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Researchjournali’s Journal of Commerce

Vol. 2 | No. 2 March | 2014 ISSN 2348-0955

Growth Of Insurance Industry In India After Privatization - Life Insurance Sector Is At An Inflection Point

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Dr.S.S.S.Durga Ganesh

Associate Professor, Dept. of Commerce

Mrs.A.V.N.College, Visakhapatnam-530001

Andhra Pradesh, India

Ganesh Associate Professor, Dept. of Commerce Mrs.A.V.N.College, Visakhapatnam-530001 Andhra Pradesh, India

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Vol. 2 | No. 2 March | 2014 ISSN 2348-0955

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Abstract

During the first decade of insurance sector liberation, the sector reported a consistent increase in insurance penetration from 2.71 per cent in 2001 to 5.20 per cent in 2009. However, since then, the level of penetration has been declining and reached to 3.96 per cent in 2012 which is much below the global average of 6.5 per cent of GDP. The density of insurance business has gradually increased from 11.50 in 2001 to 64.40 in 2010. Since then, the density has shown falling trend and recorded at 53.20 in 2012-13. The predominant reasons for the fall in the life insurance business is declining premium collections and the regulator tightening the rules governing this sector followed by decline in the household financial savings ratio. Erode in the principle paid by the policy holders in the form of premiums due to volatility in capital markets coupled with high cost investments is another reason for low penetration of insurance business in India apart from mis-selling, agents attrition and business models adopted by the insurers.

1. Introduction

The Indian life insurance industry today is at an inflection point. Insurance Regulatory and Development Authority‘s (IRDA) annual report for 2011-12 shows that since the insurance sector was opened to private players in the year 2000 it has been growing at about 20 per cent on an average but the year 2011 saw the first-ever fall in life insurance density to $49 (about Rs.2,695) in 2011, from $55.7 (about Rs.3063) in 2010. Density had risen every year from 2001 and contributed substantial growth in GDP till 2010. Succeeding annual reports of IRDA for the FY 2012-13 reported that, insurance penetration has fallen again in the second consecutive period and stood at 3.96 per cent of gross domestic product in 2012-13, down from 4.10 per cent in 2011. Similarly, insurance density fell to $53.2 in 2012 compared to $59 in 2011. Life insurance density further fell to $42.7 in 2012 from $49 in 2011. This indicates that in the past three years, the growth in insurance premium was lower than the growth in national GDP. On the life insurance side, the density fell to 3.17 per cent in 2012 from 3.40 per cent in 2011. (Business Standard Jan 2, 2014). In addition to the low penetration in insurance industry, volatile equity market is prompting insurance investors to surrender their ULIFs. The data shows that about one lakh crore worth life insurance policies surrendered last fiscal(2012- 13) (Business Line Feb 22,2014).

India ranked 10 th among 156 countries in the life insurance business, with a share of 2.3 per cent during FY2012 and ranked 19 th among 156 countries in the non-life insurance premium income, with a share of 0.62 per cent in FY2012. The life insurance premium market expanded at a compounded annual growth rate (CAGR) of 20.1 per cent from USD 11.5 billion in FY 2003 to USD 59.9 billion in FY 2012 and the non-life insurance premium rose at a CAGR of 18.0 per cent from USD 3.4 billion in FY 2004 to USD 12.7 billion in FY 2013.

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rose at a CAGR of 18.0 per cent from USD 3.4 billion in FY 2004 to

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Vol. 2 | No. 2 March | 2014 ISSN 2348-0955

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The share of private sector in the life insurance premiums increased from 2 per cent in FY 2003 to 29.3 per

cent in FY 2012 and the market share of private sector in non-life insurance premium rose from 14.5 per cent

in FY 2004 to 42.9 per cent in FY 2013.

The insurance penetration and density are the measures that reflect the level of development of a country’s insurance sector. While insurance penetration is measured as the percentage of total insurance premium to gross domestic product, insurance density is calculated as the ratio of premium to population (per capita

premium). Insurance penetration which surged consistently till 2009, then slipped for three consecutive years,

to 4.1 per cent in 2011 from 5.1 per cent in2010. 3.96 per cent of gross domestic product in 2012, down from

4.10 per cent in 2011. This has been attributed to a slower rate of growth in the life insurance premiums compared with that of the rate of growth of the Indian economy. Data from the IRDA shows that India now stands much below the global average of 6.5 per cent of GDP in insurance spread at 3.96 per cent. The life insurance industry has seen a big dip in premiums due to fluctuations in both group segment and the single premium segment. Even the country’s largest insurer, Life Insurance Corporation saw a 6 per cent drop in new business premiums for the April-January, 2013. Private insurers collected Rs.21, 220.45 crore - a dip of

five per cent over previous year.

A turbulent economy coupled with a tough regulatory environment has led to an uncertainty in the insurance

sector, with business numbers seeing a drop and joint venture partners exiting existing ventures. When additional players are needed in the insurance market, existing joint venture players are slowly exiting on the other hand. New Yark Life Insurance is exiting its life insurance joint venture with Max India and ING announcing its exit from its life insurance joint venture ING Vysya Life Insurance. Pantaloon Retail has decided to sell a 22.5 per cent stake in Future General India Life Insurance to Industrial Investment Trust Limited (IITL). Also , both Indian and foreign joint venture partners in several life and general insurance

firms are in talks to exit the ventures, owing to regulatory constraints and tough economic conditions.

The performance of Indian life insurance companies should also be seen from the perspective of growth. The growth in the life insurance is a function of the country’s economic growth. Over the last two-three years, despite household savings remaining the same, financial savings have come down. The RBI data, last year, revealed that it had fallen to 8 per cent from around 12 per cent earlier. Slowdown in the economy and other macro-economic factors affected the allocation of investments towards financial services products. However, very surprisingly the insurance data vis-à-vis household savings remained more or less constant at around 22- 23 per cent of overall savings. The 2001 to 2004 is the period of growth in private insurers, 2004 to 2008

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of overall savings. The 2001 to 2004 is the period of growth in private insurers, 2004

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was a win-win for all, 2008 to 2010 was a period of a little bit of confusion, and 2010 to 2013 was a period of regulations towards building the trust and development of the insurance sector.

2. Objective Of The Study

India’s life insurance penetration is 3.2 per cent in FY 2012-13 and life insurance density is $43 FY 2012-13. Nevertheless, the Indian life insurance industry today is gloomy. Since opening up of Indian insurance sector for private participation, India has reported a fall in the insurance density for the first time in the year 2011. The measure of insurance penetration and density reflects the level of development of insurance sector in a country. This paper attempts to examine the status of insurance business in India since the sector was opened to private players. The study is based on secondary data collected mainly from the monthly business reports of the IRDA from 2001 through 2013. The study also made a comparative study of the performance of insurance industry in post reforms era. The study design is conclusive type and data collected from the official website of IRDA. By the end of 2012, there are 52 insurance companies operating in India; of which 24 are in the life insurance business and 27 are in general insurance business. In addition, GIC is the sole national reinsurer.

3. Tumble In Insurance Business

Slowdown in the economy and other macro-economic factors affected the allocation of investments towards financial services products followed by volatility in capital markets are some of the major factor impacting investment decisions of the customers. The fall of insurance penetration is mainly due to the fact that life insurance sector has witnessed a slowdown in premium growth, post the Sep 2010 unit-linked (ULIP) policy regulations. This has been attributed to slower rate of growth in the life insurance premium as compared to the rate of growth of the Indian economy. In comparison to other emerging markets, life premium income fell sharply as premium volume shrank in China and India. ‘the introduction of tighter regulations governing bancassurance in China and the distribution of unit-linked insurance products in India resulted in a sharp fall in new life premium growth,’- IRDA annual report.

Table 1: The comparison of new premium collection among LIC and private life insurers (Rupees in Crore)

Name of the Insurer (Private/Private)

 

Period

Period

Remarks

April-Jan 2013

April-Jan 2012

Life

Insurance

55,305.1

59,145.37

6 per cent fall in new premium collection as compared to previous year 2012 in the same period

Corporation

of

India

(LIC)

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as compared to previous year 2012 in the same period Corporation of India (LIC) www.researchjournali.com

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Private

Life

Insurance

21,220.45

22351.0

5 per cent dip in new premium collection as compared to previous year 2012 in the same period

companies

Total

76,526

81,497

6.5 fall in total new premium collection in the FY 2013 as compared to previous year FY2012

Source: IRDA The above table shows that private life insurers perform better than public sector Life Insurer (LIC). Out of the total new premium collected Rs.76,525.54 crore during April-January 2013, LIC contributed Rs.55,305.1 crore and reported 6 per cent fall (as compared to previous year in the same period) and private players’ share is Rs. 21.220.45 crore, reporting a dip of 5 per cent. Almost 12 years after the insurance sector in India was opened up, its real potential is yet to be tapped. With a decline in insurance penetration and new business premiums witnessed. The total new business premium collected by life insurers in April-January FY2013 stood at Rs.76,524.54 crore, when compared toRs.81,496.68 crore in April-January FY2012. Sector experts say that the worst is over and the industry will only look up from now for good days. However, the market share of LIC had increased to 72.70 per cent during 2012-13, compared to 70.68 per cent in the previous year while private life insurers’s share declined from 29.32 per cent to 27.30 percent. This happened due to the proportion of sales force LIC has. LIC has an agency force of 11.72 lakhs while private companies have 9.49 lakh agents working for them (Business Line Jan 7,2014).

Table 2: The comparison of new premium collection among public and private non- life insurers (Rupees in Crore)

Name of the Insurer (Private/Public)

Period

Period

Remarks

April-Dec 2013

April-Dec 2012

Public General Insurers

21,268.16

17,373

22.42

per cent growth over the

corresponding period in FY

2012

Private General Insurers

28,623.28

24,493

16.86

per cent growth over the

previous year 2012

Total

49,891.44

41,866.74

19.1 per cent growth over the corresponding period in FY

2012

Source: IRDA

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41,866.74 19.1 per cent growth over the corresponding period in FY 2012 Source: IRDA www.researchjournali.com

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The above table-2 shows that the premium collection of non-life insurers shows a growth of 19.1 per cent for the nine month period ended December 31,2012, and stood at Rs.49.891.44 crore compared to Rs.41,866.74 crore for the same period of 2011. Non-life segment, however, has seen a marginal increase in penetration and density. Insurance density rose to $10.5 in 2012 from $10 in 2011. Non-life insurance penetration though was still under one per cent, rose from 0.70 in 2011 to 0.78 in 2012.

The public general insurers contributed Rs.21,268.16 crore to the pool money for the nine months ended December 31,2012 showing a 22.42 per cent growth over the corresponding period of 2011. On the other hand private general insurers contributed 16.86 per cent growth in the same period, adding Rs.28,623.28 crore to the kitty in the same period. It can be understood from the above two tables general insurers are better in position by an overall growth of 19.1 per cent over the previous year 2011 in the same period. In case of Life insurers the overall dip in the new premium collection recorded 6.5 per cent as compared to previous year April- January 2013. The predominant reasons for the fall in the life insurance business erode in the principle paid by the policy holders in the form of premiums followed by crash/uncertainty in the stock markets (volatility in capital markets) and followed by heavy charges charged by the insurers in the form of administration charges, fund management charges, fund allocation charges and mortality etc., apart from mis- selling, attrition and business models of various insurers and lack of professionalized sales persons.

4. Insurance Penetration And Density In India

Both the insurance density and insurance penetration have fallen in the year 2011.

4.1 Insurance Density In India

The rate of falling in insurance density can be seen in table 3 Table 3: Insurance densities in India

Year

Density of insurance in India (Insurance density is the per capita premium($)

2001

11.50

2002

14.70

2003

16.40

2004

19.70

2005

22.70

2006

38.40

2007

45.60

2008

47.40

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16.40 2004 19.70 2005 22.70 2006 38.40 2007 45.60 2008 47.40 www.researchjournali.com

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2009

54.30

2010

64.40

2011

59.00

2012

53.20

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Source: IRDA Above table-3 shows that since India’s insurance sector was opened to private participation, the density of insurance business has gradually increased year by year and reached to 64.40 in 2010. That means the density is 11.50 in 2001, 38.40 in 2006 and 64.40 in 2010. It has a recorded growth of nearly 6 folds as compared to 2001 density. The year 2011 shows falling trend and recorded at 59 and stood 53.20 in 2012. The insurance density is calculated as the ratio of premium to population (per capita premium).

4.2 Insurance Penetration In India

The performance of Indian life insurance companies should be looked at from the global perspective also in table 4.

Table 4: Insurance penetration in global wise

Name

of

the

Insurance average penetration

 

country

2001

2006

2011

2012

World average

 

4.68

4.5

3.8

-

India

2.15

4.1

3.4

3.96

China

1.34

1.7

1.8

-

Brazil

0.38

1.3

1.7

-

Source: IRDA The world average penetration was 4.68 in 2002, it went up to 4.5 in 2006, and in 2011 it dropped to 3.8. In India, insurance penetration was 2.15 in 2001,went up to 4.1 in 2006 and then came down to 3.4 in 2001.In China, penetration was 1.34 in 2001,1.7 in 2006 and 1.8 in 2011,while for Brazil it was 0.38 in 2001,1.3 in 2006 and 1.7 in 2011

IRDA’s annual reports shows that since insurance sector was opened to private participation in the year 2000 , the insurance penetration has increased trend and recorded to nearly 5 per cent in the year 2009-10 and fallen to 4.10 per cent in 2011and stood at 3.96 per cent of gross domestic product in 2012, down from 4.10 per cent in 2011(Business Standard Jan 2,2014). The insurance penetration is measured as the percentage of insurance premium to GDP.

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Jan 2,2014). The insurance penetration is measured as the percentage of insurance premium to GDP. www.researchjournali.com

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5. General Reasons For Fall In Insurance Penetration

1. The world 2008 US financial turmoil and 2011 European debt crisis has significantly affected the financial sector especially the insurance sector in the country. The impact of this financial crisis on India is also going to be significant, as India is not decoupled with the global macroeconomic behavior.

2. Due to volatility in equity market ULIPs have not been able to give commensurate returns even after five years. There has been surge in the surrender of ULIPs with policy holders unhappy with their returns even after the lock-in period.

3. In September 2010, IRDA had issued regulation capping charges and commissions on Unit Linked Products (ULIPs). This resulted in a steep drop in ULIPs sales, which fell to 30 per cent of the total portfolio, from almost 55-60 per cent earlier. The predominant reason for fall in ULIP sales is due to abnormal fall in the fund values of the policy holders.

4. Abnormal charges charged by the insurers even during the fall in the markets. ie., The fund management charges are constant or high even when there is no point in managing the funds when they are in deteriorating state.

5. Mis-selling & business models : The Reserve Bank of India (RBI) had complaints of mis-selling insurance products which could impact the continuation of policies, affecting the cash flow of companies.

6. Low commission structure after 2010 onwards in the market. Due to that agents were not interested in selling the ULIPs.

7. The regulators take too long to approve new products. On an average, 20 to 30 products are approved every month. The time taken for approving products is a cause for worry.

8. Lack of awareness about insurance concept among general public. The insurance literacy levels are very low, so people don’t understand what insurance is, what exactly it covers, what it does not cover. Therefore insurance is given least priority in the financial planning of the people even among the literates. Increasing the literacy levels is one way of removing the so-called trust deficit.

9. Lack of better communication on the part of the agents. If the agent is professionally qualified, he can sell bouquet of insurance products on need based to the customers. The qualified and product knowledge persons can only provide the solutions on need based as per the customer’s personal budget. The customer should know the exact purpose of buying the insurance policy.

10. Agent’s attrition: Agent’s attrition is a major issue, since the attrition is around 11 per cent for the insurance industry and for LIC it is 8 per cent. (Higher incentives for agents, while customer’s wallet is not pinched along with a definite career progression path to attract and retain agents in the sector).

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along with a definite career progression path to attract and retain agents in the sector). www.researchjournali.com

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6. Suggestions Related To Regulatory Part

Now the industry needs development. Regulation can come after IRDA has dealt with dwindling growth. Insurance industry wants development first and regulation later-that’s what the industry is asking for to bring back the sector on the smooth tracks. Since the business of insurance is subject to governmental regulation to protect the public interests as well regulate & develop the industry. now there have been various regulatory changes which required life insurers to recalibrate their business models.

1. Create trust at the end the day in financial well being to a customer, and the customer should feel that the solutions provided by the life insurance industry are properly regulated by the regulator.

2. Bancassurance will provide a big boost for the growth of the insurance sector if banks can act as broker. Currently, about 50 per cent business comes from bancassurance, 30 per cent from the agency channel and the rest from other channel.

3. Distribution reforms were also key to the industry’s growth. Framing a common set of rules on selling practices and incentive structures for all intermediaries may do far more for financial product penetration today than product reforms have done so far.

4. Insurers required attracting and retaining agents in the sector. Agent’s attrition is also a major issue, with almost 45-50 per cent of business coming from insurance agents. Higher incentives for agents, while customer’s wallet is not pinched along with a definite career progression path.

5. While approving the new products use - and -file mechanism is demanded where insurers can start selling a product by following the basic guidelines instead of a file-and - use mechanism where each product has to be first approved by IRDA before its sale is permitted.

6. The industry should have a frame work for clearing products by looking at the basic features, leaving some room for innovation by the companies.

7. Incentivizing existing players and attracting foreign players would be the key to the sector’s survival.

8. Price corrections have been described as one of the biggest needs of the general insurance industry since insurers are looking for regular premiums increases in the motor and health insurance segments to match the rise in inflation. (maintain a balance between the customer’s ability to pay and charging an adequate price for services provided)

9. It needs customers welfare rather than growth in industry.

10. Implementation of catastrophe insurance (and pool formation) as one of the unfinished agenda in the tenure of farmer Chairman Mr. J.Harinarayan. Cat pool mechanism is the need of an hour to deal with losses from catastrophic events such as floods and cyclone Nilam etc., (a catastrophe pool (cat- pool) is similar to that of terrorism pool, helps distribute the risk of such natural disasters evenly there by offering quicker relief to the victims. It also lowers the hit that individual insurers have to take on their books. It

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to the victims. It also lowers the hit that individual insurers have to take on their

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was envisaged that the pool would be created through premiums paid by citizens, supplemented by government funds. Reinsurers should also take part in this concept).

11. Pricing, innovations and products should be left to discretion of the insurance firms while approving the products.

12. Customer friendly and industry friendly distribution reforms are definitely the need of the hour.

13. Recent Finance Minister’s announcement in 2013-14 budget in terms of distribution of insurance products, opening of branches will boost the insurance industry.

7. Recent Developments Of IRDA

There is a vast untapped potential for the insurance industry in India. The insurance sector is thinking that worst is over and the regulatory changes will ensure that the road is smoother for investors in the future. Products now offer a much better proposition and there’s a lot that the new regulations have done to ensure that maximum benefit is provided to the customers.

The recent guidelines by IRDA and RBI enabling insurance broking by banks may help reduce operational costs of insurance companies, due to marginal incremental expenditure by insurance companies in setting up distribution chain,’. It believes that frauds, high lapse-ratio and macro-economic variances affecting the industry performance are some of the key challenges to the insurance industry.

KYC of banks will be sufficient to acquire insurance policies. All the banks are permitted to act as insurance brokers so that the entire network of bank branches will be utilized to increase penetration. Banking correspondents will be allowed to sell micro-insurance products. Group insurance products will now be offered to homogenous groups such as SHGs, domestic workers associations, anganwadi workers, school teachers, nurses in hospitals etc. Today buying the life insurance product has become very simple and easy process. A customer can choose between buying from an agent, a bank or online. The present technology solutions have empowered customers, facilitating the making of informed decisions and providing a smooth buying experience.

1. Private & Public sector banks may join the insurance broking business in order to increase insurance penetration and avoid mis-selling of insurance products (The business line 23-12-13).

2. New IRDA norms promise challenging year for life insurers. The regulatory changes will pave the way for the sustainable growth of the industry in the long term.

3. E-policy to reduce the cost to insurers: Insurance policy document will become digital and paperless like shares in the New Year 2014 and the policyholders would be saved from preserving the physical copies

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in the New Year 2014 and the policyholders would be saved from preserving the physical copies

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of their insurance policies. From April2014 onwards, policy document would come in electronic form for all the new insurance policies sold. Over 25 crore policy holders owning close to 37 crore policies would get their e-insurance in phased manner.

4. The 2014 promises to be a challenging one for the life insurers. They will need to phase out various old products in keeping with new norms. From January 1,2014 only products that conform to the new guidelines announced by the IRDA in the first half of 2013 are allowed for sale. This means insurers need to re-file all their products for approval. So far IRDA has cleared over 500 products in line with the new design norms.

5. Union Finance Minister P Chidambaram launched the IRDA's Insurance Repository System (IRS) on Sep 16,2013.The objective of creating an insurance repository is to provide policy holders the facility to keep insurance policies in electronic form.

8. Suggestion Related For Development Of Insurance Business

The life insurance landscape continues to remain heavily untapped. The need is to leverage our strengths, fasten our growth drivers to emerge stronger and build an exemplary model on the basis of consumer trust and valuable distributor relationships. These strategic investments will enable us to sustain our growth momentum over the years to come since India has a huge working population that is growing. The challenge here is to reach out to this young working population to enable them to secure their future.

One of the key products which can drive future growth is pension and health related products only in India. So far these products have negligible penetration in India. This segment is potential for this insurance industry. This is the time to start building awareness and communicate the right side of the life insurance in a massive way. It should include reaching out through advertisements and multiple customer testimonials suggesting why they are happy with life insurance. Literacy on insurance is to be developed on SEBI lines.

The proposed reforms in bancassurance allowing banks to function as insurance brokers would make two key shifts in the system. One, banks can sell products of more than one insurer. Secondly, as a corporate agent, the bank represents the insurer, but as a broker it will represent the customer. This will definitely widen the insurance penetration in India very smoothly and easily.

1. The middle class is an attractive segment due to its sheer numbers and buying power. It is constantly looking for solutions in tax savings, retirement and health and wealth categories.

2. The bottom of the pyramid and rural markets are the emerging segments that look for composite products (Micro-insurance) and health insurance.

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the emerging segments that look for composite products (Micro-insurance) and health insurance. www.researchjournali.com

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3. An extensive rural-agent network for the sale of insurance products needs to be established to tap the bottom-of -the -pyramid and rural markets.

4. It will be imperative for life insurers to understand the different needs of the customers, design products to match their needs and create efficient distribution models.

5. Players need to offer a balanced mix of ULIPs and traditional products with the element of guaranteed return and flexibility in surrenders with low cost. (most insurers have re-launched their old products in the first two-week of Jan 2014 based on the regulator’s mandate. But traditional insurance plans are still far from a mouth-watering proposition for investors)

6. The need of the hour is to concentrate on such products like pension and pension annuities

7. Concentrate on health related products since 14 per cent population in the country is covered under any health insurance of any form.

8. E-issuance of policies, straight-through processing and increased process optimization to provide cost- effective customer service.

9. Leveraging the internet and other technology options to provide single window service so as to cross-sell and retain customers. It will also be easier and cheaper for customers to process requests, complaints and payments online.

10. Customer service is the prime objective of the insurance sector to retain itself in the industry. Accelerated climes settlement process and rapid customers’ service will continue to remain as the key strengths for players.

11. A multi-pronged approach will be followed to loss written premium to increase the penetration of insurance, both life and general, in the country.

12. It is the time for both the regulator and the insurance industry to start building awareness about life insurance.(now all the regulators have to be filed their advertisements with the regulator to avoid false returns/mis-selling)

13. Servicing: Good customer service along with strong technology driven solutions which offer need-based life insurance solutions that meet customers’ requirements.(the technology should offer pre & post customer service with simple application)

14. Professionalization of sales persons: Even though this community of salespersons has contributed immensely to the mobilisation of savings of people, they are often seen with contempt and distrust. Steps should be taken to restore the professional dignity of insurance advisors and project them as role models for sales personnel in other industries.

15. The system need to ensure that, the agent continuous to be engaged with them for long time

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15. The system need to ensure that, the agent continuous to be engaged with them for

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9. Conclusions

The flow of money into any financial product is largely governed by the household financial savings rate and the business of insurance is subject to governmental regulation to protect the public interests as well regulate & develop the industry. Over the last three years, despite household savings remaining the same, financial savings have come down. Slowdown in the economy and other macro-economic factors affected the allocation of investments towards financial services products. Volatility in capital markets, high cost investments, and mis-selling are some of the reasons impacting investment decisions of prospective customers. The large young population, combined with the current low rate of life insurance penetration and high rate of personal savings, points to the upside potential for the Indian insurance market. Higher demand for retirement products, growing awareness, and education in middle-income class group and sustained growth in urbanisation rate would lead to the growth in insurance industry. Today, all the factors are in place for it to develop into one of the fastest growing financial services market in the world.

The professional dignity of insurance agents should be promoted and projected as role models. The present technology solutions have to empower the prospective customers, facilitating the making of informed decisions and providing a smooth buying experience. Now a customer can choose between buying from an agent, a bank or online. The recent guidelines issued by IRDA and RBI enabling insurance broking by banks may help reduce operational costs of insurance companies. The industry expects the new regulatory changes and government initiatives to aid prompt penetration of insurance business in India. It believes that frauds, high lapse-ratio and macro-economic variances affecting the industry performance are some of the key challenges to the insurance industry.

If we allow banks to function as insurance brokers, they can help spread insurance to uncovered areas say rural areas in terms of new branches of both private and LIC insurers, deploying agents or direct sales force to sell insurance to widen the insurance penetration.

10. References

1. BL.2014. RBI norms soon on banks’ insurance broking biz. Business Line Jan 06,2014

2. BL.2014. LIC agents more productive than their private sector counterparts. Business Line Jan 7,2014

4. BS.2012. Insurance density falls for first time in India: IRDA. Business Standard Dec 21, 2012

5. BS.2012. Insurance density falls for first time in India: Report. Business Standard Dec 22,2012

6. BS.2013. General insurance penetration rises to 0.73. Business Standard Nov 28, 2013

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6. BS.2013. General insurance penetration rises to 0.73 . Business Standard Nov 28, 2013 www.researchjournali.com

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7. BS.2014. Insurance density, penetration show decline. Business Standard Jan 2,2014

9. ET.2013. FM asks IRDA to increase insurance density. The Economic Times Apr 13, 2013

10. ET.2013. IRDA okays most plans ahead of October deadline. The Economic Times Sep 09, 2013

11. ET.2013. P Chidambaram launches IRDA's Insurance Repository System. The Economic Times Sep 16, 2013

12. ET.2013. Insurance lacking on many fronts: IRDA. The Economic Times Sep 25, 2013

13. ET.2013. Insurance premium income to grow at faster rate in FY14-18: Care Ratings. The Economic Times Dec 21,2013

14. Hindu.2013. New products in sync with modern times: IRDA. The Hindu Nov 09, 2013

15. IBEF, November 2013. Insurance Sector in India.

16. IRDA, Monthly reports

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Hindu Nov 09, 2013 15. IBEF, November 2013. Insurance Sector in India. 16. IRDA, Monthly reports