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  • 1. DECLARATION I, Arun S Kaimal , studying in TY BMS of SIES COLLEGE OF ARTS, SCIENCE & COMMERCE, NERUL hereby declare that I have completed this project on “LIFE INSURANCE SECTOR IN INDIA” in the academic year 2003-04 as per the requirements of the MUMBAI UNIVERSITY as a part of BACHELOR IN MANAGEMENT STUDIES (BMS) programme . The information presented through this project is true and original to the best of my knowledge. Arun S Kaimal TYBMS SIES NERUL 1
  • 2. CERTIFICATE I, Venkat S Iyer , hereby certify that Arun S Kaimal , of SIES COLLEGE OF ARTS, SCIENCE & COMMERCE, NERUL has completed this project on “LIFE INSURANCE SECTOR IN INDIA” in the academic year 2003- 04. The information submitted in this project is true and original to the best of my knowledge. Prof Venkat S Iyer Smitha Ramakrishna ProfG.V.Subramaniam Project Guide BMS Cordinator Principal 2
  • 3. ACKNOWLEDGEMENTS This project is the culmination of a study into the wide gamut of activities carried on in the domain of Insurance especially LIFE INSURANCE in India. This project would just not have been complete without the valuable contributions from various people whom I have interacted with in the course of its completion. I would like to express my sincere gratitude to all those people who have in their own sweet ways helped me complete this project. I begin by thanking my Project Guide and my Guru, Professor Venkat S Iyer, the treasure trove of information who has rallied strongly behind me to see me complete this project. Without him this project would have remained just an idea, without form or content. My parents who have always stood by me as solid as a rock; it is their faith in me that has seen me complete this project on time. My brother who helped me in whatever small ways possible .The list goes on …………… I wish to thank all those people who have lent me a helping hand in finishing this project , whose names are too numerous to be mentioned here. I am also grateful to our Principal Prof G. V. Subramaniam and our BMS Coordinator Mrs. Smita Ramakrishna who have always been my guiding lights . 3
  • 4. INDEX TOPIC PAGES Executive Summary 01 What is Insurance 02-03 Principles of Insurance 04-05 History of Insurance 06-09 Types of Insurance 10-11 Kind of Products 12-16 Overview of the Life Insurance Sector in India 17-18 IRDA-The Watch Dog 19-21 Players in the Indian Market 22-44 Insurance Marketing 45-47 Range Of Products 48-54 The Market Scenario 55-56 The Road Ahead 57-63 Some Important Concepts 64-67 4
  • 5. EXECUTIVE SUMMARY This project is aimed to be an eye opener for the layman of my country. The huge and ever rising population levels in our country provides an attractive opportunity for the global insurance majors to seek their fortunes here. This is the reason why we find so many private players today competing with Life Insurance Corporation of India (LIC) the only life insurer prior to liberalisation of our economy , for insuring Indian Lives. Inspite of the loud noises made by the various companys vying for a slice of the large Indian Insurance Pie , the irony is that even today not more than 20% of the populace of our country is aware about the very basic concepts regarding life insurance. This is precisely the reason why we see a mandatory tag today with every advertisement that advertises for an Insurance product , that goes “INSURANCE IS THE SUBJECT MATTER OF SOLICITATION”. The Insurance Regulatory Development Authority of India (IRDA) is aware of the fact that many Indian consumers 5
  • 6. can be taken for a ride by fly by night operators who could seek to sell insurance as a pure investment instrument and make good with their hard earned money, promising them huge returns. This project seeks to throw light on the functioning of the insurance industry in India. Further this project also aims to clear most of the doubts that may be clouding the minds of an average Indian, regarding the LIFE INSURANCE SECTOR IN INDIA . However this project has its own limitations as it is an effort by a 19 year old to understand the working of an industry that has existed for many hundreds of years and is now poised to take a giant leap forward, affecting the lives, livelihood and fortunes of millions and millions of our countrymen. What Is Insurance? Insurance is not necessarily an investment from which one expects to get one's money back. Nor is it gambling. A gambler takes risks, while insurance offers protection against risks that already exist. Insurance is a way to share risk with others. Since ancient times, communities have pooled some of their resources to help individuals who suffer loss. "Insurance is a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay 6
  • 7. the other party called insured a fixed amount of money on the happening of a certain event." “Insurance is a protection against financial loss arising on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of the premiums collected from the insuring public and the Insurance Companies act as trustees to the amount collected.” For example, in a Life Policy, by paying a premium to the Insurer, the family of the insured person receives a fixed compensation on the death of the insured. Similarly, in a car insurance, in the event of the car meeting with an accident, the insured receives the compensation to the extent of damage. It is a system by which the losses suffered by a few are spread over many, exposed to similar risks. Insurance is desired to safeguard oneself and one's family against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events. By taking life insurance a person can have peace of mind and need not worry about the financial consequences in case of any untimely death. 7
  • 8. Certain Insurance contracts are also made compulsory by legislation. For example, Motor Vehicles Act 1988, stipulates that a person driving a vehicle in a public place should hold a valid insurance policy covering " Act" risks. Another example of compulsory insurance pertains to the Environmental Protection Act, wherein a person using or carrying hazardous substances (as defined in the Act) must hold a valid Public Liability (Act) Policy. Principles of Insurance Insurance is a 'risk transfer mechanism' - it transfers the financial risks of everyday life from you to an insurance company. But only in terms of the financial consequences of risk. Without insurance, if you car was damaged, it would cost you a lot of money to fix it or to buy another one. It could cost you even more to pay for compensation to someone else involved in an accident. Insurance protects your financial interests. It cannot alleviate the emotional consequences of an accident. It cannot provide for humanitarian ideals. It can't help you with sentimental losses. But properly used, it will protect your financial investment in your car and your legal obligations should you have an accident. 8
  • 9. Insurable Interest Before you can insure anything, you must have a legally recognised financial interest in what you are insuring. For motor insurance, you can't take out an insurance policy on the car driven by the latest film star in the hope that it will crash and you can claim. That is nothing more than gambling. You have no financial interest in the well being of the object insured and would gain by its destruction. But you can insure the car you own, or drive. You would suffer financially if it is damaged or stolen and benefit from its continued existence. Indemnity This word is used to describe the type of payment you would receive. A motor policy and a household policy are both a contract of indemnity. It means, subject to the terms of the contract, you are entitled to be put back in the same financial position after a loss as you were in before the loss. In terms of a 'new for old' policy the measure of indemnity is agreed at the point of sale rather than the time of claim. The term is also sometime used to indicate if your insurer will meet the claim at all. A refusal to indemnify is a refusal to pay the claim. Contribution If there is more than one policy in force that you could claim on, you can't get payment from them both that would exceed the value of your loss. So each policy would contribute a portion of the loss. You would receive the full value of the loss but no more and the two policies would only bear part of it each. Subrogation 9
  • 10. This is the right that your insurer has to recover from someone else where you are entitled to do so. For example, if another driver causes damage to your car, and your insurers pay for it, subrogation gives them the legal right to 'stand in your shoes' and reclaim their outlay from the responsible driver. Proximate Cause When you seek to claim from your insurers for a property or financial loss you must show that the loss was caused as a result of a peril covered by the policy. There must be a direct relationship of cause and effect, the cause must be proximate in efficiency but not necessarily in point of time. There might for example, be a chain of causes in which each cause is the natural result of the preceding cause. It is the immediate and not the remote cause which must be considered. The full and classic definition of this principle is given in case law called 'Pawsey V Scottish Union and National Insurance Co (1908)' History of Insurance Insurance has been around since ancient times. The Babylonians and Phoenicians had ocean marine insurance to protect a merchant against losses incurred when a ship did not reach its intended destination with its load of goods or did not return with payment. This form of insurance, called respondentia, evolved because the goods on board often were used as collateral for a loan. The lender charged the borrower interest on the loan and levied an additional sum, the premium, to cover the cost of the respondentia contract. If the ship reached its destination and returned, the merchant received payment for the goods and in turn paid the moneylender. If the ship failed to return, the debt was 10
  • 11. cancelled. This system was profitable to lenders because many respondentia contracts were sold, and debts were paid more often than cancelled. In ancient Rome, associations had a form of insurance for their members. Each member made regular payments to the association in return for coverage of funeral expenses or for assistance to family members who were injured or ill. Insurance also existed in 17th-century England, which was then one of the world's principal maritime powers. Those seeking marine insurance would post a list of their cargo and voyages in a London coffee house owned by Edward Lloyd. Private investors would examine the list and sign their name by the entries they were willing to guarantee for a fee. These private investors were the first insurance underwriters, and the coffee house became the world center of marine insurance. Today the organization is known as Lloyds of London, and it brings together individuals, most often working in syndicates, who write all types of insurance. Insurance in the modern form originated in the Mediterranean during 14th century. The earliest references to insurance have been found in Babylonia, the Greeks and the Romans. The use of insurance appeared in the account of North Italian merchant banks who then dominated the international trade in Europe at that time. Marine insurance is the oldest form of insurance followed by life insurance and fire insurance. The patterns that have been used in England followed in other countries also in these kinds of insurance The oldest and the earliest records of marine policy relates to a Mediterranean voyage in 1347. In the year 1400, a book written by a merchant of Florence, indicates premium rates charged for the shipments by sea from London to Pisa. Marine Insurance spread from Italy to trading routes in other countries of Europe. 11
  • 12. Fire insurance has its origin in Germany where it was introduced in municipalities for providing compensation to owners of the property, in return for an annual contribution, based on the rent of those premises. The fire insurance in its present form started after the most disastrous fire in human history known as the 'Great Fire' in London, which had destroyed several buildings. It drew the attention of the public and the first fire insurance commercially transacted in 1667. The Industrial Revolution (1720- 1850) gave much impetus to fire insurance. The Nineteenth century marked the development of fire insurance. Due to the increasing demands of the time, different forms of insurance have been developed. Industrial Revolution of 19th century had facilitated the development of accidental insurance, theft and dacoity, fidelity insurance, etc. In 20th century, many types of social insurance started operating, viz., unemployment insurance, crop insurance, cattle insurance, etc. This way the business of insurance developed simultaneously with human and social development. Today, the use of computers in the field of insurance is frequently increasing. Insurance becomes an inseparable part of human development. The early developments of life insurance were closely linked with that of marine insurance. The first insurers of life were the marine insurance underwriters who started issuing life insurance policies on the life of master and crew of the ship, and the merchants. The early insurance contracts took the nature of policies for a short period only. The underwriters issued annuities and pension for a fixed period or for life to provide relief to widows on the death of their husbands. The first life insurance policy was issued on 18th June 1583, on the life of William Gibbons for a period of 12 months. The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more riskier for coverage. The Bombay 12
  • 13. Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The first general insurance company- Tital Insurance Company Limited, was established in 1850. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies. Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Several frauds during 20's and 30's sullied insurance business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict State Control over insurance business. The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon. The Government of India in 1956, brought together over 240 private life insurers and provident societies under one nationalised monopoly corporation and LIC was born. Nationalisation was justified on the grounds that it would create much needed funds for rapid industrialization. This was in conformity with the Government's chosen path of State- led planning and development. The (non-life) insurance business, however, continued to thrive with the private sector till 1972. Their operations were restricted to organised trade and industry in large cities. The general insurance industry was nationalised in 1972. With this, nearly 107 insurers were amalgamated and grouped into four companies- National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. These were subsidiaries of the General Insurance Coororation of India (GIC) 13
  • 14. TYPES OF INSURANCE General insurance The basis for general insurance is "transfer of risk". This means that the insurer agrees to compensate you if you suffer a loss. Without the insurance you would have to pay for that loss yourself. Obviously this contract is made on the basis that the insurance company calculates the risk that you, or the total number of people buying insurance, will cost more in payouts than what is received in premiums. This is determined by the use of statistics and the information you disclose on your application for insurance. 14
  • 15. This includes: Home contents. It can either be "defined event" i.e. the policy covers loss or damage from a list of "defined" events, e.g. storm or fire; or "accidental loss or damage" i.e. all accidental loss with some exclusions. Motor vehicle. It can either be "comprehensive" i.e. it covers any damage to your car as well as damage to the other car or another person's property; "third party property" i.e. it covers damage caused by your car to another person's property. This type of insurance will not cover you for the cost of repairs to your own car; "third party fire and theft i.e. it covers damage partly for damage caused by your car to another person's property, and restricted cover for damage to your car cause by theft or fire. Income protection. With this type of insurance the insurer agrees to pay you a specified amount of money, usually in monthly payments, in the event that you become disabled and unable to work. Along the same lines you an purchase "trauma insurance" to cover a medical trauma such as a heart attack. Also in the modern day world a number of utility specific insurance policies are being launched by the various players in the insurance market in an effort to stay one step ahead of their competitors. Hence to make the Definition of General Insurance more broad based and inclusive we can say that all the policies which do not fall under “Life Insurance “ category fall under the General Insurance category. 15
  • 16. Life Insurance Life insurance is insurance that will protect your family and/or specified dependents in the event of the policy holder’s death. In general, it is an essential component in planning for the future. There are many options with coverage, depending on your situation. And there are three main categories of life insurance: term life, universal life, and whole life insurance. Term life is the simplest and least expensive type of policy. It's pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whoever you've designated, upon a specific event, your death. Whole life insurance provides permanent protection for your dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts. Universal life insurance provides permanent protection for your dependents and is more flexible than whole or variable life. KINDS OF LIFE INSURANCE PRODUCTS Term Life Insurance Term life insurance is the easiest form of life insurance. It simply provides insurance protection for a period of time and only pays a benefit during that period. Since term life insurance has no cash value, the amount of protection in this policy is equal to its death benefit. There are three basic forms of term life insurance: level term, decreasing term, and increasing term. Level Term Life Insurance Level term life insurance provides an equal amount of protection for a period of time. For example a Rs 150,000 ten-year level term life insurance policy pays out Rs 150,000 of coverage until the ten 16
  • 17. years are over. At the end of the ten years this level term life insurance policy would expire, and would pay out no benefits. Decreasing Term Life Insurance Decreasing term life insurance is a policy where the benefit amount decreases gradually over the term of the protection. A 30 year Rs 200,000 decreasing term policy, for example, wound pay a Rs 200,000 benefit at the beginning of the policy. This amount would gradually decline over the 30-year term and would pay out Rs 0 at the end of the term. This type of term life insurance is good when the need for protection declines over the years. For instance, if you just took out a Rs 200,000 30-year mortgage on your home, the insurance would pay off the mortgage if the insured should pass away during the mortgage term. Increasing Term Life Insurance Increasing term life insurance policies provide a payout benefit that gradually increases at periodic intervals. These increase amounts are usually a percentage of the original amount. Increasing term life insurance is usually sold as a protection against the effects of inflation. Therefore this type of insurance is usually sold along with another form of life insurance. Most forms of term life insurance allow you the option to renew. This allows the policy owner to renew the term policy before its termination date. The benefit of this is that you usually do not have to qualify again for the policy. The term life insurance rate, however, for the new period would be higher than the initial period. The one-year renewable term is the most common type of these renewable term life insurance policies. This provides coverage for one year and allows the policy owner to renew his or her coverage each year, even if the policy owner becomes uninsurable. Another option for term life insurance policies is the option to convert. This allows the insured to exchange the term life insurance plan for a whole life plan, even if the owner becomes uninsurable. 17
  • 18. When changing the policy, your premium term life insurance rates are based on either your current age, or the age when you originally took out the policy. Depending on how your policy is set up, you could be paying much lower interest rates that you would have normally qualified for. Whole Life Insurance Whole life insurance is a popular life insurance plan because it provides permanent protection, provided premiums are paid. The advantages of whole life insurance plans are cash values, maturity at age 100, and living benefits. Also the policy's premiums and benefits remain constant throughout the policy's life. Unlike term life insurance, which provides only death protection, whole life insurance combines insurance protection with savings benefit. The cash value of this type of insurance builds over the life of the policy. This is because whole life insurance plans are given a certain guaranteed interest rate. The interest gained is credited onto the policy and grows over time. This cash value is also the amount of money the policy owner will receive if the policy is ever canceled. The whole life insurance cash value is generally figured out based on the face value of the policy, the duration and amount of payments, and how old the policy is. Another benefit of whole life insurance policies is that they are designed to mature at the age of 100. The premium rate for a whole life insurance is based on the assumption that the insured would be paying premiums until the age of 100. This means that at age 100, the cash value of the policy has come to the point when it equals the face amount of the policy. At this point the policy has completely matured, no more premiums are owned, and the policy is completely paid out to the policy owner. The living benefits of a whole life insurance policy is, through the cash value accumulation build-up in the policy, that a policy owner has a ready source of funds that may be borrowed against. These funds 18
  • 19. could be used for anything from an emergency, to pay off a mortgage, or for your child's education. In addition, because life insurance is considered property with a cash value, it may be used as collateral for loans. However, if a loan is outstanding at the time the insured passes away, the amount of the loan plus any interest will be subtracted from the death benefit before it is paid. Premiums for a generic straight whole life insurance plan provide level protection with level premiums, from the time the policy is taken out until the age of 100. Even though whole life premiums are calculated as if they are payable to age 100, they don't have to be paid that way. There are several types of whole life insurance that have been developed to accommodate a variety different people. Limited pay whole life insurance is one of these many types of whole life insurance. This type of insurance has level premiums that are paid until a certain period of time. For instance, a 30 year limited pay whole life insurance policy is one in which premiums are paid for the duration of 30 years, after which no premiums would be paid. Even though you wouldn't be paying premiums after the 30 years, your life insurance protection and cash value are calculated to the age of 100. Universal Life Insurance Universal life insurance is a variation of whole and term life insurance, with added flexibility and transparency. This added flexibility allows the policy owner to determine the amount and frequency of premium payments and to adjust the benefit payout amount up or down to reflect changes in needs. Universal life insurance also provides a type of transparency, in that the life insurance policy is broken down into its protection, savings, and expense components. Each month a mortality charge is deducted from the policy's cash value for the cost of the insurance protection, then interest is added to the remaining cash value. When the policy owner pays a premium, the insurance company takes out an expense charge and then adds the remainder to the cash value. 19
  • 20. Universal life insurance policies remain in force as long as there enough cash value to pay the monthly mortality expenses, regardless of whether or not the policy owner pays the premium. Therefore, if the premium payments made aren't large enough or frequent enough to generate sufficient cash values, the policy would terminate. At stated times the policy owner can increase or decrease the face value of a universal life insurance policy. This allows the owner to change their policy based on their current needs. An increase or decrease in premium payment is not required, as long as the cash values can cover the mortality charges. With a universal life insurance you can also elect to put more into the policy, adding to the cash value. Your cash values on a universal life insurance policy are calculated out by using guaranteed and current interest rates. Universal life insurance policies always guarantee a minimum interest rate along with maximum mortality and expense charges. The company is obligated to pay only its guaranteed values, even though they usually pay out higher interest rates depending on current rates. With a universal life insurance policy the money in the cash value account is readily available to you. You can not only borrow against it, but you can withdrawal the entire amount or withdraw part of it. However, your death benefit is reduced by the amount you withdraw, and you cannot restore the original benefit by simply repaying the amount withdrawn. You would have to put money back into your policy, which is subjected to expense charges. Plus if it is a large increase in your benefit you may have to prove that you are still in good health. The transparency of your universal life insurance allows you to choose your premiums. Some insurers may require you to pay a minimum premium, which are usually still lower than the mortality and other charges. You should be prepared to pay a decently large premium to keep your policy in effect incase interest rates fall or expenses rise. Universal life insurance works best if you select a reasonably large 20
  • 21. premium, compared to what you might pay for a traditional whole life plan. This limits your risk from possible future premium increases. OVERVIEW OF THE LIFE INSURANCE SECTOR IN INDIA With largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. It’s a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent to the country’s GDP. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP. 21
  • 22. Yet, nearly 80 per cent of Indian population are without life insurance cover, health insurance and non-life insurance continue to be below international standards. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. This itself is an indicator that growth potential for the insurance sector is immense. A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability. It is estimated that over the next ten years India would require investments of the order of one trillion US dollars. The Insurance sector, to some extent, can enable investments in infrastructure development to sustain economic growth of the country. With a large capital outlay and long gestation periods, infrastructure projects are fraught with a multitude of risks throughout the development, construction and operation stages. These include risks associated with project implementaion, including geological risks, maintenance, commercial and political risks. Without covering these risks the financial institutions are not willing to commit funds to the sector, especially because the financing of most private projects is on a limited or non- recourse basis. Insurance companies not only provide risk cover to infrastructure projects, they also contribute long- term funds. In fact, insurance companies are an ideal source of long term debt and equity for infrastructure projects. With long term liability, they get a good asset- liability match by investing their funds in such projects. 22
  • 23. IRDA regulations require insurance companies to invest not less than 15 percent of their funds in infrastructure and social sectors. International Insurance companies also invest their funds in such projects. Insurance is a federal subject in India. There are two legislations that govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. The Government of India liberalised the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. Premium rates of most general insurance policies come under the purview of the government appointed Tariff Advisory Committee. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalising of the public sector companies. A host of private insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001. Insurance Regulatory and Development Authority –The Watch Dog On 19th April 2000, the Authority has been notified in the Gazette of India in terms of Insurance Regulatory and Development Authority Act, 1999 (IRDA Bill). The Authority has also been constituted. 23
  • 24. Mission:To protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto DUTIES, POWERS AND FUNCTIONS OF AUTHORITY AS per the INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT ,1999 • 14(1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. • 14(2) Without prejudice to the generality of the provisions contained in sub- section (1), the powers and functions of the Authority shall include,-- a. issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; b. protection of the interests of the policy-holders in matters concerning assigning of policy, nomination by policy-holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; c. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; d. specifying the code of conduct for surveyors and loss assessors; 24
  • 25. e. promoting efficiency in the conduct of insurance business; f. promoting and regulating professional organization connected with the insurance and re-insurance business; g. levying fees and other charges for carrying out the purposes of this Act; (h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; h. control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and of 1938 regulated by the Tariff Advisory committee under section 64U of the Insurance Act, 1938; i. specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries; j. regulating investment of funds by insurance companies; (l) regulating maintenance of margin of solvency; k. adjudication of disputes between insurers and intermediaries or insurance intermediaries; l. supervising the functioning of the Tariff Advisory committee; 25
  • 26. m. supervising the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organization referred to in clause (f); n. specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and o. exercising such other powers as may be prescribed. The founder chairman of IRDA was Mr. N.Rangachary. It was under his stewardship that the Indian Insurace industry really opened up. Chairman: Mr. C. S. Rao The IRDA is located at 3rd Floor, Parisrama Bhavanam 5-9-58/B, Fateh Maidan Road Basheerbagh Hyderabad - 500 004 Ph : 040-55820964 040-55789768 Fax: 55823334 26
  • 27. THE PLAYERS IN THE INDIAN LIFE INSURANCE MARKET • Allianz Bajaj Life Insurance Co. Ltd. • AMP Sanmar Assurance Company Limited • Birla Sun Life Insurance Co. Ltd. • Dabur CGU Life Insurance Company Pvt. Ltd • HDFC Standard Life Insurance Co. Ltd. • ICICI Prudential Life Insurance Co Ltd. • ING Vysya Life Insurance Co. Pvt. Ltd. • Life Insurance Corporation of India • Max NewYork Life Insurance Co. Ltd. • MetLife India Insurance Company • OM Kotak Mahindra Life Insurance Co. Ltd. • SBI Life Insurance Company Ltd. • Tata AIG Life Insurance Co. Ltd. 27
  • 28. LIFE INSURANCE CORPORATION OF INDIA LIC was formed on 1-9-1956 by Government of India by nationalizing the then existing private insurance companies. At that time the objective of nationalization of the life insurance business was to canalize the funds of LIC for the benefit of the people of India. LIC invests not less than 75% of its funds in Central Government Securities, State Government Securities and the balance is invested by LIC in the private sector. The central office of LIC is located at Mumbai. There are 7 zonal offices and about 200 divisional offices in LIC spread all over the country. The zonal office in LIC controls between 3 to 7 divisional offices. In turn divisional offices monitor, guide and control the branch offices. Most of the functioning of LIC like issuing policies, collecting premiums and payments of maturity and death claims is done at branch office level, only cases which fall beyond the financial powers of branch offices are referred to divisional offices for approval. LIC also has another wing called "Pension and Group Insurance", whose accounts are maintained seperately and are also shown seperately in the detailed financial highlights of LIC. The group insurance business and servicing is handled separately by Pension & Group Schemes Department of LIC at Divisional Office level. LIC follows the usual practice of closing its accounts on 31st March of 28
  • 29. every year. LIC being a giant, takes about 4 to 6 months to finalise its financial performance. More over the detailed accounts of LIC have to be submitted to Parliament every year. As the accounts of the LIC are finalised some time during Aug. - Sept. the bonus rates on with profit policies are declared only in October(usually). Till 1996 LIC was following a uniform bonus rates for Endowment and Whole Life Policies. But it is observed that LIC has changed its earlier policy and from 1996 onwards it is declaring different rates of bonuses depending on the term/policy etc. Corporate Office: Yogakshema Jeevan Bima Marg, Post Box No. 19953, Mumbai 400 021. Telephone Number: 2021383/2022151 WebSite : www.licindia.com 29
  • 30. FINANCIAL PERFORMANCE of LIC( RS in Crores ) 1997-98 1998-99 1999-2000 PREMIUM INCOME 19,252.07 22,805.80 27,461.71 OTHER INCOME INCOME FROM INVESTMENTS OTHER RECEIPTS 11,296.32 184.21 13,183.92 362.87 16,056.62 1,211.28 TOTAL INCOME 30,732.60 36,352.59 44,729.61 EXPENSES COMMISSION OTHER EXPENSES 1,706.55 2,246.67 2,001.94 2,667.56 2,506.02 3304.84 TOTAL EXPENSES 3,953.22 4,669.50 5,810.86 CLAIMS FOR THE YEAR (INCLUDING BONUS) BY DEATH BY MATURITY 1,165.17 5,507.90 1,378.36 6,237.42 1,637.70 7,628.55 LIFE INSURANCE FUND AT THE END 1,05,832.89 1,27,389.06 1,54,043.73 30
  • 31. OF THE YEAR TOTAL ASSETS 1,09,954.38 1,32,764.39 1,60,935.76 Claims Settlement Operations Claims Intimated Claims settled during the year Claims outstanding (including claims written back) at the end of the year Year Number (in lakh) Amount (Rs. in crore) Number (in lakh) Amount (Rs. in crore) Number (in lakh) Amount (Rs. in crore) 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000 41.90 49.42 56.51 60.07 66.19 4594.69 5722.38 6673.07 7615.78 9266.25 41.67 49.49 56.52 59.83 66.42 4532.22 5691.49 6677.04 7583.18 9211.30 1.67 1.60 1.59 1.83 1.60 288.70 319.59 315.62 348.22 403.17 31
  • 32. Birla Sun Life Insurance Company Limited The company is the result of a joint venture between The Aditya Birla Group and Sun Life Financial, a leading international financial services organization. The Aditya Birla Group is the second largest business house in India, with a turnover exceeding Rs 260 billion and an asset base in excess of Rs 180 billion. The group's market capitalization is approximately Rs 150 billion. It has 7 lakh investors and employs around 72,000 people. It is a multinational conglomerate in it's own right, with 75 diversified business units in India and overseas, including operations in Canada, USA, UK, Thailand, Indonesia, Philippines, Malaysia and Egypt. Sun Life Financial has evolved from a single mutual fund life insurance company into one of the most highly rated insurance and wealth management institutions in the world. Sun Life Financial group offers a wide range of financial solutions to individuals and corporates and these are in the areas of life, health and disability; pension funds and plans; investment management; annuities and savings; trust, brokerage and banking. Sun Life Assurance Company of Canada, Sun Life's primary insurance arm, is among the largest international financial services organizations in the world, with assets under management of over US$ 201 billion. The two groups have had a partnership in India for a long time in the areas of asset management, retail distribution and stock broking. It was natural therefore that when the insurance sector was opened up in India, the partnership was extended to life insurance. Thus was born Birla Sun Life Insurance Company Ltd. 32
  • 33. The company has set for itself the following Business Management Philosophy: Vision To be a world class provider of financial services to individuals over their lifetime Mission To be the first preference of their customers as a leading Integrated Insurance Provider of insurance solutions through superior value creation and technology. Core Values • Operating with integrity to the very highest standards of business conduct. • Always working with the customer's needs in mind. • Relentlessly pursuing excellence through the people they employ and the work they do. • Providing products and services that add value for customers, channel partners and build value for the shareholders. . Corporate Office: 1st Floor, Ahura Centre, 'B' Wing, Mahakali Caves Road, Andheri(East), Mumbai 400 093. Telephone Number: 022-6928300 WebSite : www.birlasunlife.com 33
  • 34. HDFC Standard Life Insurance Company Limited HDFC Standard Life first came together for a possible joint venture, to enter the Life Insurance market, in January 1995. It was clear from the outset that both companies shared similar values and beliefs and a strong relationship quickly formed. In October 1995 the companies signed a 3 year joint venture agreement. Around this time Standard Life purchased a 5% stake in HDFC, further strengthening the relationship. The next three years were filled with uncertainty, due to changes in government and ongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act passed in parliament. Despite this both companies remained firmly committed to the venture. In October 1998, the joint venture agreement was renewed and additional resource made available. Around this time Standard Life purchased 2% of Infrastructure Development Finance Company Ltd. (IDFC). Standard Life also started to use the services of the HDFC Treasury department to advise them upon their investments in India. Towards the end of 1999, the opening of the market looked very promising and both companies agreed the time was right to move the operation to the next level. Therefore, in January 2000 an expert team from the UK joined a hand picked team from HDFC to form the core project team, based in Mumbai. . In a further development Standard Life agreed to participate in the Asset Management Company promoted by HDFC to enter the mutual fund market. The Mutual Fund was launched on 20th July2000. 34
  • 35. The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited. Their ambition from the beginning was to be the first private company to re-enter the life insurance market in India. On the 23rd of October 2000, this ambition was realised when HDFC Standard Life was the first life company to be granted a certificate of registration. HDFC are the main shareholders in HDFC Standard Life, with 81.4%, while Standard Life owns 18.6%. Given Standard Life's existing investment in the HDFC Group, this is the maximum investment allowed under current regulations. HDFC and Standard Life have a long and close relationship built upon shared values and trust. The ambition of HDFC Standard Life is to mirror the success of the parent companies and be the yardstick by which all other insurance companies in India are measured. Corporate Office: IL&FS Financial Centre, Plot C22 - G Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051. Telephone Number: 6932666 Website : www.hdfcinsurance.com 35
  • 36. ICICI Prudential Life Insurance Company Limited ICICI Prudential Life Insurance Company Limited was incorporated on July 20, 2000. The authorized capital of the company is Rs.2300 Million and the paid up capital is Rs. 1500 Million. The Company is a joint venture of ICICI (74%) and Prudential plc UK (26%). The Company was granted Certificate of Registration for carrying out Life Insurance business, by the Insurance Regulatory and Development Authority on November 24, 2000. It commenced commercial operations on December 19, 2000, becoming one of the first few private sector players to enter the liberalized arena. Till March 31,2002 the Company has issued 100,000 polices translating into a Premium Income of around Rs. 1,200 Million and a sum assured of over Rs.15,000 Million. The Company recognizes that the driving force for gaining sustainable competitive advantage in this business is superior customer experience and investment behind the brand. The Company aims to achieve this by striving to provide world class service levels through constant innovation in products, distribution channels and technology based delivery. The Company has already taken significant steps to achieve this goal.. 36
  • 37. ICICI Ltd was established in 1955 by the World Bank, the Government of India and the Indian Industry, to promote industrial development of India by providing project and corporate finance to Indian industry. Since inception, ICICI has grown from a development bank to a financial conglomerate and has become one of the largest public financial institutions in India. ICICI has financed all major sectors of the economy, covering 6,848 companies and 16,851 projects. In the fiscal year 2000-2001, ICICI had disbursed a total of Rs 319.65 billion. Prudential plc: Prudential plc was founded in 1848. Since then it has grown to become one of the largest providers of a wide range of savings products for the individual including life insurance, pensions, annuities, unit trusts and personal banking. It has a presence in over 15 countries, and caters to the financial needs of over 10 million customers. It manages assets of over US$ 259 billion (Rupees 11,39,600 crores approx.) as of December 31, 1999. Prudential plc. has had its presence in Asia for the past 75 years catering to over 1 million customers across 11 Asian countries. . Corporate Office: ICCI Prulife Towers, 1089, Appasahab Marathe Marg, Prabhadevi, Mumbai 400 025. Telephone Number: 022-462 1600 Website : http://www.iciciprulife.com/ 37
  • 38. ING Vysya Life Insurance Company Pvt. Ltd. ING Vysya Life Insurance is a joint venture between three pioneers, ING Insurance Vysya Bank and GMR Group. ING Group Over the last 150 years, ING Group has grown to become one of the largest life insurance organisations in the world. Today it touches the lives of over 50 million people across 65 countries. It offers a range of financial services including insurance, pensions, banking and asset management. In the year 2000, total assets of the group stood at over INR 28, 42,000 crores. ING Group has wide and deep experience in setting up companies in new markets, which require substantial investments underlining ING's long-term commitment. In the last 20 years, ING Group has established successful life insurance companies in 15 countries contributing to the development of insurance services in these countries. The Vysya Bank Limited It is one of India's premier private sector banks with a heritage of over 70 years. With 1.5 million customers, 480 outlets and 6000 employees it is known for its innovative banking services and for pioneering several products and services. The Vysya Bank has a long-standing relationship with its customers and deep understanding of the Indian market. 38
  • 39. GMR Group It has a solid track record of over two decades of growth and has wide-ranging interests in fields such as power generation, infrastructure, manufacturing, software and banking. GMR group has an excellent reputation of being able to successfully develop ventures from scratch. Corporate Office: 14, Sankey Road, Sadashivanag, Bangalore 560 006. Telephone Number: 080-3318300-312 Website : www.ingvysyalife.com 39
  • 40. Max New York Life Insurance Company Ltd Max New York Life Insurance Company Limited is a joint venture that brings together two large forces - Max India Limited, a multi-business corporate, together with New York Life International, a global leader who is long experienced in that unique business called life insurance. Max India Limited Max India Limited is a multi-business corporate, focused on the Knowledge, People, and Service oriented businesses of Healthcare, Life Insurance, and Information Technology. Max also has business interests in Clinical Research, Telecom, Electronic Component distribution, Bulk Pharmaceuticals, and Speciality Products businesses. Max India is led by a skilled team of professional managers and is widely acknowledged for its presence in commercially viable manufacturing and service delivery businesses. Max has been able to form and strengthen international alliances. About New York Life New York Life Insurance Company, a Fortune 100 company, is one of the largest providers of life insurance coverage in America. Founded in 1845, the Company has over $178 billion in assets under management and more than $25 billion in annual revenues. The mission of New York Life is to maintain its superior 'financial strength', adhere to the highest standards of 'integrity' and demonstrate 'humanity' by treating its customers, agents and employees with compassion, consideration and respect. 40
  • 41. New York Life Insurance Company has been among the highest rated companies by leading independent rating agencies including - A.M. Best Company (A++), Fitch (formerly Duff & Phelps) (AAA), Moody's Investors Service (Aa1) and Standard & Poor's (AA+) The company has its headquarters in New York City and has operations in the United States, Argentina, Hong Kong, India, Indonesia, Mexico, The Philippines, South Korea, Thailand and Taiwan. The company maintains representative offices in the People's Republic of China and Vietnam. The company caters to millions of policyholders through a network of over 30,000 employees and agents around the world. For the last 47 years, New York Life has had the highest number of agents who qualify as members of the 'Million-Dollar Round Table'. The MDRT is the world's most prestigious organisation of insurance sales professionals . Corporate Office: 11th Floor, DLF Square, Jacaranada Marg, DLF City, Phase - II, Gaugaon 122 002. Telephone Number: 0124 - 6561717 Website : www.maxnewyorklife.com 41
  • 42. MetLife India Insurance Company Pvt. Ltd. MetLife India Insurance Company Private Limited was incorporated in India on April 11, 2001 as a joint venture between MetLife International Holdings Inc., The Jammu and Kashmir Bank, M. Pallonji and Co Private Limited and other private investors. The Metropolitan Life Insurance Company (MetLife ) is the number one insurer in the U.S. based on over US$2 trillion of life insurance in force. MetLife serves approximately 9 million individual households in the U.S. as well as 87 of the Fortune 100 companies. MetLife's institutional clients have approximately 33 million employees and members. Headquartered in New York, MetLife through its affiliates, subsidiaries and representative offices operates in 15 countries throughout the Americas, Europe and Asia. MetLife India inherits its parent company's over-130-year-old reputation of helping build financial independence for its customers. MetLife India has developed and distributes a range of life insurance products in India. MetLife India benefits from its parent company's global presence in the field of insurance, track record of establishing successful insurance operations in emerging markets and the unique strengths of its other Indian promoters. Drawing from these experiences, MetLife India hopes to be able to address the needs of the Indian customer. MetLife India aspires to build on MetLife's history of meeting policy holder and contract obligations and the ability to withstand the impact of adverse economic factors. 42
  • 43. The MetLife brand, known for empowering people to feel protected, guided and hopeful about their lives, will it is hoped do the same for its Indian customers. Headquartered in Bangalore, MetLife India hopes to deliver value and world-class service to customers through its financial advisors and corporate sales representatives. The mission of MetLife India Insurance is to build financial freedom for all. Corporate Office: Brigade Sashmahal, No.5, Vani Vilas Road, Basarangudi, Bangalore 560004. Telephone Number: 080-6678617/18 WebSite : http://www.metlife.com/ 43
  • 44. OM Kotak Mahindra Life Insurance Company Ltd. OM Kotak Mahindra Life Insurance Company Limited (OMKM) is a joint venture between Kotak Mahindra Finance Ltd., and Old Mutual plc aims to help customers take important financial decisions at every stage in life by offering them a wide range of innovative life insurance products, to make them financially independent. Jeene Ki Azaadi... Kotak Mahindra Finance Ltd Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions that encompass every sphere of life. From Banking, to Stock Broking, to Mutual Funds, to Life Insurance, to Investment Banking, the company caters to the financial needs of individuals and corporates. Kotak has a group net worth of around Rs.1,400 crore and currently employs over 2,000 dedicated employees in its various businesses. With a presence in about 50 locations in India and offices in New York, London, Dubai and Mauritius, the group currently services a customer base of over 5,00,000. The group has international partnerships with Goldman Sachs (one of the world's largest investment banks and brokerage firms), Ford Credit (one of the world's largest dedicated automobile financiers) and Old Mutual (a large insurance, banking and asset management conglomerate). Old Mutual Old Mutual, a company with over 157 years of experience in life insurance business, has the largest financial services business in South Africa, through its life assurance, asset management, banking and 44
  • 45. general insurance operations. Being listed on the London Stock Exchange and included in FTSE 100 list of companies, Old Mutual’s assets under management are worth $208 billion (as on Dec 31st, 2001). In the USA, Old Mutual is one of the top ten fixed annuity businesses, following its purchase during 2001 of Fidelity & Guaranty Life Insurance Company, and its multi-style asset management business offers an array of specialist asset management skills. In the UK, Old Mutual focuses on wealth management. Gerrard, its largest UK operation, is one of the leading private client stockbroking businesses in the country. Old Mutual has made significant progress through, continued development of core business and focused acquisitions. It has established a strong foundation, to build the future business for customer and shareholder value. The company has the ability to cater to a variety of consumer market segments, and offers a comprehensive and innovative product range catering for all income groups. Corporate Office: OM Kotak Mahindra Life Insurance Co. Ltd. Address: Peninsula Chambers, Peninsula Corporate Park,6th floor, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013. Tel: 91-22-56635000 Fax: 91-22-56635111 Website: www.omkotakmahindra.com 45
  • 46. SBI Life Insurance Company Limited SBI Life Insurance Co. Ltd. is a joint venture between State Bank of India and Cardif S.A. of France. We are a registered life insurance company.SBI is a household name, and it stands as the last word for financial strength and security in the country. SBI's illustrious background dates back to the year 1806 when it started business as a presidency bank known as Bank of Bengal. Over the long journey, it has learnt to combine the best of banking practices handed down from the imperial management with the more dynamic ways of doing banking in the modern India. It has grown as a responsible giant in the banking field over the years. Today, it has a branch network of over 9000 branches, an aggregate deposit base of nearly Rs196821 crore (US$45,121mm) and a total balance sheet size of Rs.261504 crore (US59,950 mm). Together with its 7 Associate Banks, SBI commands about 30% of the market share in banking. SBI is the strongest and most profitable bank in the country. It has a tangible net worth of Rs.12146 crore (US$2,784mm) as at March 2000, and it earned a pre-tax profit of Rs.2051 crore (US$470 mm) for the fiscal ending that date. Cardif is a wholly owned subsidiary of BNP Paribas, which is one of the top 10 banks in the world, and the third largest in Europe. BNP is one of the oldest foreign banks with a presence in India dating back to 1860. It has 9 branches in major metros in the country. 46
  • 47. Cardif came into being in 1973. It has grown over the years into a vibrant insurance company specialising in personal lines such as long-term savings, protection products and creditor insurance. Cardif had a premium income of over US$ 4 billion in 1999, and more than US$ 23 billion of funds under its management. Cardif has been specialising in the art of selling insurance products through commercial banks in France and 23 other countries. France is the mother of bancassurance in the world. Over 65% of life insurance business is done through banks and financial institutions' counters in France, and the trend is rapidly catching up in other countries. It operates joint ventures in developed as well as developing countries, such as Brazil, Chile and the Czech Republic. SBI Life Insurance Company Ltd is registered as a life insurance company with the Insurance Regulator. The Company's authorised capital is Rs.250 crore, and the paid-up capital at present is Rs.125 crore. SBI owns 74% of the total equity, and Cardif the balance 26%. Corporate Office: 2nd Floor, APEEJAY House, 3 Dinsha Vachha Road, Churchgate, Mumbai 400 020. Telephone Number: 022 - 2351000 to 1007 Website :www.sbilife.co.in 47
  • 48. Tata AIG Life Insurance Company Tata AIG General Insurance Company Ltd, and Tata AIG Life Insurance Company Ltd., (collectively "Tata AIG") are joint venture companies between the Tata group India's most trusted industrial house and American International Group, Inc. (AIG), the leading U. S. based international insurance and financial services organisation. Both promoters have a deep and abiding interest in India's insurance sector. Prior to nationalisation, the Tatas pioneered private insurance in India when Sir Dorab Tata set up New India Assurance in 1919. By 1973, when General Insurance was nationalised the Tata company had a global presence with 56 overseas offices. AIG too, has always considered the Indian insurance sector to be of significance. The AIG companies entered India in 1945 and had offices in several Indian cities prior to nationalisation. AIG is the leading U.S. - based international insurance and financial services organisation and the largest underwriter of commercial and industrial insurance in the United States. Its member companies write a wide range of commercial, personal and life insurance products through a variety of distribution channels in approximately 130 countries and jurisdictions throughout the world. AIG's global businesses also include financial services and asset management, including aircraft leasing, financial products, trading and market making, consumer finance, institutional, retail and direct investment fund asset management, real estate investment management, and retirement savings products. American International Group, Inc.'s common stock is listed on the New York Stock Exchange, as well as the stock exchanges in London, Paris, Switzerland and Tokyo. 48
  • 49. Today, AIG's operations extend across 130 countries and jurisdictions throughout the world. AIG is ranked #8 in Forbes 2000 "super 100" ranking of all US corporations. AIG is ranked #8 in Fortune 500 ranking of top US corporations, and ranked #1 in the property and casualty business. AIG's Life Insurance operations comprise of the most extensive worldwide network of any life insurer. AIG's global businesses include financial services and asset management, including aircraft leasing, financial products, trading and market making, consumer finance, institutional, retail and direct investment fund asset management, real estate investment management, and retirement savings products. The Tata Group is the most respected industrial conglomerate in India, with revenues of more than US $ 8 billion. The Group has long been a market leader in steel, commercial vehicles, electric power generation in the private sector and computer software. In recent times, it has promoted several new ventures in high growth areas of the economy such as financial services, telecommunications, information technology, auto components, oil field services and process management systems. The Group has had a long association with India's insurance sector having been the largest insurance company in India prior to the nationalisation of insurance. Corporate Office: Ahura Centre, 4th Floor, 82, Mahakali Caves Road, Andheri(East), Mumbai 400093. Telephone Number: 022 – 6930000 WebSite :www.tata-aig.com 49
  • 50. INSURANCE MARKETING Insurance Agents As Life insurance is a personalized service, personal selling plays an important role in promoting the same. Place and promotion are being highlighted here since the agents and development officer who form the pillars of Life Insurance market structure discharge these two important functions. Agents are PR men of insurance companies at the grassroot level. The role in building up good customer relation is crucial. They work under the guidance and direct supervision of development officers. They together sell the right type of policies suitable to the needs of clients for the right amount at the right time (age). The agents render various other services and also play a vital role in policy servicing. The Development Officers under each Branch office beside guiding and supervising activities of the agents are also responsible for their recruitment and training so as to develop a stable agency force. They activate the existing agents and motivate the new ones. Also they render all such services to the policyholders as will produce better policies. Agents and development officers, as the intermediaries in the distribution system of the whole, develop and increase the Life Insurance business in a planned way. For promoting Life Insurance business, sales promotion activities are also carried out by the agents. Calendars, bags, diaries, etc. are also given to the policyholders as a token of gifts. The insurance companies also trains their agents, as they do not tend to increase or update their knowledge regularly so as to serve better to their customers. Special training programs are held for them. 50
  • 51. Corporate Houses and Financial Institutions: This is a distribution network that ha shot into prominence after the opening up of the Insurance sector. Large corporate houses and financial institutions have now entered into the business of selling life insurance.These institutions have employed special employees who are trained to sell insurance.These employees are told to then told to target the existing customers of the corporate houses or financial institutions. They also have a help desk / promotion desk at the places where the customer comes into contact with the company. These centers are the effective centers where the sales pitch is made to the prospective customers. Also sometimes the company may use marketing tactics like sending direct mailers to the various clients or telemarketing. This form of distribution is slowly but surely gaining prominence. Bancassurance With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. New entrants in the insurance sector had no difficulty in matching their products with the customers' needs and offering them at a price acceptable to the customer. But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Further insurable population of over 1 billion spread all over the country has made the traditional channels of the insurance companies costlier. Also due to heavy competition, insurers do not enjoy the flexibility of incurring heavy distribution expenses and passing them to the customer in the form of high prices.With these developments and increased pressures in 51
  • 52. combating competition, companies are forced to come up with innovative techniques to market their products and services. At this juncture, banking sector with it's far and wide reach, was thought of as a potential distribution channel, useful for the insurance companies. This union of the two sectors is what is known as Bancassurance. What is Bancassurance? Bancassurance is the distribution of insurance products through the bank's distribution channel. It is a phenomenon wherein insurance products are offered through the distribution channels of the banking services along with a complete range of banking and investment products and services. To put it simply, Bancassurance, tries to exploit synergies between both the insurance companies and banks.Bancassurance if taken in right spirit and implemented properly can be win-win situation for the all the participants' viz., banks, insurers and the customer. 52
  • 53. The wide range of Life Insurance products on offer in India : MONEY BACK Jeevan Chhaya(LIC) Jeevan Surabhi(LIC) Money Back Policy(LIC) Jeevan Rekha(LIC) Jeevan Samriddhi(LIC) Money Back(HDFC) Flexi Cash Flow (Birla Sun Life) ICICI Pru CashBak (ICICI Pru) KotakMoney Back Plan (OM Kotak) Money Saver Plan (TATA-AIG) Cash Care(Allianz-Bajaj) Maximizing Life Money Back Plan (ING Vysya) Dhana Shree (AMP Sanmar) Met Sukh (MetLife) Met Junior MB(MetLife) MULTIPLE COVERS Double Endowment(LIC) Jeevan Mitra (Double) (LIC) Jeevan Mitra (Triple) (LIC) 53
  • 54. PURE RISK COVERS New Bima Kiran(LIC) Bima Sandesh(LIC) Convertible Term Assurance(LIC) Convertible Whole Life(LIC) Ltd. Payment Whole Life Plan(LIC) Whole Life Plan(LIC) Anmol Jeevan(LIC) Flexi Life Line(Birla Sun Life) Birla Sun Life Term Plan(Birla Sun Life) Premium Back Term Plan (Birla Sun Life) ICICI Pru Life Guard (ICICI Pru) Whole life Plan(Max New York Life) Level Term Policy (Max New York Life) 5 year term renewable and convertible Insurance(Max New York Life) 15 Year Lifeline (with Return of Premiums) Plan(TATA-AIG) Assure Lifeline Plans(TATA-AIG) Mahalife(TATA-AIG) Term Assurance Plan(HDFC ) Risk Care(Allianz-Bajaj) Term Care(Allianz-Bajaj) Lifetime Care(Allianz-Bajaj) Kotak Term Assurance Plan(OM Kotak) Kotak Preferred Term Plan(OM Kotak) Fulfilling Life Anticipated Whole Life Plan (ING Vysya) Rewarding Life (ING Vysya) Conquering Life(ING Vysya) Nitya Shree (AMP Sanmar) Raksha Shree (AMP Sanmar) MET 100 Gold (Participating Limited Pay Whole Life) (MetLife) 54
  • 55. MET 100 Platinum (Participating Limited Pay Whole Life) (MetLife) Met 100 (Non Participating Limited Pay Whole Life) (MetLife) LifeLong (Aviva Life) Secure life (Aviva Life) LifeShield (Aviva Life) RISK COVER + SURVIVAL BENEFITS Bhavishya Jeevan(LIC) Endowment Assurance Policy(LIC) Endowment Ltd Assurance Policy(LIC) Jeevan Anand(LIC) New Janaraksha(LIC) Endowment(HDFC) Endowment Plan(Max New York) Endowment to Age 60 Policy(Max New York) Flexi Save Plus(Birla Sun Life) ICICI PRU Save 'n' protect (ICICI Pru) Kotak Endowment Plan (OM Kotak) Kotak Capital Multiplier Plan (OM Kotak) Sudarshan(SBI Life) Security and Growth Plans (TATA-AIG) Save Care(Allianz Bajaj) Invest Gain Plan(Allianz Bajaj) Endowment Assurance Policy(ING Vysya) Subha Shree (AMP Sanmar) MetLife Platinum (Participating Endowment Assurance)(MetLife) MetLife Gold (Participating Endowment Assurance)(MetLife) MetLife Platinum (Non- Participating Endowment Assurance)(MetLife) MetLife Gold (Non-Participating Endowment Assurance)(MetLife) 55
  • 56. MET Junior - Participating EA(MetLife) MET Junior Non Participating Juvenile EA(MetLife) Easy Lifeplus(Aviva Life) LifeSaver(Aviva Life) FOR WOMEN ONLY Jeevan Bharati(LIC) FOR YOU AND YOUR SPOUSE Jeevan Saathi(LIC) Jeevan Saritha(LIC) Joint Life Plans(LIC) FOR DISABLED DEPENDANTS Jeevan Aadhar(LIC) Jeevan Vishwas(LIC) FOR YOUR HOME Mortgage Redemption Plan(LIC) Loan Cover Term Assurance (HDFC) Mortgage Redemption Plan (MetLife) RURAL LIFE Bima Kavach Yojana(Birla Sunlife) Kotak Gramin Bima Yojana (OM Kotak) ULIP Unit Linked Insurance Plan GROUP LIFE SCHEMES Group Gratuity Scheme(LIC) 56
  • 57. Group Insurance Scheme(LIC) Group Savings Linked Scheme(LIC) Group Superannuation Scheme(LIC) Development Insurance Plan(HDFC) Group Term Insurance(HDFC) Kotak Term Group Plan (OM Kotak) Kotak Credit Term Group Plan(OM Kotak) Group Gratuity Plan (OM Kotak) Group Protection Solutions (Birla Sun Life) Group Superannuation Plan(Birla Sun Life) Group Gratuity Plan(Birla Sun Life) Super Suraksha & Swarna Ganga (SBI Life) Group Risk Care Plan Employer - Employee(Allianz Bajaj) Group Risk Care Plan - Non Employer - Employee(Allianz Bajaj ) Group Credit Care Plan - Employer - Employee(Allianz Bajaj) Group Credit Care Plan Non Employer - Employee(Allianz Bajaj ) Group Gratuity Plan (ICICI Pru Life) Group Term Assurance(ICICI Pru Life) Group Term Assurance AMP Sanmar Creditplus(Aviva Life) FOR CHILDREN General Plans Children's Deferred Assurance Plan(LIC) Jeevan Baalya(LIC) Jeevan Kishore(LIC) New Children's Deferred Assurance Plan(LIC) Komal Jeevan(LIC) SBI-Scholar(SBI Life) ICICI Pru Smart Kid (ICICI Pru) 57
  • 58. Kotak Child advantage plan (OM Kotak) Children's Endowment Policy(Max New York) Yuva Shree(AMP Sanmar) Children's Plan(HDFC) GIRLS ONLY Jeevan Sukanya(LIC) FOR RETIREMENT Bima Nivesh Triple Cover (LIC) New Jeevan Akshay I(LIC) New Jeevan Dhara 1(LIC) New Jeevan Suraksha 1(LIC) ICICI PRU Forever Life(ICICI Pru) Sanjeevan(SBI Life) Kotak Retirement Income Plan(OM Kotak) Nirvana Pension Plan (Tata-AIG) Life Long Pensions (SBI Life) Bhagya Shree (AMP Sanmar) Easy Life Retirement (Participating) Plan (Max NewYork) Flexi Securelife Retirement Plan(Birla SunLife) Pensionplus (Aviva Life) SPECIALPLANS Jeevan Asha(LIC) Major Illness (LIC) ICICI Pru Life Time(ICICI Pru) HealthFirst(Tata AIG) 58
  • 59. INVESTMENT PLANS Bima Plus(LIC) ICICI PRU Assure Invest (ICICI PRU) ICICI PRU Life Link(ICICI Pru) ICICI Pru ReAssure(ICICI Pru) Kotak Insurance Bond (OM Kotak) Young Sanjeevan (SBI Life) Flexible Bond(HDFC) Single premium insurance bond (Max New York Life) Single Premium Bond (Birla Sun Life) LifeBond(Aviva Life) THE PRESENT MARKET SCENARIO MARKET SHARE OF LIC TO THE PRIVATE PLAYERS 59
  • 60. 60 91% 9% PrivateSector LIC
  • 61. MARKET SHARE OF PRIVATE LTD. COMPANIES 61 27% 13% 9% 38% 13% ICICI Pru BirlaSun life HDFC Std Max New York Others
  • 62. THE ROAD AHEAD Individual life insurance Coverage Index, 1994 Country (No. Of policies per 100 persons) Indonesia 2.0 Philippines 5.6 India 12.4 Thailand 14.7 Malaysia 35.5 Hong Kong 69.4 South Korea 70.5 Taiwan 75.2 Singapore 112.6 Japan 198.4 62
  • 63. The Life Insurance market in India is an underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers. The penetration of life insurance products was 19 percent of the total 400 million of the insurable population.The state owned LIC sold insurance as a tax instrument, not as a product giving protection. Most customers were under- insured with no flexibility or transparency in the products. With the entry of the private insurers the rules of the game have changed. The 12 private insurers in the life insurance market have already grabbed nearly 9 percent of the market in terms of premium income. The new business premiums of the 12 private players has tripled to Rs 1000 crore in 2002- 03 over last year. Meanwhile, state owned LIC's new premium business has fallen. Innovative products, smart marketing and aggressive distribution. That's the triple whammy combination that has enabled fledgling private insurance companies to sign up Indian customers faster than anyone ever expected. Indians, who have always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer. The growing popularity of the private insurers shows in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the private insurers have already wrested over 33 percent of the market. And in the popular unit-linked insurance schemes they have a virtual monopoly, with over 90 percent of the customers. The private insurers also seem to be scoring big in other ways- they are persuading people to take out bigger policies. For instance, the avaerage size of a life insurance policy before privatisation was 63
  • 64. around Rs 50,000. That has risen to about Rs 80,000. But the private insurers are ahead in this game and the average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh- way bigger than the industry average. The insurance market is likely to witness a sea change in the marketing mix, that is product, price, place (distribution channel) and promotion. The customer-driven market will result in lot of flexibilities and innovations in product, pricing, distribution channels and communication mechanisms. The IRDA, with its developmental and regulatory guidelines, is likely to promote competition, fairness, and reliability, and, at the same time, protect insurance against excessive, inadequate or unfairly discriminatory rates. While efforts to strengthen the distribution channels and make them more effective will continue, the introduction of intermediaries, such as insurance brokers, bancassurance, the electronic media and the Internet, would call for new strategies. Communication to create greater and demand for insurance products will continue to be important. At the same time, unfair or misleading advertisements will be discouraged, and the necessary checks and controls will be in place. Formulating a marketing strategy is more a process than an event. Environmental factors such as macro-economic parameters, regulatory norms and themes, technology, infrastructure, legal set-up, competition by way of new entry and the degree of globalisation need be considered in framing the strategy. For instance, whether a company would adopt a strategy for market penetration, market development or product development, or would go in for diversification could be determined by analysing all the relevant data in terms of the product-market scope. 64
  • 65. The experience of the public sector Life insurance industry in India shows that the distinction between market development and product development is often blurred.. The product development experience with the Suhana Safar policy highlights the problems in bundling existing products and marketing them without reliable, real-time market research back-up. In addition, political proclamations led to products that customers rejected completely. On paper, the Lfe insurance industry has 90 products; at best, 15 of them have currency in the market. It is only after a thorough, continuous and pragmatic SWOT analysis and appropriate financial implications review that a company should identify the generic strategy. Achieving cost leadership and differentiation simultaneously has an element of inconsistency because differentiation is usually costly. Moreover, every generic strategy has a definite risk. The reality is that barriers to imitation are never insurmountable. Therefore, the strategy needs a constant evaluation and monitoring. The marketing strategy cannot be taken up in isolation. All the major elements of the organisation -- structure, systems, processes, staff, skills, managerial styles and shared value -- should be appropriately integrated into the implementation of the strategy. The basic tool for pinpointing competitive advantage and finding ways to enhance it is the value chain, which divides the a company into the discrete functions of designing, producing, marketing and distributing. For, in the ultimate understanding, the marketing strategy is an integral part of the business value of the company. A business value design is the totality of how a company selects its customers, differentiates its offerings, defines the tasks it will perform itself and those it will outsource, configures its resources, goes to the market, creates utility for customers and finally, captures profit. It is the entire system for delivering utility to customers and earning profits from that activity. 65
  • 66. Today the Indian consumers are are increasingly becoming more aware and are actively managing their financial affairs. Today, while boundaries between various financial products are blurring, people are increasingly looking not just at products, but at integrated financial solutions that can offer stability of returns along with total protection. To satisfy these myriad needs of products, insurance products will need to be customized. Insurance today has emerged as an attractive and stable investment alternatively that offers total protection - Life, Health and Wealth. In terms of returns, insurance products today offer competitive returns ranging from 7% to 9%. Besides returns, what really increases the appeal of insurance is the benefit of life protection from insurance products along with health cover benefits. Consumers today also seek products that offering flexible options, preferring products with benefits unbundled and customizable to suit their diverse needs. While sales of traditional life insurance products like individual, whole life and term will remain popular, sale of new products like single premium, investment linked, retirement products, variable life and annuity products are also set to rise. Firms will need to constantly innovate in terms of product development to meet ever-changing consumer needs. However, product innovations are quickly and easily cloned. Pricing will also not vary significantly, with most product premiums hovering around a narrow band. In this competitive scenario, a key difference will be the customer experience that each insurance player can offer in terms of quality of advice on product choice, along with policy servicing and settlement of claims. Service should focus on enhancing the customer experience and maximizing 66
  • 67. customer convenience. Long-term growth in the business will greatly depend on the distribution network, where the emphasis must evolve from merely selling insurance to acting as financial advisors, helping customer's plan their finances depending on personal requirements. This calls for a strong focus on training of the distribution force to act as financial consultants and build a long lasting relationship with the customer. This would help create sustainable competitive advantage not easily matched. The main reason why the leading insurance companies in the world and the leading corporate groupS in India have shown a keen interest in the insurance sector, is the vast potential for future business. Restricted, as the market has been, through the operations of the two monopolies (LIC and GIC), it is generally felt that the sector can grow exponentially if it is opened up. The decade 1987-97 has witnessed a compounded growth rate of marginally more than 10% in life insurance business. LIC predicts for itself that its business has potential to grow by 16.27% p.a. in a decade 1997-2007 (LIC, 1997). If we take a look at insurance coverage index for the age group of 20-59 years a considerable gap between India and other countries in Asia can be observed. In this scenario, naturally insurance companies see a vast potential. “When winds of change blow some seek shelter, while some develop windmills” the quote can be nailed to all the Insurance companies no matter nationalized or private. Every company is gearing up and pulling up their socks to tap the maximum chunk of population, which is uninsured. (Statistically, it is 96.5% of population is uninsured only 35 millions or 3.5% of the total population are insured). 67
  • 68. The battle has started for the spoil with companies stepping out with innovative insurance products and resorted to aggressive marketing to have a biggest bite on the insurance cherry, which is estimated to grow to US $ 25 billion within a decade. The purpose of the insurance sector is to cover maximum possible potential policyholders. Spotting opportunities at the right time is essential to influence the target market. It is quite natural that the needs and requirements of different users living in different segments, regions are not identical. The needs and requirements of the rural sector would be different from the needs and requirements of the urban sector.In the Indian perspective where we find a large number of users living in the rural areas, the importance of the rural sector can’t be negated. In order to increase their market share insurance organizations need to succeed in informing, sensing and persuading the different segments where potential users are available. It is not productive to concentrate only on one segment. It is important to do business in all segments, rural and urban, men and women, agricultural and industrial etc. Crop and cattle insurance are important for furthering the interests of the agricultural sector. Whether the insurer is old or new, private or public, expanding the market will present multitude of challenges and opportunities. But the key issues, possible trends, opportunities and challenges that insurance sector will have still remains under the realms of the possibilities and speculation. 68
  • 69. SOME IMPORTANT CONCEPTS Annuitant is the person who receives certain amounts at yearly / half-yearly / quarterly / monthly intervals. Assignee is the person to whom the benefits under a life policy are assigned. Assignor is the person who holds the right/title under the policy and who can make a valid assignment. Bonus is the amount added to the basic sum assured under a with-profit life insurance policy. Claim Amount is the amount payable by the insurer under a policy on a claim arising Dating Back or Back Dating is an option to the life assured to get the advantage of lower age wherein the policy is commenced from a date earlier than the date of signing of proposal form. However back dating is limited to one year . DeferredAnnuity is an annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year. Deferment date is the date on which the deferment period ends. Deferment period is the period from the date of commencement of the policy to the date of commencement of risk on the child's life under a Children's Deferred Endowment Assurancepolicy. EPDB Extended Permanent Disability Benefit Female lives Category I: Women with income earned by • virtue of their employment in any reputed organisation or institution eligible for Non Medical Special Schemes. • Professions such as Medicine, Law, Charted Accountancy etc. and lady career agents of LIC. Category II: Women with unearned income attracting payment on income tax or women holding sizeable personal properties/investments yielding income attracting assessment for income tax. 69
  • 70. First Class Life An Individual is categorised as First Class Life if is eligible to have insurance coverage at normal rates of premium. First Unpaid Premium (FUP) First unpaid premium refers to the first default in paying premium by the policy holder. On payment of the due premium a receipt is issued and this receipt indicates the date of next due. If this due premium is not paid that date becomes the date of FUP. Guaranteed Insurance Sum (GIS) Guaranteed Insurance Sum is equal to purchase price paid for a pension along with final Jeevan Akshay Bonus. Gross Insurance Value Element (GIVE) Gross Insurance value element is the amount payable on death of a policy holder under a Jeevan Dhara Policy. Guaranteed Additions are calculated at a rate per every thousand of sum assured. They are added to the basic sum assured and are payable on admittance of claim. This benefit is allowed only for each year for which premiums are paid. Life Assured refers to the person whose life is being insured. Last Birth Day (L.B.D) Age at last Birthday Lien In some cases extra risk is expected to decrease over a period of time. In such cases proposal is considered and accepted with lien. Lien operates through out the period, on a decreasing basis.In the event of death during the lien period full sum assured is not payable. Eg: If 25% decreasing lien is imposed for 5 years. It is understood that in first year risk cover(sum assured payable) is only upto 75%, second year-80%, third year-85%, fourth year 90%, fifth year 95%, and from sixth year onwards lien is not operative. Loyalty Additions Under certain life policies loyalty additions are given as an additional benefit to the policyholder. The rate of addition depends on the LIC's performance and is allowed only if the policy is in full force. 70
  • 71. Moral Hazard is said to exist in the case where we notice the absence of a genuine need for a life insurance or when a proposal for insurance is submitted by an individual beyond his means. Near Birth Day (N.B.D) Age on nearest birthday Nominee Nominee is the person who is nominated to receive the amount under a policy and to give a valid discharge to the insurer on settlement of claim under a life insurance policy. Non-Standard Life Any individual, who cannot be granted a policy under normal rates of premiums but can be granted with an extra premium over normal rates of premium, is considered as a Non-Standard Life. Paidup value is the reduced amount of sum assured paid by the insurer in case of discontinuation of the payment of premiums after paying the full premiums for the first three years. PDB Permanent Disability Benefit Premium is the amount paid to secure an insurance policy. Proposal Form It is a form which is to be completed for securing an insurance policy. Proposer is a person who proposes the insurance policy. Premium Waiver Benefit (PWB) are the benefits which can be availed under children's policies, wherein the future premiums payable upto vesting date are waived in the event of death of the proposer. Sum assured is the amount that an insurer agrees to pay on the occurance of an event. Surrender value is the amount payable to the policy holder on his surrendering his right under a policy and terminating the contract of insurance. Target pension is the amount of pension which one wishes to receive under a pension policy. Term is the period for which insurance coverage is given. 71
  • 72. Vesting Date This is the date from which the life assured ie., child becomes the absolute owner of the policy. Vesting Bonus It is the Bonus, which the insurer declares after evaluating its assets and liabilities, and that is added to the sum assured under a policy. Waiting Period It is the period starting from date of commencement of a policy to the date of commencement of risk under a Jeevan Kishore Policy. 72
  • 73. BIBLIOGRAPHY WEBSITES:- Irdaonline.com Bimaonline.com Insurancefinder.com Economictimes.com Indiainfoline.com MAGAZINES The Insurance Journal Intelligent Investor Business Today NEWSPAPERS Economic Times Hindu Business Line 73
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