amulya Jeevan

Relative Market share

Busi

ness

gro

wth

Rat

e

HIGH

LOW

LOWHIGH

Challenges faced by LIC• Micro Insurance and financial inclusion will be major

challenges for all the companies.

• Professionals and experts are in short supply. Man power requirement has increased manifold.

• Misconceptions: When we think of life insurance, we think of a death benefit being paid to a beneficiary upon the death of a policyholder.

• Maintaining Funds in Hard Economic Times: In the case of flood, earthquake and other natural calamities.

Contd…

• There is a shift from traditional endowment policies to unit linked policies.

• Customers are expecting higher returns and thereby a strong emphasis on unit linked plans.

• Surrender of plans.

• Duplicate agents

SWOT Analysis• Strengths : 

1) Brand Image2) Government Guarantee( sovereign guarantee)3) Claims settlement4) Pan India presence5) Large product portfolio

• Weakness :1) Lethargic Staff2) Large scale Corruption in Main Office3) Ultra-Slow decision making process4) Internal problems between Top Management and lower cadre Employees

• Opportunities :1) Pension Market2) Health Insurance3) Large Real Estate investment portfolio

• Threats1) Internal discord2) New players3) Red-tapism

LIC Market share

Strategies of LIC• First Mover Advantage• Product Differentiation• Market Segmentation

MARKETING STRATEGIES USED BY LIC: LIC has taken help of advertising agencies to promote

the brand LIC.  They used creative slogans which affects the customer’s

mindset and able to attract their attention.  These slogans helped LIC to make the customer

emotionally attached to services provided by them. They spend huge amount of money in advertising and

sales promotion to build their brand equity and identity.

Proposed strategies

• LIC may create awareness campaign about the benefit of life insurance policies.

• They may introduce some innovative policies to avoid the loss of existing market share.

• They can expand their market.

Competitor analysis

Bajaj Allianz Life Insurance

• Bajaj Allianz Life Insurance Company Limited is one of the largest private insurance companies in India.

• It is a joint venture between Allianz se Limited and Bajaj auto. Bajaj auto ltd. is India’s leading automobile company. Bajaj Auto Ltd. is the largest exporter of two and three wheelers.

• On 2001, the Bajaj Allianz Life Insurance was given the IRDA (Insurance Regulatory and Development Authority) certification of Registration for conducting the Life Insurance business (which also included the Health Insurance business) in the country.

• Bajaj Allianz India is headquartered in Pune. The company has its offices in 200 towns all over India.

Contd….• Allianz SE is a leading insurance conglomerate globally and

one of the largest asset managers in the world, managing assets worth over a Trillion (Over INR. 55, 00,000 Crores).

• Allianz SE has over 115 years of financial experience and is present in over 70 countries around the world.

HIGHLIGHTS

Profit as on 31.03.2010 : $ 4,274 millionNo. of policies : 53 millionNo. of customers : 3,00,000No. of agents : 3,69,000

Contd….

• Bajaj Allianz has a Pan India network covering over 100 towns from Jammu to Thiruvananthapuram and aims to spread its operations in many other cities.

• It has achieved AAA rating, by ICRA Limited and has the highest claims- paying ability and a stable position in the market.

• In a 2006 survey, Business World has rated it among the Most Respected Companies, putting it at No.2 position in Insurance sector.

Bajaj group Bajaj Auto Ltd. Bajaj Holdings & Investment Ltd. Bajaj Finserv Ltd. Bajaj Allianz General Insurance & Life Insurance Co. Ltd Bajaj Financial Solutions Ltd. Bajaj Auto Finance Ltd. Bajaj Allianz Financial Distributors Ltd. Bajaj Auto Holdings Ltd. Bajaj Auto International Holdings BV Bajaj Electricals Ltd. Bajaj Ventures Ltd. Hospet Steels Ltd.

General insurance of Bajaj Allianz

The Company provides the following products under general insurance:

• Travel Insurance• Asset Insurance• Health Insurance• Corporate Insurance

Investments of Bajaj Allianz

• T- Bills• G-sec• Corporate Bonds• Equities• ADR and GDR

Mission and vision

• Mission: As a responsible, customer focused market leader, we will

strive to understand the insurance needs of the consumers and translate it into affordable products that deliver value for money.

• Vision:• To be the first choice insurer for customers.• To be the preferred employer for staff in the insurance

industry.• To be the number one insurer for creating shareholder value

Bajaj Allianz Life Insurance CompanyBajaj Allianz Life Insurance Company

Branches Branches

Satellite Satellite Satellite Satellite

Satellite Satellite

Bank assurance Bank assurance

Standard chartered bankStandard chartered bank

Syndicate BankSyndicate Bank

Centurion Bank Centurion Bank

Cosmos Bank Cosmos Bank

Jankalyan SahakariBankJankalyan SahakariBank

Jijamata Sahakari CoopBank

Jijamata Sahakari CoopBank

Group and Alternate ChannelGroup and Alternate Channel

Group EmployeeBenefitGroup EmployeeBenefit

Corporate AgencyCorporate Agency

FranchiseeFranchisee

BrokersBrokers

Agency channel Agency channel

Life insurance products of BA:

• Unit linked plan• Endowment: Invest gain Save care economy Life time care super saver

• Money back Cash rich insurance plan Super cash gain insurance

plan Cash gain child gain

• Pension plans: Swarna vishranthi Pension guarantee

• Term plan: Protector Term care new risk care

• Women insurance plans:

Women life insurance Products for house wife

Individual life insurance

Group life insurance

• Members: Group Credit Protection

Plus Credit Shield Group Term Life(Non-

Employer Employee) Group Suraksha Sarve Shakti Suraksha Group Loan Protector Group Income protection

• Employees: Group Term Life

(Employer Employee) Group Save Plus Group Leave

Encashment Scheme Group Annuity

Renewal of premium in BA:

• Cash• DD• Cheque• Credit card• Direct debit facility• Electronic clearance system

Financial performance YEAR 2009-2010Particulars 2009-10

Rs. Million2008-09Rs. Million

2007-08Rs. Million

2006-07Rs. Million

Gross Written Premium 18,560.7 8,798 5,998 3,420Net Written Premium 8,792.9 4,864 3,808 1241Net Earned Premium 7,709.2 6,306 5,541 198Net Incurred Claims (4,263.3) (2,542) (2,072) (227)Net Commissions 1119.4 564 355 228Management Expenses (5,455.9) (1184) (889) (670)Underwriting Results 609.4 32 (54) (371)Income from Investments 988.8 485 407 143Others 38.6 44 (8) (5)Profit Before Tax 1269.6 1018 771 (733)Provision for Tax (198.7) (501) (95) 77Profit After Tax (998.7) 717 346 (216)Claim's Ratio 71% 87% 70% 130%Commission Ratio -13% -11% -10% -130%Management Expenses Ratio 60% 42% 43% 376%Combined Ratio 120% 118% 102% 376%Return on Equity 64% 40% 24% -16%Shareholder's Equity 5,824.1 4,380 3,095 1097Assets Under Management 8835.5 6,486 6,709 3,688Number of Employees 1324 780 506 241

BCG matrix of BA:Stars:

•Life time care•Pension guarantee•Smart insurance plan

Question Mark:

•Products for house wife.

Cows:

•Group suraksha•Group save plus

Dogs:

•I gain

Relative Market share

Busi

ness

gro

wth

Rat

e

HIGH

LOW

LOWHIGH

SWOT Analysis• Strength: Multi-channel distribution Well diversified plans 3.9 Million Policies sold till 31st march 2010 Superior investment and risk management framework

• Weakness: Company have not penetrated in the rural market. There is no plan for the low income group. Fees for the advisor is high than the other company. Lack of portfolio life insurance plans.

Contd….

• Opportunity:• Good potential market (77%)• Company can penetrate in rural markets.• Bajaj Allianz plans to focus on group insurance for its next

phase of aggressive growth.

• Threats:• ‘OLD HABITS DIE HARD’: Its still difficult task to win the

confidence of public towards private company.• Competitors offering similar kind of insurance• Emergence of substitute products

Strategies:

• Hub & spoke model

• Bank assurance: Tie-up with 2 major scheduled banks around 170 Co-operative

banks and Regional Rural banks.

• Alternate Channels: The company has tie-ups with more than 300 Corporate

Agents,150 brokers & 3,100 Franchisees

REGIONAL OFFICE

(22 Offices)

AREA OFFICE (275 Offices)

BRANCH OFFICE

(601 Offices)

BALIC has a largenetwork in the market withover 213,000 Licensed agents

Key Strategic Drivers

Challenges faced by BA:

• People do not believe private insurance companies to invest their money, even if they invest, they expect more return.

• Stiff competition among private life insurance companies, direct competitor of BA is ICICI prudential life insurance.

• Shortage of qualified agents.• Lack of awareness among the public

about private life insurance companies.