STRATEGIC ANALYSIS OF LIFE INSURANCE SECTOR IN INDIA

Strategic Analysis of Indian Life Insurance Industry 2010 - 11

INSURANCE AT A GLANCE

Insurance is ,“A contract between an insurance company and a person or group which provides

for a money payment in case of covered loss, accident or death.”

“Life insurance provides a sum of money if the person who is insured dies whilst the policy is in

effect”.

It is a type of financial service that provides a very sophisticated range of savings and investment

products, as well as mere compensation for death. It is basically a sharing device.

SIR. M. VISVESVARAYA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH 1


HISTORY OF INSURANCE IN INDIA

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (

Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in

terms of pooling of resources that could be re-distributed in times of calamities such as fire,

floods, epidemics and famine.

Milestone of indian life insurance industry:-

The business of life insurance in India in its existing form started in India in the year 1818

with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important

milestones in the life insurance business in India are:

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

insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical

information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of

protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the central government

and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution

of Rs. 5 crore from the Government of India.



NEED FOR LIFE INSURANCE

As life insurance became more established people considered it as a useful tool for number of

situations like:

1. Temporary needs/ threats:

The original purpose of life insurance remains an important element, namely providing for

replacement of income on death etc.

2. Regular Savings:

It provides for one’s family and oneself, as a medium to long-term exercise (through a series of

regular payment of premiums). This has become more relevant in recent times as people seek

financial independence from their family.

3. Investment:

It helps to build the habit of while safeguarding it from the ravages of inflation. Unlike regular

saving products, investment products are traditionally lumpsum investments, where the individual

makes a one-time payment.

4. Retirement:

Provision for one’s own later years become increasing necessary, especially in a changing culture

and social environment. One can buy a suitable insurance policy, which will provide periodical

payments in one’s old age.



BENEFITS FROM LIFE INSURANCE

1. From an investor's point of view, an investment can play two roles - asset appreciation or

asset protection. While most financial instruments have the underlying benefit of asset

appreciation, life insurance is unique in that it gives the customer the reassurance of asset

protection, along with a strong element of asset appreciation.

2. The core benefit of life insurance is that the financial interests of one’s family remain

protected from circumstances such as loss of income due to critical illness or death of the

policyholder. Simultaneously, insurance products also have a strong inbuilt wealth creation

proposition. The customer therefore benefits on two counts and life insurance occupies a

unique space in the landscape of investment options available to a customer.

3. Each of us has some goals in life for which we need to save. For a young, newly married

couple, it could be buying a house. Once, they decide to start a family, the goal changes to

planning for the education or marriage of their children. As one grows older, planning for

one's retirement will begin to take precedence.

Clearly, as your life stage and therefore your financial goals change, the instrument in which

you invest should offer corresponding benefits pertinent to the new life stage

Life insurance is the only investment option that offers specific products tailormade for

different life stages. It thus ensures that the benefits offered to the customer reflect the needs



of the customer at that particular life stage, and hence ensures that the financial goals of that

life stage are met.

4. One can take a loan my keeping their policy document as collateral.

5. One can also avail for income tax benefit under section 80 c as the premium paid is exempt

for tax.

Life Stage Primary Need Life Insurance Product

Young & Single Asset creation Wealth creation plansYoung & Just

marriedAsset creation & protection Wealth creation and mortgage

protection plans

Married with kids Children's education, Asset creation and protection

Education insurance, mortgage protection & wealth creation plans

Middle aged with grown up kids

Planning for retirement & asset protection

Retirement solutions & mortgage protection

Across all life-stages

Health plans Health Insurance



COMPARISON OF LIFE INSURANCE WITH OTHER SAVING INSTRUMENT

1. Protection

2. Liquidity

3. Tax relief

4. Money when you need it.

1. Protection:

Savings through life insurance guaranteed full protection against risk of the saver. In life

insurance the full sum assured is payable with bonus whenever applicable whereas in other savings

schemes, only the amount saved with interest is payable.

2. Liquidity:

Saving can be made in a relatively “painless” manner because of the easy installment facility

built into the scheme.

3. Tax relief:

Tax relief in Life insurance is available to the insurer for amount paid by way of premium for

life insurance subject to it rates in force.



4. Money when you need it:

A suitable insurance plan a combination of different plans can be taken out of meet. Specific

needs are likely to arise in future.

Examples:

• Children’s education

• Start in life

• Marriage provision or

• Periodical needs for cash over a stretch of time.



POSITIVE AND NEGATIVE IMPLICATIONS OF LIBERALISATION ON INSURANCE INDUSTRY

A. Positive implications:-

- It helps in transfer of technology in the field of life insurance. New techniques and

methods can be used for assessment of risk, fixation of reasonable premium and

provide new investment opportunities. This helps in expansion and development of

business.

- It helps in adopting a flexible price policy on new life insurance policies can be

developed and introduced.

- Service of efficient management and financial experts would be available. It can help

in development of knowledge of insurance business. Many educational and training

institution stand fast functioning this lead to availability of professional managers. It

will enlarge the scope of insurance.

- It will help to tap the rural and small villages.

- Competing ability has increased due to liberalization.

- All categories of employees serving in life insurance sector will get more satisfaction

through good opportunity for training, higher opening in jobs and higher income.



Benefits to general public are:-- They can get better choice of selection of policy and insurer.

- When there is large number of insurer, the insurer is able to select such an insurer

whose premium rate is reasonable.

- The insurers play more attention to the interest of insured. This way interest of the

insured is well protected.

- There will be number of policies based on social security brought out by different

insurers. Such schemes include plan like pension scheme, gratuity scheme,

medical claim etc.

- Good employment opportunity in the life insurance sector when a number of new

institutions are established in these fields.

Benefits to the employees are:-

- Better opportunity for training and development.

- Knowledge can be gain about new method of functioning through education and

training.

- The employee gets opportunity for job promotion and other financial nonfinancial

benefits. The productivity of employees shall develop due to education and

training facility.



- Working with professional manager benefit the employee in learning the new

methods and technique in work situation. The employee will get motivation and

their moral will be higher.

B. Negative implications:-

- Cut throat competition has been created due to acute competition in the life

insurance market. which is not in the interest of the industry, customers or the

country. This type of acute competition may sometime leads to insolvency of life

insurance companies and thereby the policy holders may face serious

consequences.

- Dominance of outside companies as foreign companies would capture the life

insurance sectors as a whole under their dominance, because they possess more

efficient insurance techniques, knowledge. As such Indian companies cannot

survive before these foreign companies.

- Shortage of funds for social cause: It is estimated that at present the LIC and GIC

invest a total of Rs 90,000 crores to the public/ social sector. This amount is nearly

70-80 % of their total fund available. Although the government is making rules for

the private sector companies to invest certain percentages of their premium income

in the social sector, the availability of such huge fund is doubtful.

- Lack of government guarantee on polices – the insurance policies issued by state

insurers carry Central Government’s guarantee whereas no such guarantee shall be

available to the policies issued by the private insurance companies. The insured

remain unsecured in this way.

- Employees of these insurance companies feel danger to their employment due to

process of liberalization measure. While implementing it, these corporation can

retrench certain number of employees who are exceeds in need. But this is not



tenable as the experience of the other countries shows it otherwise. Public sector

GIC and GIC are re-structuring themselves for better and more deployment of

staff in diversified companies.

LIFE INSURANCE PLAYERS IN INDIA

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 OM Kotak Mahindra Life Insurance Co. Ltd

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 Allianz Bajaj Life Insurance Company Ltd.

10 117 06.08.2001 MetLife India Insurance Company Pvt. Ltd.

11 121 03.01.2002 AMP SANMAR Assurance Company Ltd.

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

13 127 06.02.2004 Sahara India Insurance Company Ltd.

.



SHARE OF PRIVATE LIFE INSURANCE PLAYERS

INSURANCE PLAYER

MARKET SHARE (%)

ICICI PRUDENTIAL 24HDFC STANDARD 12

RELIANCE LIFE 10SBI LIFE 9

BIRLA SUNFILE 8BAJAJ ALLIANZ 8

MAX NEW YORK 7TAT AIG 3

KOTAK MAHINDRA OM 3CANARA HSBC OBC

LIFE3

OTHERS 13



PREMIUM EARNED BY LIFE INSURERS

INSURANCE

PLAYERS

INDIVIDUAL

SINGLE

PREMIUIM

INDIVIDUAL

NON SINGLE

PREMIUM

GROUP SINGLE

PREMIUM

GROUP NON

SINGLE

PREMIUM

LIC 1716.16 1704.08 1316.73 1316.73

BAJAJ

ALLIANZ

49.84 120.38 22.94 43.88

SBI LIFE 101.18 109.23 105.33 52.82

RELIANCE LIFE 68.11 138.78 1.1 1.07

HDFC

STANDARD

5.09 194.13 0.55 22.74

BIRLA SUNLIFE 0.73 98.94 0.57 19.66

MAX

NEWYORK

17.77 119.64 6.19 5.61

ICICI

PRUDENTIAL

429.18 91.14 34.78 70.05

KOTAK

MAHINDRA

OLD MUTUAL

0.29 33.23 9.43 7.18



AVIVA 0.25 36.06 0.05 4.62





PEST ANALYSIS FOR LIFE INSURANCE INDUSTRY

A. POLITICAL FACTOR:

Within India political ambitions and rise of communalism, fissiparous tendencies are on the rise

and may well continue for quite some time to time. Therefore, it expected that the insurance

companies might consider offering political risk coverage also. The only area where Indian

insurers consider giving cover is with regard to customs duty change under certain conditions.

Certain type of political risk at the international level has serious implications exporters. Political

risk refers to the risk of loss when investing in a given country caused by changes in a

country's political structure or policies, such as tax laws, tariffs, expropriation of assets, or

restriction in repatriation of profits. For example, a company may suffer from such losses in

cases where they have tightened foreign exchange repatriation rules, or due to increased

credit risk the government changes policies to make it difficult for the company to pay

creditors.

1. Prohibition for Investment: -

The funds of policyholders are prohibited from being directly / indirectly invested outside

India as per section 27 – C.



2. Manner and conditions of investment: -

Subject to the above provisions contained in Section 27 -/ 27- A / 27 B, the IRDA may,

- In the interest of the policyholders, specify the time, manner and other conditions of

investment by insurer.

- Give specific directions applicable to all insurers for the time, manner and other

conditions subject to which the policyholder’s funds should be invested in the

infrastructure and social sectors.

- After taking into account the nature of business and to protect the interest of the

policyholders, issue directions to insurers relating to time, manner and other

conditions of the investments provided the latter are given a reasonable opportunity of

being heard.

3. Insurance business in rural / social sector: -

All insurers are required to undertake such percentage of their insurance business, including

insurance for crops, in the rural social sector as specified by the IRDA. They should discharge

their obligations to providing life insurance policies to persons residing in the rural sector,

workers in the unorganized sector or to economically vulnerable classes of society and other

categories of persons as specified by the IRDA.

4. Capital requirement: -

The paid up equity of an insurance company applying for registration to carry on life

insurance business should be Rs 100 Crores.

5. Renewal of registration: -

An insurer, who has been granted a certificate of registration, needs to renew their

registration on annual basis with each year ending on March 31 after the commencement

of the IRDA Act. The application for renewal should be accompanied by a fee as



determined by IRDA regulations, which would not exceed one forth of one percent of the

total gross premium income in India in the preceding year or Rs 5 Crores or whichever is

less, but not less than Rs 50000 for each class of business.

6. Requirements as to Capital: -

The minimum paid up equity capital, excluding required deposits with the RBI and any

preliminary expenses in the formation of the country, for an insurer would be Rs 100 crore to

carry on life insurance business.

7. Investment of funds outside India: -

Insurers outside India as per Section 27-C cannot invest the funds of policyholders.

8. Power to investigation or inspection: -

The IRDA may, at any time, order in writing a person as investigating authority to investigate

the affairs of any insurer and report to it. Government has power to change the tax policy

against life insurance industry.

• Health insurance rebate,

• Pension saving rebate,

• Mede claim premium rebate,

• P.P.F., E.P.F., NSC all are tax exempted saving,

• All life insurance policy are tax exempted saving ,

• Agricultural income is tax exempted,

• House rent allowances,

• Post office saving,

• Expenses on dreaded diseases are tax exempted.

• Recently there is issue to increase FDI level from 26% to 49%.

9. Role of the government: -

As insurance is an important service sector, hence it is highly regulated by government. Since

1956 insurance sector was highly regulated by government of India. On March 16, 1999, the



Indian cabinet approved on Insurance Regulatory Authority Bills that was designed to

liberalize the insurance sector.

Two governments in India have fallen over the issue of liberalization of the insurance sector (which

was nationalized in 1971). But the government of A.B. Vajpayee as gone ahead to announce the

liberalization of this sector announcement was made in November 1998.

10. Government’s objectives for liberalization of insurance: -

The main objective of opening of insurance sector to the private insurers is as under:

1. To provide better coverage to the Indian citizens.

2. To augment the flow of long-term financial resources to finance the growth of infrastructure.

Important government guidelines for private players for entering into Indian life insurance

market:

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

2. No company should deal in both life and general insurance through a single entity.

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

4. Postal life insurance should be allowed to operate in the rural market.

5. Only one state level life insurance company should be allowed to operate in each state.

6. Foreign investors can invest up to 26% of the equity of their joint venture with Indian firms.

BODIES THAT REGULATE THE SECTOR:

For better regulation purpose of the insurance sector the government has established following bodies;

1. IRA: Insurance Regulatory Authority.



2. IRDA: Insurance Regulatory and Development Authority.

3. TAC: Tariff Advisory Committee.

IRA: Insurance Regulatory Authority:

The IRA, under the chairmanship of Rangachary, was set-up in January 1996. The IRA Bill has to

be passed by parliament to make the IRA a statutory body. Comprehensive legislation aimed at

reviewing the insurance Act of 1938 and repealing the life insurance corporation Act of 1956

have to be passed. The IRA is also preparing an internal rating system to screen all applications,

as entry will be in phases. The joint venture status of life insurance companies (with majority

holding of the domestic partner) is likely to be approved by the parliament. Consensus also seems

to be emerging on the minimum of Rs. 1 bn capital stipulations for new insurance companies.The

IRA has stipulated a minimum rural presence for all companies. The exhaustive guidelines have

been issued for the appointment of intermediaries (brokers, agents, surveyors and actuaries).

Features of IRA:

1. The Bill allowed for up to 26% foreign equity participation in the insurance sector.

2. The current India monopoly companies were required to bring down their equity holding to

26% within a period of 10 years

Government pronouncement:

1. IRA will be sole Authority, which will be responsible for awarding of, licenses i.e. little or

no government or political interference in licensing process.

2. No restriction on the number of licenses.

3. No composite license for life insurance business.

4. Licensing to be only on national basis (no city by city approach)

5. IRA allowed for up to 26% foreign equity participation in the life insurance sector.



6. The current Indian monopolies companies are required to bring down their equity holding to

26% within a period of 10 years.

IRA proposals:

1. New player should start their business within 15-18 months.

2. Trafficking of licenses not to be permitted.

3. IRA to seek business plan with 5-year protection for all applicants.

4. A system of direct brokers to be introduced.

5. IRA to vet top management appointments.

IRDA: Insurance Regulatory and Development Authority:-

The Insurance Regulatory and Development Authority, constituted under the IRDA Act, 1999,

provide for the establishment of an authority to protect the interest policyholders, to regulate, promote and

ensure orderly growth of the life insurance industry.

1. Business Requirement:-

A company will not be issued a license unless the IRDA is satisfied with the sound financial

condition, the general character of management, the volume of business, the capital structure,

earning prospects for the insurers and that the interests of the general public will be served if

registration is granted to the insurer.

Foreign insurance companies have been allowed to have a maximum 26% shareholding. No life

insurance company can be registered under the Act unless they have a paid up capital of Rs. 100

crores. Every life insurer shall deposit with the reserve bank of India one percent of the total gross

premium written in India in any financial year, not exceeding Rs. 10 crores. This amount would



not be susceptible to any assignment or charge nor would it be available for the discharge of any

liabilities other than liabilities arising out of policies issued, so long as any such liabilities remain

undercharged.

2. Investment of Assets:-

Every insurer is required to invest, and keep invested, assets equivalent to not less than the net

liabilities as follows:

(a) 25 % in government securities,

(b) a least 25% of the said sum in government securities or other approved securities and

(c) the balance in any approved investment rated as “very strong” or more by reputed rating

agencies, which include various debt instruments on which dividend on its ordinary shared for the

five years immediately preceding or for at least five out of the six or seven years immediately

preceding have been paid and which have priority in payment over ordinary shares of the

company in winding up. The IRDA may in the interest of the policyholder’s directions relation

the time, manner and other conditions and investments of assets to be held by an insurer. The

IRDA may also direct the insurer to realize the investment, if it sees the investments to be

unsuitable or undesirable. The Act prohibits an insurer from directly or indirectly investing

policyholder funds outside India.

Further, every insurer has to always maintain an excess of the value of his assets over the amount

of his liabilities of not less than Rs. 50 crores in the case of an insurer carrying of life insurance

business. If at any time an insurer does not maintain the required solvency margin, he is required

to submit a financial plan, as per directions issued by the IRDA, indicating a plan of action to

correct the deficiency within three months.

In order to ensure that the company does not risk the money of the policyholder’s, the Act

provides that an insurer who does not comply with the aforesaid provisions may be deemed to be

insolvent and may be would up by the court. Insurers are required to get an actuary to investigate

the financial conditions of the life insurance business including a valuation of liabilities every

year in order to ensure continual compliance. In order to maintain transparency in its dealings,

insurers would have to keep separate account relating to funds of shareholders and policyholders.



3. Consequences of non-compliance: -

A company failing to comply with the act shall be liable for panel action. IRDA is empowered to

investigate into the affairs of the company. Failure to comply with the directions may lead to

cancellation of the license for the company. Also, if the IRDA has reason to believe that a

company is doing business in a manner likely to be prejudicial to the interest of policyholders, it

is required to report to the central government.

The central government may base on the report, appoint an administrator to manage the affairs of

the company. This would act as a further assurance to the consumers, as their interests would at

all times be a priority and that in the event that the company acts in the manner prejudicial to their

interests, than an administrator would be appointed to serve their needs. The court may also wind

up the company if it fails to deposit or keep deposits as per the requirements of the act or if the

continuance of the company is prejudicial to the interest of the policyholders or public interest.

But an insurance company cannot be wound up voluntarily or on the grounds that by reasons o its

liabilities it cannot continue its business, except for the purpose of affecting an amalgamation or

reconstruction of the company. Therefore, a company after issuing a policy cannot escape liability

by seeking voluntary winding up.

The four amendments, made in the life insurance Bill by the Lok Sabha, are as under:

1. The Insurance Regulatory and Development Authority should give priority to health

insurance.

2. Policyholder’s fund will be invested in the social sector and infrastructure. The percent

may be specified by the IRDA and such regulations will apply to all insurers operating

in the country.

3. Insurers will be expected to undertake a certain percent of business in rural areas, and

cover workers in the unorganized and informal sectors and economically backward

classes.



4. In the event of insurers failing to fulfill the social sector obligations, a fine of Rs. 25 lakh

would be imposed the first time. Subsequent failures would result in cancellation of

licenses.

TARIFF ADVISORY COMMITTEE:

The tariff advisory committee established under the Act is empowered to control and regulate

the rates, terms, and etc. that may be offered by insurers in respect of any risk or of any

category of risks. It is provided that in fixing, amending or modifying such rates etc. the

committee shall try to ensure as far as possible that there is no unfair discrimination between

risk of essentially the same hazard and also that consideration is given to past and prospective

loss experience. Every insurer is required to make payment to the TAC of the prescribed

annual fees.

1. TAX POLICY AND INSURANCE SECTOR:

Another factor, which affects the insurance sector, is the tax policy. The tax reforms in India are

such that it encourages the citizens to invest in the insurance sector.

The tax policy of the government is particularly relevant for life insurance which is a long-term

contract and inculcates among the policyholders the habit of saving. Taxation of returns on

investment influences, investment decisions and high rates of taxation will discourage the desire

to save. Already in India there are complaints that the rates of return on life policies are not what

they could be. Therefore tax incentives play a vital role in determining the attractiveness of such

policies. Such tax breaks are available in many countries and have helped in the development of

their life sector. In western countries the gain from the proceeds of a life insurance policy is paid

free of tax. Provided the policy satisfies certain qualifying conditions. Non-qualifying policies get

basic rate tax relief, though higher rate taxpayers may still have to pay tax on the gain, although at

a reduced rate. The insurance companies can use such tax concessions rate. The insurance

companies can use such tax concessions to design products for different categories of taxpayers



The other factors, which affect the insurance sector, are the employment law, and government

stability. These are the factors, which affect the insurance industry.

2. INVESTMENT DECISIONS MANDATED BY GOVERNMENT:

Insurers are required to fulfill certain social commitments as well. As many of the social welfare

measures companies are not just regulated, but have been mandated to hand over a portion of their

funds to the state for investment in infrastructure and for social development through government

bonds and securities. In India, the pattern was, accordingly, prescribed in great detail by the

government. This was not in the form of guidelines, but as a legal obligation under the insurance

Act, 1938.

PATTERN FOR INVESTMENT %

GOVERNMENT SECURITIES 25

GOVERNMENT SECURITIES OR OTHER APPROVED SECURITIES

NOT LESS THAN 50

APPROVED INVESTMENTS

A. INFRASTRUCTURE AND SOCIAL SECTOR NOT LESS THAN 15

B. OTHER GOVERN BY EXPOSURE NORMS NOT LESS THAN 35



B. ECONOMIC FACTORS:-

- Interest rate at bank and interest rate of P.F variation very much affect to life

insurance industry, because people always attract by higher return. Therefore, they do

not prefer lower return policy.

- Unemployment could be another factor as individuals won’t have enough funds to

invest.

- Natural calamities like earthquakes, floods, etc cannot be controlled. In cases of such

incidents the toll of deaths would increase in turn increasing the claims.



- Typical Indian want luxurious product against low income, so that they prefer

instalment or annuity (EMI), so that they may not have extra saving to invest in life

insurance.

Adequacy of capital:

Capital adequacy is a matter of attention in view of the nature of the life insurance

business, where in the case a contingency arises, the insurers should be in a

position to meet its long-term contractual obligations and pay up the dues or

claims. In that sense, life insurance is a capital-intensive business and must be

backed by an adequate capital base on the part of the owners and the companies

should not be running their business purely on other people’s money. So minimum

start up amounts and long running capital adequacy norms are absolutely essential,

in consideration of this, the Malhotra committee suggested and subsequently the

IRDA stipulated a minimum capital base of Rs 1 bn for any entity wanting to enter

the life insurance business.

Increased Economical Activity:

Although economic activity has slowed down since 1996, sooner or later there will be

an upswing. The increase in the growth rate in various sectors accompanied by the

growth in trade in the context of fulfilling of commitments to the WTO will signal a

growth in the demand for insurance covers of new types.

As far as cover against business interruption is concerned, the pace of business and of

change today is so fast that even the most careful assessment of exposure time,and the

most liberal coverage cannot protect the insured adequate in the event of a loss be on

the increase and insurance companies cannot afford to ignore the vastpotential in this

business.

Interest Rates:



From past few years government has rationalized interest rate creates better business

opportunities for the life insurance sector because the substitute products are graded

lower by the customers. If the returns recieved are less customers would prefer

investing elsewhere affecting insurance business.

Inflation:

Inflation can also be one of the causes to change the scenario of the insurance sector.

High inflation for instance, would tend to reduce the insurance business, particularly

life, because the real value of the money paid back to the policyholder on maturity of

the policy would go down and would, therefore, lose its attraction for the investor.

The response to an inflationary situation will depend on what benefit the insured is

looking for. In a situation of high inflation, clients would prefer policies where the

savings portion is periodically returned while the risk portion is maintain for the

duration of the contract. Those who prefer risk protection are likely to opt for long

term policies, which may also be preferred because they are likely to be low premium

policies. A flexible system, under which the sum insured, is increased from time to

time so that the real value of the cover is maintained, and could give a boost to the

market under conditions of high inflation. Fluctuations in inflations rates dampens the

market.

Market related factors:

These are the factors, which governs the entire life insurance sector. This include

internal as well as the external factors.

These all factors have changed the trend of life insurance sector, which is shown in

the following figure.



From the above figure we can see that now day’s strength of brand is very important aspect for

the success in this sector. Of course you should have strong distribution channel without which growth is

not possible.

Customer satisfaction:

Since the customer is the focus of any service industry, every such industry

continuously strives for greater variety and better quality of products, improvement in

its delivery system, cost effectiveness, easy access, and quick response to perceived

needs – in short qualitatively superior service. Indian life insurance companies already

have a sizable line up of the products. The difference between them and the foreign

operators perhaps lies in the service provided, because there is still not enough



concern on the part of the Indian companies, with customer satisfaction, on time

renewals, claims settlements, etc. if high standards have been achieved elsewhere, it

is not impossible to attain the same in India too.

The concept of “sales” is now redefined as a long – standing relationship. The

relationship does not end with the conclusion of the transaction, but has to be durable

and of a long term nature. Hence, improved in performance of the company will not

be synonymous with only basic cost reduction or larger business, but the new measure

of performance will be set in terms of service to the customer. One can anticipate

greater insistence from pressure groups like customer forums to keep customer

satisfaction at the top of the list of priorities of the insurers.

C.SOCIO – CULTURAL FACTORS:-

The basic social factors that affect the life insurance sector are as under: -

Population

Life style

Educational level

Level of earning

Societal benefits



Population:

Growth in the population is a major factor pushing up the demand. It is also going to exert a special

influence on the life insurance market in other ways. Apart from exerting pressure on demand for goods

and services, and through that, ill effects of uncontrolled growth of population also could spur the growth

of demand. For example, overcrowding in public places of entertainment, public support, or too many

vehicles on the road can result in hazards like stampedes and pollution, which require covers and still are

not sold on a large scale today. Thus the positive as well as the negative aspects of population growth are

going to spur demand.

Lifestyle:

The peculiar lifestyle of a country or an age also influences the insurance business. Change therein

produces different demands for life insurance. Nowadays consumers prefer lifestyle and status products

like cars, property, etc... Larger number of vehicles on the roads for people commuting to their jobs or

business would mean larger incidence of accidents. This will increase the demand for life insurance

products.

With time becoming scarcer for most people who pack in a full day, there is a higher demand for

convenience and service. Companies will respond by trying to shorten the transaction time for the

delivery of products and services and creating distribution systems that can reach clients wherever they

are and whenever they want to use them, so as to ensure convenient access to service providers.

Crumbling social values, the deteriorating law and order situation, the growing incidence of crime,

extortion, abduction, etc., are posing a new category of risks which need to be covered through suitably

designed policies.

Level of education:

India is one of the developing countries: the level of education is very low here. The literacy rate is very

poor. More than 50% of the population is still uneducated or more or less not educated. Thus the people

are not able to understand the concept of the life insurance. Among the educated people the quality of the

education is still a big question mark. Thus the awareness is not created and it has become a big challenge

for the industry. Thus one of the factors, which affect the life insurance sector, is low level of education.



Level of earning:

Another factor, which affects the life insurance sector, is the level of earning. In India the rule of 80-20 is

working. The 80% of the total population is having the 20% of the wealth and the 20% of the total

population is having 80% of total wealth. Thus the richer are richer and poorer are poorer. Due to this the

life insurance sector is affected very much.

Societal benefits:

In view of the fact that large sections of India have inadequate life insurance cover, an important social

responsibility of the government relates to spreading it far and wide. In addition, the government attempts

to extent life insurance with certain social obligations in view in both urban and the rural areas through

such means special schemes for the weaker sections, and by tilting of the life insurance companies’

investments in favour of social developments.

The social changes emerging in the country provide opportunities for insurers to sell financial services

products such as family health care programmed, retirement plans disability insurance, long-term care for

senior citizens and different employee benefit plans.

Apart from the usual demographic and other well known factors such as age group, income level, sex-

wise distribution, and literacy level, a realistic assessment of this potential has to be based on several

other relevant factors. Many invisible factors like religious faiths and social values too need to be

considered. There are many practical factor affecting ‘ insurability” such as old age, past and present

illness, and physical and mental impairments.

D.TECHNOLOGICAL FACTOR:

Internet as an intermediary in the current Indian market customer is not aware about the intrinsic

value of insurance. He thinks of insurance only in the mount of March as a tax saving measure. The

security provide by an insurance cover is rarely thought about. In such a scenario Internet can be an



effective medium for educating the consumers about insurance. It serves as a single window for

disseminating product, process and procedural information to the consumers.

Product development and target marketing through the Internet:

With increase in the number of insurance companies there will be a need for market

segmentation and subsequently product designed for each of them. In such a scenario

Internet can be a effective channel for pushing product specific information to a

particular market segment. Consumer feedback about a particular product as well as

suggestions for different types or covers can also be generated through the Internet.

Retail marketing:

It is a commonly expected concept and the providers of the retail products and service

will try out for larger market and market share. There would be cut through

competition and the real benefit would be to the customers in terms of better products,

distribution, pricing, post transaction service and technology. Technology will perhaps

be the single largest driver of the retail thrust. The entire strategy will evolve around

the absolute ability of the organization. The customer will demand for greater

convenience of excess to the product/ service and all at low cost of delivery. Therefore

the use of technology and specifically the Internet with realigned strategies would be

one of the key factors to success. Constraints of locations, timing and accessibility

would not be a hurdle for either customers or businesses.

Maintaining the database:

The most important factor that is affecting the insurance industry is the marinating the

database of the customers. The insurance industry has a huge list of the customers.

With the change in time the computers has taken the work of this things. Thus with



the development of the technology it has becoming possible to maintain such huge

database very easily. A person can switch over to the computer and get the details of

the customer very easily. Thus maintaining the database has really become easy due to

the development in technology. Eg. SAP,ORACLE,CRM softwares.

E-business insurance in India:

The Internet has played a vital role in transforming the business of the 21 st century.

Computers are now being used extensively for creating a storing data, information

with the help of complex and sophisticated technological tools in every kind of

business. This change having been widely accepted, the advantages are numerous

such as fast processing improved. Efficiency, cost reduction among several other

benefits obtained from it. However, with every positive change, there is an evil

attached and technology is no exception.

In technical terms, increased sophistications of technology brings with it, an increased

factor of risk involved. The risk can be of various attributes, for example, the risk of

data being lost due to a virus attack, the theft of important and confidential

information and so on, which ultimately results in losses for the business entity. With

this change in the business process, insurers have to devise new methods for

assessing, underwriting and servicing claims for the so-called e-business insurance.

Impact on distribution channels:

Distribution channels are the most important part of the insurance industry. The

scenario is continuously changing in this industry. In future the customers are

expected to be more technology – oriented, better informed, more knowledgeable and



more demanding. The insurers will have to offer all types of channel to customer and

it is the customer who will have the right to choose the channel suiting him/ her. Dual

income families with young children, singles with long working days and flexi-timers

all demand high level of sophistication and ease when it comes to service. Hence the

companies have to be very careful and cautious in catering to the needs of these

customers who provides a good amount of business to the insurers.

LIFE INSURANCE 2012 – FORTUNE FAVOURS THE BOLD



Theres always a dilemma whether any industry would flourish in coming years or no. But

Indian life insurance industry could witness a rise in the insurance sector premiums to between 5.1

and 6.2 % of GDP in 2010, from current 4.1%. Such growth is possible due to the following factors:-

- As the average per capita income of the individuals increases the population with

greater appetite would purchase protection products which in turn would increase

the households premiums.

- Rural penetration is likely to increase to 35 % from 25% currently and penetration

in low income group in urban India is likely to rise from 30 % to 35 %

- Consumers rank life insurance higher than other investments options because of its

ease and convenience in investing, tax benefits and protection.

- The population under the middle class segment is likely to rise. This segment

largely uses insurance with an aim of tax planning, retirement planning and

savings therefore the demand would be more.

- Increasing concept of bancassurance will also help to boost the sales.

- Nowadays companies are focusing on providing good training to their employees

to enhance professionalism and especially agents which would also contribute

towards the growth of this industry.

- Companies are also focusing on optimum usage of technology so that they can

improve their process so that they can offer hassel – fee customer service and

minimise human intervention.

CONCLUSION



The insurance industry is at a very critical stage, from where either it can flourish or can

witness muted growth. The last decade has been a phase of growth and development.

But now is the time for growth, along with stabilization. IRDA, on its part, is facilitating the

expansion of the sector by formulating enabling regulations. However, along with keeping the

interests of the customers at the forefront, there is a need to facilitate a favorable environment for

distribution intermediaries, which can result in the exponential growth of the sector. The regulator

has devised a framework for insurers to make the disclosure of financial statements, investment

portfolio as well as operating ratios. These disclosures are expected to make the industry stronger as

well as earn the faith of its stakeholders. The shift from solvency I to solvency II is also taken as a

big step toward risk management. IRDA is also considering the formulation of rules and regulations

for a smooth transition to this new regulatory standard. The growth potential and opportunities for the

Indian insurance industry is vast. In the wake of the improving global financial situation, the industry

is expected to be a major contributor to the country’s economic growth.



RECOMMENDATIONS

Few factors that needs to be focused more are as follows:

- Constant innovation of life insurance products is necessary so that the customers

get attracted towards them.

- Excessive utilisation of technology needs to be made i.s usage of CRM packages

like ERP, SAP which would help in storage and accessing of data easily.

- Even though the concept of bancassurance has been launched in India people still

prefer taking the products from the agents. In this case the insurance company as

well as the banks needs to join hands to promote this channel as it is profitable for

both.

- Penetration in the rural areas would also help to boost the saled of life insurance

business.

- Formulation of strong, fair and transparent guidelines would help to enhance trust

among the consumers.

- Adequate amount of training needs to be provided to those who directly interact

with the customers while introducing the product.


STRATEGIC ANALYSIS OF LIFE INSURANCE SECTOR IN INDIA

Documents

business of life insurance

life insurance businesses

new life stage life

insurance products

insurance act

history of insurance

core benefit of life

glance insurance