Case Analysis on India’s Insurance
A Financial Services Presentation By Group 5
Insurance Industry: Overview
• In the year 2006, the premium value worldwide was $3, 723 billion out of which 59% was in life
• The CAGR of business premium in India between 2001-10 was 31%, however there was flat
growth between 2010-12 with CAGR of around 2% in business premium.
• Penetration was 9.2% in industrialized nations and2.7% in emerging nations
• In India, the penetration was 4.1% in life and 0.6% in non-life
• Growth of insurance however in emerging nation is higher than that of industrialized nations.
Economic Factors •
effecting Growth •
Stock market performance
Government regulations and policies
Nationalization & its effects
• The main reason behind
nationalization was malpractices by
• Premiums were charged at inflated
rates from Indians
• Bombay Mutual Life Assurance
society, first to underwrite life policies
for Indians at fair market rate.
• In 1956, the Government of India
nationalized the life insurance sector
with the passing of the LIC Act, 1956
• In 1972, the general insurance was
nationalized as wholly state-owned
General Insurance Company of India
• Penetration in rural areas increased but the
total value of rural policy declined
• Nationalization also helped in successful
cutting of operating cost
• Channelized the resources into social
• High level of customer satisfaction
• The GIC grew tenfold (approx. 1/4th the size
of life business)
• The invested funds however yielded less
returns because of a conservation approach
in managing the portfolios.
• Invested more in non-convertible debentures
rather than start-up projects.
Top Players in the Insurance Industry
• Indian insurance market is 19th largest globally and ranks 5th in Asia
• The public sector companies have continued to dominate the Indian market
with private players rising to a market share of 48%
Types of Insurance
• Term value policy
• Cash value policy
•Operate in a capital-intensive business environment
•Main expenses include: up-front expenses, operational expenses, commission, staff training expenses, etc
•Revenues accrue over a period of 10-15 years
•Reduce insolvency risk by diversifying underwriting risk
•Follows underwriting criteria to determine whether a would-be customer should be accepted or not
Types of cost
Loss adjustment expenses
Underwriting losses: claims
by policy holders when
• Loss ratio
• Expense ratio
• Combined ratio- it is a
measure of an insurer’s
If combined ratio<1= positive underwriting
>1= negative underwriting
Insurer’s profit= premium earned+ investment income- operating
-Lowest potential reach
-Have lower distribution or
-High end specialise products
-Offer customize products
-More amenable to the
distribution of low complexity
with low cost
-Low value standardised product
and cross selling
Source- handbook on Indian Insurance Statistics 2011-12 published by IRDA
• Pass on business
leads to insurers.
• Receive referral fee
• Undertake little risk
• Actual transaction
carried out by
• Personnel are
trained to sell
reputational risk for
• Get commission in
• Forms whollyowned insurance
• Undertake most risk
• Gains from synergy
& economies of
In 1950, government of India established Tariff Committee, with power to set,
amend and modify the premium rates of major lines of General Insurance.
In 1968, it was changed to Tariff Advisory Committee with even broader
Post Liberalization, in 1993 Malhotra Committee was set up which gave some
recommendations : Separation of Life and Non life sectors, Definition of
Underwriting Standards and giving licenses to private insures.
These recommendations were put into effect in 1999.
IRDA was set up as the industry regulator in 1996 and statuary authority in
Since October 2000, IRDA Issued 15 Private Life insurance licenses and 8
private Non-Life insurance licenses.
New insurance companies must have capital of Rs. 1 billion and new reinsures
must have a capital of Rs. 2 billion.
Since the private sector was open for the industry Rs. 16.88 billion came as
On 1st January 2007, IRDA implemented the first phase of detariffing of India’s
General Insurance business.
General insurance companies were allowed a maximum of 20% discount on
Fire and Engineering Policies. And up to 10 % discount on motor insurance.
Further more reductions were not expected, but it fall down to 30%.
Without cross subsidizing, Health and Marine insurance premium rate was
risen by 20 to 25%.
IRDA freeze any product innovation till April 2008. It was to stabilize and get
the right price risk till the next phase of detariffication.
In India, Third party insurance became mandatory.
Low premium rates of fire and engineering insurance was compensated by
Third party insurance.
After detariffication, the revenues increased but showed a slow growth of the
industry that was from 22% to 18%.
• It can be postulated that by 2014 the penetration of life insurance in India will increase to
4.4% and that of non life insurance to 0.9%
• In the next three years, health insurance is poised to become the second largest business for
non life insurers after motor insurance
• The Indian General Insurance industry has evolved significantly in the past few years
• Penetration and density levels are lower than the developed as well as comparable developing
• This is mainly driven by lack of financial awareness, lack of understanding of general
insurance products, low perceived benefits and purchase decision based on insistence by
financers, statutory requirements, etc
Projected growth of India’s General Insurance industry
(Gross Direct Premium)(In INR Crore)