INTRODUCTION TO INSURANCE

Life is full of uncertainties and insurance is based on uncertainties.

If there are no uncertainties about the occurrence of a disaster, the
concept of insurance will cease to exist. For insurance, if one is
able to predict the forthcoming dangers, then one will take a proper
safeguard action and then crisis in a very normal manner, but then,
this is utopian concept; because death, disaster and danger
CANNOT be predicted. All individuals have assets; both tangible
;the house , factory or intangible like voice of a singer or legs of a
footballer are such assets that on its loss could cause a huge
financial loss to the owner as well as his associates. In order to
protect them from such loss it is very important to cover such
valuable tangibles under insurance.

Insurance is a mechanism that ensure an individual to thrive on

adverse consequences by compensating the individual, his/her
loss financially. Every individual in the world and all activities
connected with him/her, be it life, profession, business, travel or
any other pursuits are subject to unforeseen and uncalled for
hazards or dangers. The benefits that an individual enjoys in his
life by owning a car or a house or a factory can be snatched by
sudden accident which can render even the individual immobile,
and his family vulnerable. At this critical juncture, on insurance
helps him not only to survive but recover his loss and continue his
life in a normal manner, which would otherwise be unthinkable.

1
Division of Indian Insurance Market
The human life is surrounded by two categories of assets one by
human asset and other by non-living asset. Out of the two the prior
gives him comfort in companionship while later provides him luxury
in the life. To part any of the two would be a cost. So in order to
compensate this cost insurance is used. Looking at the two things
the insurance industry is also divides itself into two viz , Life
Insurance and General Insurance. Life Insurance is where the life
of human beings is protected. In other words it refers to different
types of policies that can affect an individual’s life such as
endowment policy is for old age coverage, while children’s
education plan is provide a financial aid to your child during his
educational life. On the other hand we have the General Life
Insurance. The frequency at which robbery, natural calamities,
riots, accident by fire is increasing has been the booster of the
revenue of this business. In order to protect oneself from such risk
people insure their houses, car, and shops by taking a general
insurance policy.

Both these sectors are divided into two broad categories. Both of
them have the sole objective of protecting the lives and assets of
people, only their method of operation is different. These two
sectors are Public Sectors and Private Sector. Public Players are
those which are to a large extent governed by the government
while private players are where the authority and management
decision lies with private authority and not government. We would
later discuss on these two areas broadly.

2
 ROLE OF INSURANCE IN DIFFERENT SECTORS

Insurance is not only associated with protection to life but it is also

used a Insurance is not only associated with protection to life but it
is also used a tax saving tool. In fact in current situation it is also
being used as a device through which one can invest in the capital
market (ULIP PLANS) Thus insurance plays its role in all fields
from social security to financial security to economic development.

Insurance and Social Security

Social Security is the tool whereby the government provides
certain provision for the citizens to enable them to lead a decent
life style. As a matter of fact, most of the western countries provide
unemployment allowances, old age pension and subsistence
allowance to the down trodden. In other words, the state provides
recourses to the individuals in order to protect them against risks.
Insurance is one of them. During the last 50 years, life insurance
has become main vehicle of caring social security to the public in
general and the weaker sections in special. However, in this
context it is important to explain that social security is not only the
need of persons below the poverty line and it extends to the needs
of the “Haves” also. The institution of insurance has thus proved to
be reliable as well as viable means of carrying the benefits of
social security to the people and it can be said, in particular that
life insurance policy ultimately provides social security when it
meets the needs of the people.

3
Insurance and Financial Security
More often than not, insurance is seen more as ‘Risk -Covering’
need instead of a long term investment with bank interest rates on
deposit coming down, insurance is more of a financial savings than
normal risk covering. As a matter of fact, an individual when goes
for an insurance also unknowingly invests his financial resources
in the right place, because against such long term investment, the
individual can also avail the loan facility which enables him to care
of his basic needs. And with every passing year, insurance will
become a more intelligent investment as compare to the shares,
mutual funds and even fixed deposits. However, the organizations
or the insurance companies have realized this aspect quite late
and making it a USP.

Insurance and Economic Development

Investments are the base of an economic development, and
mostly these investments are the result of savings. An insurance
company is a major instrument for the mobilization of the savings
of people, which are thereafter channelised into investment or
economic growth. Insurance provides the continuity in trade
commerce, by covering the risk that could retard the economy and
thereby indirectly helps the economy to grow. As a matter of fact,
most of the money or funds collected from the public are invested
in government through the IRDA Act which has made it
compulsory that a life insurance company have to invest at least
15% of its controlled fund in the infrastructure and social sector of
the country. In this way an insurance company strengthens the
fund in the infrastructure and social sector of the country.

4
 HISTORY AND ORIGIN OF INSURANCE IN INDIA

Ancient Indian history has preserved the earliest traces of

insurance in the form of marine trade loans or carriers’ contracts.
These can be found in Kautiya’s Arthashastra, Yajnyavalkya’s
Dharmashastra and Manu’s Smriti. These works show that the
system of credit and the law of interest were well developed in
India. They were based on a clear appreciation of the hazed
involved and the means of safeguarding against it.

Later in 1818 it was conceived as a means to provide for English

Windows. Interestingly in those days a higher premium was
charged for Indian lives than the non-Indian lives as Indian lives
were considered more risky for coverage. Then in 1870 Bombay
Mutual life insurance Society started its business and was the first
company to charge same premium for both Indian and non-Indian
lives. The Oriental Assurance Company was established in 1880.
The General Insurance business in India, on the other hand, can
trace its roots to the Triton (Tital) insurance company limited, the
first general insurance company established in the year 1850 in
Calcutta by the British. 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

5
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 insures and provident societies under one nationalized
monopoly corporation and Life Insurance Corporation (LIC) was
born. Nationalization 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 lead
planning and development.

The general insurance industry was nationalized in 1972. With this,

nearly 107 insures were amalgamated and grouped into four
companies National Insurance Company, New India Assurance
Company. These were subsidiaries of the General Insurance
Company (GIC).

On the eve of nationalization, 68 Indian (including LIC) and 45

non-Indian entities carried out insurance business in India.
Nationalization saw the business of all these organizations
absorbed by the General Insurance Corporation (GIC) with its four
subsidiaries.

6
 NATIONALIZATION OF INSURANCE INDUSTRY

The nationalization of life insurance is an important step in our

march towards a socialist society. Its objective will be to serve the
individual as well as the state. As said by Jawaharlal Nehru we
required life insurance to spread rapidly all over the country and to
bring a measure of security to our people. The first step towards
nationalization of life insurance was taken on 19 January 1956 by
the promulgation of the life insurance (Emergency Provision)
Ordinance, the management of the ‘controlled business’ of
insurers was vested in the central government. On 20th January
1956 all life insurance companies were taken over by 43
nominated custodies. The custodians were experienced senior
executives of private insurance companies, reporting directly to the
Finance Ministry. The period between 19 January 1956 and 31
August 1956 was utilized as a period of preparation to facilitate the
subsequent integration of the various insurers into a single State-
Owned Corporation. The custodians managed the insurance
companies till 1-09-1956, when Life Insurance Corporation was
established under the general direction and control of the Ministry
of Finance.

Before nationalization, the insurance industry was organized into

243 autonomous units, each with its own separate administrative
structure of office and field staff. The Ordinance provided for the
transfer of the control of 154 Indian insurers, were designed to
ensure that no inconvenience whatsoever was caused to the policy
holders. With the Government take over the management aimed
towards the evolution of a common uniform premium rate, policy

7
conditions and service and working procedures and above all to
help promote team spirit.

The corporation, a body corporate shall consist of not more than

15 members appointed by the Central Government, one of them
being appointed by the government as chairman. The capital of the
corporation was at Rs 5 crore provided by the central government.

Indian and Foreign Insurance Companies operating in India:

Year Number of Indian Number of Non-
Offices Indian Offices
1928 97 138
1929 108 149
1938 200 143
1941 197 80
1945 234 81

8
 LIBERALIZATION IN INDIA

Until Liberalization life insurance was a one sided game in which

LIC was the only contender. However after the liberalization this
sector was opened to the private players and this is the
competition for survival began.

The Report which led the entry of the Private Players in India
In 1993, Malhotra Committee headed by former Finance Secretary
and RBI Governor R.N. Malhotra was formed to evaluate the
Indian insurance industry and recommend its future direction. The
reform was aimed at creating a more efficient and competitive
financial system suitable for the requirements of the economy
keeping in mind the structural changes currently underway and
recognizing that insurance is an important part of the overall
financial system where it was necessary to address the need for
similar reforms. On the basis of the above report, the Committee
proposed the following recommendations:

a) Private sector be permitted to enter insurance industry with a

Minimum paid up capital of Rs 100 crore. Foreign insurance
Companies be allowed to enter by floating Indian companies,
Preferably a joint venture with Indian partners.

b) LIC be converted into a company and its capital be raised to Rs

200 crore, 50 percent to be owned by the Government and the
rest by the public at large, with suitable reservation for its
employees. The capital of GIC be also raised to Rs 200 crore
with similar composition.

9
c) All insurance companies be treated on equal footing and
governed by the provisions of the Insurance Act. The Office of
Controller of insurance be restored its full function under Act.

d) Postal life insurance should be permitted to transact life

insurance. Business in rural areas should be strengthened.

e) Relief-oriented welfare schemes should be transferred to the

concerned Government authorities.

The report led to the entry of the private players in the insurance
sector. Thereby giving rise to privatization in India. After the
passing of this reform the privatization era begun in India.

Reforms in the insurance sector were initiated with the passage of

the IRDA Bill in Parliament in December 1999. The formation of
IRDA brought new idea in to the insurance sector. The IRDA since
its incorporation statutory body in April 2000 has fastidiously stuck
to its schedule of farming regulation and registration the private
sector insurance companies.

Entry of Private Companies

Under the IRDA Act, private companies could now operate in
India’s insurance industry. However, they must obtain a license
from the IRDA before being permitted to write business. To have
its lances application considered, a domestic private company
must be registered in accordance with the companies Act of 1956
and have approximately US$ 20 million of investment capital.

10
The specific licensing requirement that private Indian company
must fulfill are set fourth in the Registration on Indian insurance
companies Regulations.

Lifting of barriers to foreign Investment

Insurance is a capital-intensive industry. It is also long –gestation
business. India’s insurance industry needs capital, and a major
source of capital would form foreign investors. The IRDA Act also
lifts certain barriers to foreign direct investment in Indian insurance
industry. Global insurer were permitted to setup and registered a
domestic company in order to write business in India. However,
regulations stipulate that they should have a capital base of at lest
US $ 20 million, and their investment in such a company is capped
at 26%. Thus to participate in the market they must form a joint
venture with an Indian partner that is able to invest the remaining
funds.

11
 REGULATORY BODIES IN THE INSURANCE SECTOR

A well developed and evolved insurance is needed for economic

development as it is provided 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 required
investment of the order of one trillion US dollar. The insurance
sector, to some extent, can enable to investment in infrastructure
development to sustain economic growth of the country. It is
because of this reason that there is a need of an effective
regulatory that would check the working and functioning of the
insurance companies in India.

Insurance is federal subject in India. There are two legislation that

the govern the sector- The insurance act-1933 and the IRDA act –
1999. The insurance sector in India has come a full circle from
being an open competitive market to nationalization and back to
the Liberalized market again. Tracing the development in India
insurance sector reveals the 360 degree turn witnessed over a
period of almost two centuries.

Insurance Act, 1938

Insurance Act 1938 was the first comprehensive legislation in India
to regulate the business of insurance. It was way back 1912 when
the Indian life insurance companies act and provident fund
insurance societies act 1912 was passed, which was further
modified and a new legislation was passed in 1928. In 1938 , the
insurance act was passed , which aimed to consolidate and amend
the law relating to the business of Insurance. The act came into

12
force with effect from July, 1939. In 1950, certain changes were
effected in order to limit the expenses and control the investments.
The nationalization of the insurance business, the insurance act,
was through the IRDA Act, 1999. The insurance act, 1938 contains
120 sections and 8 schedules. Section 45, 3, 7, 21, 22 are of
importance as they speak about various restrictions that the
insurance companies have to follow while conducting their
business. Out of all sections, section 45 assumes a lot of
importance as deals with issues regarding the in dispute abilities of
policy in which no insurer can dispute a policy after expiry of two
years from the date of policy.
The act also provides for the registration of insurance companies
maintenance and security of accounts and valuation reports,
investment and utilization of funds.

IRDA ACT, 1999

The introduction if Insurance Regulatory and Development
Authority Act was a revolution in the insurance sector and this act
opened the floodgates of insurance business that permitted foreign
and private players to have a level playing field in the insurance
sector, which till now was monopolized LIC in life business and
GIC in non-life business. The Malhotra Committee reform in 1994
proposed the setting up of an independent regulatory body- The
insurance regulatory and Development Authority. The IRDA since
its incorporation as a statutory body I n April 2000 has fastidiously
stuck to its schedule of framing regulations and registering the
private sector insurance companies. Since being set up as an
independent statutory body the IRDA has put in a framework of
globally compatible regulations. The other decision taken

13
simultaneously to provide the supporting systems to the insurance
sector and in particular the life insurance companies was the
launch of the IRDA online service for issue and renewal of licenses
to agents. The approval of institutions for imparting training to
agents has also ensured that the insurance companies would have
a trained workforce of insurance agents in place to sell their
products. This act can be considered as a landmark by the
insurance standards.

Life Insurance Corporation Act, 1956

Life Insurance business in India was nationalized with effect from
19th January 1956. From this date life insurance business was
transacted by 154 India life officers. LIC of India act was passed by
the parliament on 18th June, 1956 and came into effect from 1st
July 1956 This act mainly deals with the law relating to life
insurance Corporation of India.

14
 INSURANCE BUSINESSES IN INDIA

Overview of current insurance market

Insurance in India started without any regulation in the nineteenth
century. It was a typical story of a colonial era: a few British
insurance companies dominating the market serving mostly large
urban centers. After the independence, the life insurance company
was nationalized in 1956, and then the general insurance business
was nationalized in 1972. In 1999 since the IRDA Act initiated
market reforms, the insurance sector has experienced some
remarkable changes. The entry of a large number of Indian and
foreign private companies in life insurance business has lead to a
great choice in terms of product and services. Increased consumer
awareness of the benefit and importance of insurance has
generated many more buyers; and few distribution channels –
among them brokers, banc assurance , the internet and corporate
agents have provide additional way of getting product and services
to the customer. The foreign holding allow into the insurance is
26%, however they talks are at the verge of approval to increase
this limit to 49%. Although private sector is growing aggressively a
bulk of insurance is still being underwriting by the people players.
However the speed at which private sector is growing is providing
a boost to the public sector to, so that it does not loose its market
share. However in all it is benefiting the Indian insurance market.

15
 Insurance Penetration Life Non-Life
%GDP – 2004
North America
USA 4.28 5.16
CANADA 2.97 4.05
Europe
Germany 3.11 3.86
UK 8.92 3.68
France 6.73 5.02
Asia-Pacific
Japan 8.26 2.25
Taiwan 11.06 3.07
South Korea 6.75 2.77
Australia 4.17 3.85
China 1.94 1.58
India 2.53 0.65

After so many years to India is among the countries with the

largest number of life insurance policy in forcing the world,
insurance happens to be a mega opportunity in India. It’s a
business growing at the rate of 15-20% annually and presently is
of the order of Rs 450 bn. Together with banking services, it adds
about 7% ti the country’s GDP. Gross premium collection is nearly
2% of GDP and funds available with LIC for investments are 8% of
GDP.

Indian insurance statistics

The Indian insurance industry in order to match with the
international standards is trying its level best to make its figures as
colorful as possible. in this attempt the numbers attainted by it in
the march 2004-2005. During the life insurance sector has
grown by 35% in terms of new business. The new premium pie

16
has grown to $ 8.158 billion, from $ 6.05 billion in the previous
year.

It is the second largest mobilize of savings after banks and

constitutions 15% of gross domestic savings. Around 400,000 cr of
assets are under the management of insurance companies which
is double size of mutual fund industry. There are 15 lakh agents
and 2 lakh employees working in the insurance industry. There are
approximant 20 cr policies enforced. The contribution by both
public sector companies and private sector companies has been
humongous. The life insurance industries in India grew by an
impressive premium income from new business of Rs. 253.43
billion during the fiscal year 2004-2005, braving stiff competition
from private insurers.

In India till date the true meaning of the insurance is not

understood. Its used as tax supporting tool rather than life
supporting tool. But the figures of the 2004-05 showed the
insurance consciousness is being created in the market as there
has been a spurt in business underwritten at the price 5670.707 cr
and the life insurance industry under wrote first year premium of
Rs 18710.15 cr during the fiscal year, recording the growth of
10.4% over a previous year. In policy terms the insurer exhibited a
growth of 12.83% with 286.27 hundred thousand policies. Private
Player increases their shares of premium to 12.96% as against
5.66% in the previous year.
Public Sector and Private Sector Distribution
Private insurance companies have written a small percentage of
business in this sector during the last three years, but they have

17
ushered in a competitive environment that has accelerated market
growth. State owned insurer still writes the bulk of insurance
business. The life insurance industry in India grew by an
impressive 36%, with premium income from new business at Rs
253.43 billion during the fiscal year 2004-2005, braving stiff
competition from private insurers. This report, “Indian insurance
industry: new avenues for growth 2012”, finds that the market
share of the state behemoth, LIC, has clocked 21.87% growth in
business at Rs 197.86 billion by selling 2.4 billion new policies in
2004-2005. but this was not enough to arrest the fall in its market
share, as private players grew by 129% to mop up Rs 55.57 billion
in 2004-05 from Rs. 24.29 billion in 2003-04.

Though the total volume of LIC’s business increased in the last

fiscal year (2004-05) compared to the previous one, its market
share came down from 87.04 to 78.07%. but there as been slight
fall in the growth rate of private players as in the year 2003-04 the
14 private insurer increased their market share from about 13% to
about 22% in a years time. They recorded 153% growth in terms of
first premium underwritten by them cumulatively the 12 private
players (Allianz Bajaj, ING Vyasa, AMP SAnmar, SBI Life
Insurance, TATA-AIG, HDFC Standard, ICICI Preduntial, Birla
Sunlife, Aviva, OM Kotak, MaxNewYork Life and Met Life)
underwrote a premium of Rs. 2425.46 crore.

LIC underwrote premium of Rs. 16284.68 cror. Its market share in

the year 2003-04 was 87.04%. in terms of number of policies, LIC
contributed 94.21%. however, LIC needs to worry about the fact
that new entrants have increased their share four folds in just two

18
years. This is evident from the fact that year by year there is found
reduction in the market capitalization of LIC and growing
capitalization by the private players; as even in fiscal year 2005-06
LIC share has been reduced to 71.5%.

19
 PUBLIC LIFE INSURANCE PLAYERS

The Indian insurance sector as we discussed earlier is divided into

life and general insurance. The life insurance companies of two
sets of players, the public players and the private players. The
public players are those whose assets and the functioning is under
the control of the government. It has to take approval of the
government for its operations.
In Indian public sector we have only one company functioning
named the Life Insurance Corporation of India.

LIFE INSURANCE Corporation OF INDIA

Yogakshema Vahamyaham is the catchphrase of LIC has
convincingly used all these years in its monopoly avatar as the
sole life insurer. Your Welfare is our responsibility is LIC proclaims
through its catchphrase. Ever since life insurance industry was
nationalized in 1956 and the LIC was born, monopoly grew in size
and stature with every passing decade. From 5,700,000 policies in
operation in 1957 to some 98,500,000 by the end of year 2002-03,
LIC has come a long way. However the success is long but how
did LIC achieve its landmark, how did India receive its LIC
Giant???

A study was conducted in the year 1955 which showed that the
trusteeship which should be the cornerstone of life assurance
business was entirely lacking and most management’s had no
appreciation of the clear and vital distinction that existed between
trust money and those belonging to stock companies owned by
shareholders. Therefore it became necessary to nationalize

20
insurance business with view to provide100% security to policy
holders. The first step in this direction was taken on 19 January,
1956 by promulgation of an ordinance in central government. Thus
the life insurance industry was nationalized in the year 1956 and
the “LIFE INSURANCE CORPORATION OF INDIA” came into
existence on the 1st September, 1956 by passing of life insurance
corporation act, 1956 with capital contribution by the government.
Then Finance Minister, Shri C.D. Deshmukh, while piloting the bill,
outlined the objectives of LIC:
• To conduct the business with the utmost economy, in a spirit
of trusteeship to charge premium no higher than warranted
by strict actuarial considerations.
• To invest the funds for obtaining maximum yield for the
policy holders consistent with safety of the capital.
• To render prompt and efficient service to policy holders,
thereby making insurance widely popular.

Since nationalization, LIC has built up a vast network of 2,048

branches, 100 divisions and 7 zonal offices spread over the
country. The life Insurance corporation of India also transacts
business abroad and has offices in Fiji, Mauritius and United
kingdom. LIC is associated with joint ventures abroad in the field of
insurance, namely, Ken-India Assurance Company Limited,
Nairobi, United Oriental Assurance Company Limited, Kuala
Lumpur and life Insurance Corporation (international) E.C.
Bahrain. More than 170million lives are part of LIC family.
Mission:
“Explore and enhance the quality of life of people through financial
security by providing products and services of aspired attributes

21
with competitive returns, and by rendering resources for economic
development.”

Vision:
“A trans-nationally competitive financial conglomerate of
significance to societies and pride of India”

Objectives of LIC:
• Spread life insurance widely and in particular to the rural
areas and to the socially and economically backward classes
with a view to reaching all insurable persons in the country
and providing them adequate financial cover against death
ay a reasonable cost.
• Maximize mobilization of people’s savings by making
insurance-linked savings adequately attractive.
• Bear in mind, in the investment of funds, the primary
obligation to its policyholders, whose money it holds in trust,
without losing sight of the interest of the community as a
whole ; the funds to be deployed to the best advantage of the
investors as well as the community as a whole, keeping in
view national priorities and obligations of attractive return.

Products offered by LIC:

The products offered by LIC range from the traditional life
insurance products to the modern Unit link plans. To achieve
further diversification of its products LIC has divided into four
groups. Each of these groups is further divided into sub-groups
which are formed different insurance scheme to cater to the
requirement of the people. The sub groups have different

22
insurance scheme to cater to the requirement of the people.
Insurers according to their requirement of insurance amount,
premium amount, tenure make their choice. Its main reason for
such diversification is that it does not miss out on any requirement
of the clients. It is trying to spread its all direction so as to avoid its
clients to go to its competitors. The four groups are as follows:

1. Insurance Plans
• Children plans
• Plans for handicapped dependents
• Endowment assurance plans
• Plans for high worth individuals
• Money back plans
• Special money back plan for women

2. Pension plans
3. unit plans
4. special plans
• golden jubilee plan
• special plan
5. group scheme
• group scheme
• social security scheme

23
The Progress of LIC over the period of time
The importance of life insurance is increased day after day. Since
its inception, the life insurance market has been tremendous
improvements.
This can be justified with the help of the following table.

Growth at a Glance (Figures in Millions)

1996/97 1997/98 1998/99 1999/00 2000/01

Capital & 85011 100492 118819 133694 164322
Funds
Investments 14474 168282 191683 220109 238498
Total Assets 187576 2157220 245572 279202 308045
Technical 37729 40898 46216 51050 55504
Reserves
Gross Direct 73479 80856 91575 99822 107719
Premium
Net Premium 6733 73571 84025 93634 102721
Income
Profit Before 10919 16236 14670 11526 7292
Tax

As it is shown in the table the life insurance market has seen

tremendous success. From 1996-97 to 2000-01 the total number
of assets has increased from 087576 to 308045. Even the net
premium has increased tremendously. As you have seen rising
since 1996-97 however in 2000-01

The profits were reduced because of natural calamities that

affected the country resulting the life insurance companies to
compensate the insured’s families.

24
 Progress of LIC over the Years
The table reveals that the group and individual business of the
corporation has increased from a 3 digit figure to 6 digits during the
period from 1957-2003. the leap has been more than tremendous.
The number of policies has increased from 65.86 lakh to 1013.73
cr. The investment of corporation in the central government
securities was Rs. 335 cr in 1967 has also increased 254 times.

As we know that the corporation has invested in central and state

government securities. But now the investment policy has
undergone a change. It gas started to provide financial assistance
to industrial enterprises. It provides not only the subsidy but it has
also started talking interest in the management and control of
these enterprises. It deputes its repetitive on the board of directors
of these enterprises.

ITMES 1957 1969-70 1979-80 1999-00 2000-01 2002-03

Total New Business
Individual 336.37 990.03 2744.33 21214.26 124757.1 179811.1

25
 4 7
Group - 46.05 5262.06 66619.43 NA 164574.4
4
Business in Force
Individual 1476.52 6348.09 19242.55 536450.8 NA 956675.2
2 0
Group 5.29 77.17 6137.46 76384.53 NA 124312.9
9
No. of Policies (in 56.86 77.17 6137.46 76384.53 NA 124312.9
lakhs) 9
Total No. of Lives
Covered
Group Business (in NA NA 58.14 243.02 NA 251.81
lakhs)
Life Fund (in crores) 410.40 1611.03 5818.09 154043.7 NA 281664.3
3 3
Investment (in
crores)
Book Value of Total 381.90 1514.26 5747.51 146364 175491 265044
Investment
Claims Settled
Number (in Lakhs) NA 3.21 7.19 66.42 75.86 96.91
Amount (in crores) 1372 41.90 135.11 5062.51 6710.44 10626.03
First Premium (in 13.72 41.90 135.11 5062.51 6710.44 10626.03
crores)
Renewal Premium 74.35 214.71 690.15 21100.44 24803.98 38603.37
(in crores)
Source: LIC Dairy 2002

Current Year Preview

The share of LIC for 2005-06 periods has further come down to
71.5 percent, while the private players have grabbed over 28.5
percent. Amidst stiff competition LIC has been successful in
clocking an impressive 38% growth (US $ 3bn) in premium income
from fresh policies in April-October 2005. LIC underwrote premium
of Rs. 16284.68 crore. Thus on annual basis in 2005-06 it
recorded a 31.77% growth in policies and 48.56% growth in

26
premium. It has sold more than 30 million policies in 2005-06
which amounts to a market share of 89.08%. However, LIC needs
to worry about the fact that the new entrants have increased their
share four folds in just two years. The new players are still in the
process of finding their feet but if the trend continues the LIC
needs to take guard and prepare for strike.

Negative Points of LIC

As things stand today LIC is still on strong footing as compared to
its competitors. However, to retain its market leader status the LIC
needs to acquire competitiveness. LIC has never paid attention at
the way of catering its client requirement. With new contenders
entering the fray there is need to act more market savvy. Rather
than getting bogged down by competition the LIC needs to see the
challenges as an opportunity insurance in India was largely
misconstrued as an investment or a tax saving device rather than
a security hedge. In fact, insurance agents were promoting policies
on life as instruments of returns and tax saving. Insurance
consciousness as such was largely missing from the market. The
new entrants with their aggressive penetration strategies are at
least contributing to the cause of LIC by creating insurance
consciousness in the minds of a wide cross section of consumers.
Privileged by its monopoly status LIC did not bother much about
creating an insurance consciousness, as its objective was to
insure anyhow that was happening. This complacency now has to
go and LIC must opt for marketing insurance as insurance. The
obvious conclusion that needs to be drawn is that ‘Sky is the Limit’.
LIC has to dare and dare seriously.

27
With the insurance sector deregulated, private players with strong
financial muscle from India and beyond have entered the market.
The monopoly status of LIC is being threatened. LIC now has to
worry about its own ‘yogakshema’ otherwise soon its competitors
will fulfill their one liner of ‘Kal Par Control’ (AVIVA). They need to
adopt an aggressive strategy because of their losing market share
to new entrants or else the catchphrase from their competitor ICICI
Prudential’s ‘Hum Hain Na’ will be accomplished in a matter of
years.

28
 PRIVATE LIFE INSURANCE PLAYERS

If a customer’s first policy is from LIC, his second policy’s most

likely to be bought from the private insurance sector. This is the
reach created by the private players. Once insurance was viewed
as the shelter to the family members, later it became a tax saving
instrument. And today it used as an investment option by which
you can invest in the mutual fund market. All the changes have
taken place with the entry of the new private players in the Indian
life insurance segment. Many private players have segmented in
the Indian market. These players concentrated on the following
parameters in order to enter the insurance sector and be ahead of
public players:

Increase in awareness
The private players adopted the new strategy for increasing
awareness among the people. They resorted to new techniques
like heavy advertising, telemarketing. Till date the service which
although important to human life was seemed very dull private
players added a new life to it by commercially advertising it and
opening a wider market for them.

New product Line

Insurance was being used as a tax saving tool rather than a life
saving tool. The private players took a catch of this situation and
introduced various lines of product. Today an individual can find a
wide variety of products from pure insurance plan to a hi-tech unit
link plan. Infact with the advent of private players a range of
options available in health with the advent of private players a

29
range of options available in health insurance has been
tremendous (as it was ICICI Prudential that came with Diabetes
insurance)

Create value in Customer Service

Private players brought in the era where clients were to be special
treatment. This was one area that witnessed the most significant
change with the entry of new players. They created the culture of
telemarketing to serve the clients and solve their quires. There has
been a change in the response and turnaround time in areas like
first policy receipt, premium notice, final maturity payment.

Channels of Distributions
The private players had noticed that LIC used to resort to
traditional mode of distribution through agents. Taking this into
consideration it decided to explore this parameter by introducing
more attractive and techniques of distribution.

So far there was no option for the public in choosing their

insurance products as LIC was monopoly in the life insurance
sector as compared against it today we have ample of option not
only in the products but also in the company. The entry of private
players helps in spreading and deepening the operations in the
Indian insurance sector which in turn results in restructuring and
revitalization of public sector companies.

Evolution of private Sector in Indian Market

In 1993 the government of Republic of India appointed RN
Malhotra Committee to lay down a road map for privatization of the

30
life insurance sector. While the committee submitted its report in
1994, it took another six years before the enabling legislation was
in the year 2000, legislation amending the insurance act of 1938
and legislating the insurance regulatory and development authority
act of 2000. in the same year IRDA started issuing licenses to
private life insurers.

Private players have invested Rs. 5165 cr which includes the

share of foreign partners’ capital of Rs. 1196.34cr. till 2006 a
foreign partner could hold 26% equity in an insurance company,
but from 2006 this percent has been revised to 49%. Currently
there are 14 life insurance players in Indian life insurance
segment. They are:

1. ICICI Prudential life insurance

2. Bajaj Allianz life
3. HDFC Standard life
4. Birla Sunlife
5. SBI life insurance
6. Kotak Mahindra Old Mutual life insurance
7. Aviva life insurance
8. Reliance life insurance Company Limited – Formerly known as
AMP Sanmar LIC
9. Tata AIG life
10.Metlife India life insurance
11. ING Vysya life insurance
12. Max Newyork life insurance
13. Shriram life insurance
14. Bharti AXA life insurance Co Ltd

31
 Capital Structure of Private Companies
Innovative products, smart marketing, and aggressive distribution
have enabled fledging private insurance companies to sign up
Indian customers faster than anyone expected. Indians, who had
always seen life insurance as tax saving device, are now suddenly
turning to the private sector and snapping up the new innovative
products on offer. All of the private players entered this market with
the help of a foreign entity, except for Reliance life insurance.

Company Indian Foreign Total FDI (%) Foreign Market

Promoter Insurer Capital Capital Share
(Rs.Cr) (Rs.Cr) based on
premium
Reliance Life Insurance Reliance None 217 0 0 0.54
(AMP Sanmar) Group
Aviva Life Dabur Aviva, UK 459 26 119.34 1.12
Bajaj Allianz Bajaj Auto Allianz, 368 26 96 6.12
Germany
Birla Sun Life Aditya Birla Sun Life, 400 26 104 1.84
Canada
HDFC Standard HDFC Standard 250 18.9 47 2.96
Life, UK
ICICI Prudential ICICI Bank Prudential, 1085 26 282 7.11
UK
ING Vysya Vysya Bank ING 440 26 68 0.63
Insurance,
The
Netherlands
Kotak Mahindra Kotak Old, Mutual, 260 26 68 0.71
Mahindra South Africe
Bank
Max New York Max India New York, 500 26 130 1.32
US
Met Life Jammu & Met Life 355 26 92 0.4
Kashmir
Bank
SBI Life SBI Cardiff, 350 26 91 1.52
France
Tata AIG Tata Group AIG, US 381 26 99 1.78
Source: Insurance Chronicle

32
Performance of Various Private Sector Entities
It is evident in the table that in the fiscal year 2005-06 Bajaj Allianz
life grew by 306 percent and clocked in new business premium of
$617 million. The company cornered a market share of 7.47 per
cent. ICICI Prudential on the other hand garnered premium of
$599 million and holds a market share of 7.07 per cent.

Insurer Market Share % Growth Over

upto May 2006 Corresponding
Previous Year
Bajaj Allianz 7.47 306
ICIC Prudential 7.07 111
HDFC Standards 2.41 79
SBI Life 1.92 380
Max New York Life 1.75 149
Aviva 1.63 173
Tata AIG 1.42 41
Birla Sun Life 1.29 42
Met Life 0.48 159
Private Total 29.32 162
Public Total 70.68 117
Grand Total 100.00 128
Source: Insurance Chronocile Nov-2006

During the inception stage of private players in insurance sector in

India it was assessed that LIC would loose its market by 105 but in
realty it lost by 22% and this was just the beginning. The ICICI
Prudential topped among the private players in terms of premium
collection. it recorded a premium of rs. 364.9 crore, followed by
Birla Sunlife with a premium under-written Rs.170 crore, HDFC
standard with 132.7 crore and Max New York Life with rs.76.8
crore, these were statistics for the year 2004-05. they recorded
153% growth in terms of first premium underwritten by them.

33
Cumulatively the 12 private players underwrote a premium of Rs.
2425.46 crore. Unlike their counterpart in the life insurance
business, private non-life insurance companies have not yet
started addressing the retail market. All is set to change in the
coming years. Like in the banking sector, non-life insurance
companies will soon have no choice but to focus on individual
buyers.

BAJAJ ALLIANZ LIFE INSURANCE

Bajaj Allianz life insurance Co. Ltd. Rs. 3,324 cr assets under
management company is a joint venture between two leading
conglomerates- Allianz AG, one of the world’s largest insurance
companies, and bajaj auto, one of the biggest 2 and 3 wheeler
manufacturer in the world. Characterized by global presence with a
local focus and driven by customer orientation to establish high
earnings potential and financial strength, Bajaj Allianze life
insurance co. Ltd. was incorporated on 12th march 2001. Allianz
AG with over 110 years of experience and Bajaj Auto, trusted for
over 55 years in the Indian market, together are committed to offer
financial solutions.
Allianz Group is one of the world’s leading insurers and financial
services providers founded in 1890 in Berlin. It serves than 60
million customers worldwide with a comprehensive range of
services in the areas of property and casualty insurance, Life and
health insurance, assets management and banking. Bajaj Auto
Ltd is the flagship company of the Rs. 8000 crore Bajaj group. It is
largest manufacturer of two-wheelers and three-wheelers in India
and one of the largest in the world. A household name in India,
Bajaj Auto as a promoter provides a strong brand image, an

34
extensive distribution network , financial strength and stability to
support the insurance business.

Key Strengths
What differences Allianz from its competitors is its tailored
products to suit the customers needs, decentralized organization
structure for faster response, Specialized departments for Banc
assurance, Corporate Agency and group business, well networked
Customer Care Centers (CCCs) with state of art IT systems,
highest standard of customer service and simplified claims process
in the industry.

Products
Just like every insurance company even Bajaj Allianz has tried to
differentiate its product line from rest. It is divides it product range
into Individual plan, Group Plan, NRI Plan, New Launched Plan.
Only Allianz has an NRI plan. Its this innovativeness has led it gain
the current position where it is today.

Individual Plan
• Term Care
• Investgain
• Childgain
• Lifetime Care
• Swarna Vishranti

Group Plan

35
 • Group Credit shield
• Group term life
• New Group Superannuation Scheme
• New Gratuity Scheme

NRI Plan
• Invest Gain- Our ’With profits Endowment Plan’
• Child Gain- Our ‘With profits Money Back Plan’ for children
• Life Time care – Our ‘With Profits Whole of Life Plan’

Current Achievements
Although the company started with its operations from 2001 with a
span of 5 years it has created its own brand image. It has been
fast at its expansion process with a country wide network of 700+
offices, 15,00,000 satisfied customers and a share holder capital
base of Rs.500 cr. With the financial Year coming to an end and
the results being announced Bajaj Allianz has beated a 3 year
Number 1 running ICICI Prudential with a growth rate of 216%.
With its improved technique it has taken a massive jump from
3.39% to 7.56% over last year. Unlike LIC, Bajaj has adopted an
aggressive strategy for expansion is evident from its current
performance.

Fiscal Year No. of Polices sold GWP in FY

in FY
2001-2002 (6mnths) 21376 Rs.7cr.
2002-2003 115965 Rs.69cr.
2003-2004 186443 Rs.221cr.
2004-2005 288189 Rs.1002cr.
2005-2006 781685 Rs.3134cr.

36
HDFC STANDARD LIFE INSURANCE

HDFC Standard Life Insurance Co. Ltd is one of India’s leading

private life insurance company, which offers a range of individual
and group insurance solutions. It is a joint venture between
Housing Development Finance Cooperation Limited (HDFC Ltd.),
India’s leading Finance Institution and one of the subsidiaries of
Pvt. Ltd. Co., leading providers of financial services in the UK.
Both the promoters are well-known for their ethical dealings and
their financial strength and are thus committed to bring a long-term
player in the life insurance industry – All important factors to
consider when chosing your Insurer. It is a firm with Rs.36000cr.
Asset Under Management. Its current chairman is Mr.Deepak
Parekh.

Joint Venture
HDFC Ltd.
HDFC is India’s leading Housing Finance Institution with its Assets
Under Management crossed Rs.36000 cr. It has helped build
more than 26lacs houses since its incorporation in 1977. The
depositor based now stands at around 1million depositors. It is
rated ‘AAA’ by CRISIL and ICRA for the 10th Consecutive Year and
‘The Dream Home’ Award for the Best Housing Finance provider
at the 3rd Annual Outlook Money Awards.

37
Standard Life Group
The Standard Life Group has been serving the financial needs of
customers for over 180 years with a consumer base of around
7million people for their insurance, pension, investment, banking
and health care needs. It is a leading pensions provider in the UK,
and is rated by Standard and Poor’s as ‘strong’ with a rating of A+
and as ‘good with a rating of A1 by moody’s. Its Investment
Manager currently administers 125 billion pounds in assets.

Key Strengths
Financial Expertise
As a joint venture of leading financial services group, HDFC
Standard Life has the financial expertise required to manage the
long-term investments safely and efficiently.

Range of Solutions
They have a range of Individuals and Group solutions which can
be easily customized to specific needs. Its group solutions have
been designed in order complete flexibility combined with a low
charging structure.
It has covered over 1.6 million individuals out of which over 5 lakhs
lives have been covered through its group business tie-ups. This
shows that it has been resorting to modern ways of taping its
customers.

Products
HDFC Standard life insurance has divided its product range
broadly in 3 categories – Individual Products, Group Products and
Social Products.

38
Individual Products:
• Protection Plans – Term Assurance Plan
• Investment Plans – Single Premium whole of Life Plan
• Pension Plan – Unit Linked Pension Plan
• Savings Plan – Unit Linked Endowment, Money Back Plan

• Group Term Insurance:

• Group Variable Term Insurance

• Group Unit-Linked Plan

• Social Products:
• Development Plan

This is specially designed as a step towards social development. It

is a plan where the eligibility criterion is the age of 18-50 years.
Premium as low as Rs.25 per member for every Rs.10000 per
member.

With the initiation of the deregulation in the Indian Insurance

Market, the monopoly of Big Public Sector companies in Life
Insurance as well as general (non-life Insurance) market has been
broken. New Private Players have entered the market and with
their innovative approaches and better use of distribution channels
and technology, they are eating in to the shares of established
public sector companies in Indian Insurance Market.

39
 COMPARISON OF PUBLIC AND PRIVATE PLAYERS

Public and Private sector are two sides of the same coin – coin
named insurance. Just as these two sides have different meaning
of heads and tails but their core value is to generate valuation of
money so is working of these two sectors – adding value to the
Indian insurance industry with their different way of operations and
functioning.

Comparison of Functions and Mode of Operation

Products
Public Players-
The number of options available for making a choice in industry is
very les given by the public players. They have the traditional
policies which less given by the basic requirement only. Although
with changing trends LIC is coming up with unit link plans.
Moreover the products are not flexible and transparent.

Private Players
In an endowment policy if one has an option of 5 policies offered
by the two sectors. The products offered by the private sector are
more flexible and transparent in nature. Due to their functioning of
constant research and development department it is always
striving to find and offer new and innovative products. Private
insurers are able to garner a higher market share because they
offer greater choice in terms of products and services.

40
Service at branch
Public Players- Since insurance is in the service sector for
promoting it from the 7 P’s the people aspect matters a lot. It is
only the way the clients are served that can help in adding revenue
to the balance sheet. In this case the LIC lacks behind. It has not
changed itself to modern values. It has given little attention to
improve the services at the various branches. As a result
customers often feel pain at the ‘careless’ attitude of the branch
staff.

Private Players-
Private players on the other hand have first given priority to its
service providers. In order to serve their clients at the branch they
specially train their people. According to the modern concept apart
from product the way it is presented, the manner in which the client
is treated is that matters most.

Simplified policy documents

Public Players-
In India policyholders usually take time reading and understanding
the policy documents for the simple reason that the way the
clauses are framed therein they do not make sense to the average
reader.

Private Players-
Being different from LIC the private players are introducing the free
look-in period. Whatever be the ‘free’ part of it, the policyholder is
being made to go through the clauses or the policy conditions.

41
Right Insurance
Public Players-
The problem of both the insurer and the insured that is confronting
the whole industry is that the distributor (the agent) is not honest in
communicating a product to the prospect. Due to the old values
the benefits and add-ons provided to its agents are lower, and
make them indulge into wrong practice, being dishonest. This may
affect the goodwill of the LIC in the long run. The LIC’s agency
force that pushes the number of polices.

Private Players-
In regard to this the insurance industry in private sector function’s
more on incentive basis. If you go to a private company for a job
their pay package would have a higher amount in additional salary
as compare to the basic salary. The Private insurance agents sell
better than their counterparts at the LIC. Life insurance advisors of
private sector insurance companies adopt the need-based selling
approach.

Trained Agent
As far as trained agent goes the members of the LIC agents are
more of an average age 30-50 years. There is a lack of young
blood. But what makes their functioning differ from the private
players is the manner in which the agents behave. LIC agents
although might not have a trained knowledge but their experience
knowledge is far superior to the trained knowledge. With their
experience of over the years they very well understand the needs
of the clients and thereby offer them appropriate product.

42
Private Players
Private players on the other hand due to their modern class prefer
trained knowledge. Majority of the private companies after having
enrolled their agents by passing the IRDA exam hold a training
program for around 2-3 days where they give these new agents
knowledge about their products, how to sell it to their customers,
which are the areas that can be tapped. Their agents approach is
impersonal in nature as they target only at selling a product rather
than satisfying his needs.

Incentives to agents
Public Players:
LIC provides not only the part of premium to its agents but also in
order to motivate them provides various incentives like advance for
house construction @ % up to Rs.4lakhs, personal computer,
telephone facility expenses, expense in club convention where you
can get the Economy class air fair.

Private Players:
Incase of private players agents are given incentives only when
they accomplish their monthly targets. The benefits are in the for m
of vouchers.

Informed customers at the cost of expense ratio

Public players:
Public players like LIC, New India Life Assurance do not carry out
the advertising activity on a large scale as the private players do.
Their clients do not know much about the new policies that they
have. But after liberalization and learning from private players we

43
do now see the LIC adds quite often during prime time shows. The
best thing that LIC has maintained is with new technique of
spreading knowledge about its policy to customers it has remained
successful in maintaining its expense ratio low to 9%.

Private Players:
Private insurers are able to garner a higher market share because
they make a concerted effort to increase consumer awareness
about the benefits and importance of insurance via vigorous
marketing. Although private players adopt a more aggressive
advertisement policy about making its mark in the sector and
become a preference among the people but it has done all this at
the cost of a high expense ratio of 29%. This is quite huge and it
has caused few of the companies incur loss in its balance sheet.

Expenditure behind advertisement

Public Players:
Until players entered the market, the public players did not enter
into much of advertising. They used the traditional source of
people to increase awareness. However after the entry of the
private players, they have realized the need for resorting to these
techniques as an incentive to create market awareness and
thereby increase its number of policy sales. Their ads spend more
than doubled to Rs.81crore in fiscal 2003, against Rs.37crore in
1999-2000, prior to the industry being privatized.
Private Players:
Unlike public players, private players have always adopted new
strategy. They believe in aggressive marketing and such source of
marketing is ad. The private insurance sector has also been

44
steadily increasing its ad spend, from Rs.29crore in fiscal 2001
when the industry opened up to Rs.92crore the following year. In
fiscal 2003, private insurers spent Rs.143crore on advertising.

Increase in the size of the policy

Public Players:
When LIC was introduces, at that time the standard of living of the
people was very low and more over there was no awareness
regarding insurance, so in order to first inculcate the sense of
insurance could fit into the mind of a common man. The average
size of a life insurance policy in the public sector was around
Rs.50000 before liberalization now it has risen to Rs.80000.

Private Players:
When private players entered the insurance market in India after
Liberalization it already had a platform created by the LIC. It did
not have to start its operations from grass-root level of explaining
the concept. It had to now just come out with new policies and
provide more option to the clients. In this range the average size of
the private insurance policies is around Rs.1.1Lakh to Rs.1.2Lakh.
Thus as compared o public sector, policies would be sold by the
private players tend to be of a higher value.
For instance, Birla sun Life’s average premium stands at
Rs.24500, while that of OM Kotak Mahindra Life is equally high at
Rs.20400. Against this is the LIC’s average premium of Rs.3200.

45
Distribution Channel
Public Players:
What every insurance industry thrives on are agents and brokers.
Even the public players started with this. They started distributing
their products through the agents force. They employed its agents
to go the people personally and inform them about the various
plans. This was possible at that time because the reach of people
was smaller. As compared with today’s position this distribution by
itself cannot sustain. It needs supplementary support of other
channels. Believing in this LIC has also adopted new techniques
like resorting to banc assurance and corporate agency tie-ups. But
still! Its core strength remains in man-power, i.e., agents force.

Private Players:
It is the world of indirect communication the private sector is
capturing market through indirect communication tools of
advertisement, tele-marketing, internet. The private layers are
mainly concentrating on customer service and thus these delivery
channels help them to stay in contact with their broader customer
base. To this they have started the call centre culture. This helps
them to solve the queries of their customers and thus provide an
efficient customer service. It was they who started with concept an
efficient customer service. It was they who started with concept of
banc assurance which contributes to 20% of total insurance
business. Now it is adopting this strategy and tying up with the
RRB’s to tap onto the rural and semi-urban market.

46
Underwriting of Business
Public Players-
New Business (life) Underwritten through various intermediaries by LIC
Corporate Agents
Year Agents Banks Others Brokers Referrals Direct
Business
2003- 99.78 0.11 0.09 0.02 - -
04
2004- 98.79 0.87 0.30 0.04 - -
05

As we have mentioned earlier that LIC functions using old

technology for increasing its sales. Even for its underwriting
business LIC depends 99.78% on their agents force. It has still not
been able to get well versed using new techniques of banc
assurance.
Private Players-
New Business (life) Underwritten by Private Players through various
intermediaries
Corporate Agents
Year Agents Banks Others Brokers Referrals Direct
Business
2003-04 60.39 10.57 6.86 0.31 7.50 14.37
2004-05 59.30 15.42 7.75 1.23 6.25 10.05

On the other hand, private sector is exploring various modes.

Although agents still remain the major distribution channel, it has
been resorting to various other means on a parallel basis. The
usage of banc assurance channel is gaining popularity among the
private companies.
Target Customers
Public Players-

47
The target customers of public players are different from that of
private players. The public players have never thought of big. The
LIC aims for the masses through its 2048 branches.

Private Players-
On the other hand, the private players are targeting the upper
middle class and high network individuals.

Comparison of Insurance Companies

Above we discussed the various areas where the public and
private players differentiate and their diverse approach. Now here,
we would compare the sole public player – LIC with the rest of the
Private Sector Companies.

Life Insurance industry in India FY 2003-04(cumulative up to Oct 2003)

Company Premium (in % of Total Policies in % of Total
million) Million Policies
LIC 59187 88.8 9.9 94.2
ICICI 2464 3.7 0.14 1.3
PRUDENTIAL
BIRLA SUN 988 1.5 0.05 0.5
LIFE
TATA AIG 792 1.2 0.08 0.8
HDFC 760 1.1 0.08 0.8
STANDARD
BAJAJ 582 0.9 0.08 0.8
ALLIANZ
MAX NEW 526 0.8 0.05 0.5
YORK
OTHERS 1384 2.0 0.22 2.0
TOTAL 66683 100 10.6 100

Although we have been discussing that the LIC is continuously

loosing its market share to the private sector but LIC still remains
the giant. It is evident from the table that LIC has 94.6% of the total

48
policies. None of the private sector company is even close to it.
Hence we can say that no matter how many ever private
companies the roots of LIC are still quite strong to maintain its hold
over the sector for couple of years to come.

Currently within the 1.2 million agents, pointed out the report.
However the advantage that private insurers such as ICICI
Prudential, HDFC Standard Life and SBI Life enjoy is the presence
of their domestic partners in the banking space.

Now looking at this table we find that the way LIC has catered its
agents no other private players has been able to do it. LIC gives as
much as 9.07% of its first year premium to its agents. As
compared to this private company’s premiums are not anywhere
close to LIC. However ICICI Prudential largest private sector
player also gives 8.74% of its first year premium ti its agents as
commission.

Comparison of Companies on the basis of Commision to Agents Rs.

In Lakhs
Insurers First Premium Total Income Commission
Income
2003-04 2002-03 2003-04 2002-03 2003- 2002-

49
 04 03
LIC 6316760 5462849 9308890 8098781 573384 499861
ICICI 98929 41762 128939 60078 8651 3776
PRUDENTIAL
BIRLA SUN 53754 14392 62743 21079 7713 2951
LIFE
TATA AIG 25353 8181 32045 12607 4158 1480
HDFC 29776 14882 34604 20270 3865 1977
STANDARD
BAJAJ 22080 6917 26512 11095 5044 1242
ALLIANZ
MAX NEW 21525 9659 46598 9923 4028 1849
YORK
Source: Ready Reckoner

COMPETITIVE ADVANTAGE OF SECTORS

From the above comparison and the basis of the interview taken of
the insured having both LIC and private insurance policy I found
the following reasons of peoples preferences.

Reasons for Preferring Public Companies

50
 • The trust associated with it.
• The government backing to it.
• Better benefits to agents.
• Incase of death, policy amount is given within 1 week of
submission of death certificates and other documents.

Reasons for Preferring Private Companies

• The edge with private companies is their more professional

outlook. Their timely service, friendly approach.
• Private insurance companies have better product range to
offer. Infact the unit link culture has been brought in India by
the private sector.
• They do reflect as a better standard/style of living.
• Flexibility of policy in terms of change in terms and
conditions.
• Policy is issued within 24hrs.

CHALLENGES FACED BY THE SECTORS

Despite of all the good works and increase in the premium

amounts there are certain areas where these private and public
players do lack efficiency.

Challenges Faced By Public Sector

51
 • To maintain their growth, profits.
• Face the competition offered by the private sector.
• Hold its clients.
• Lack of customer service.
• Traditional approach and attitude.

Challenges Faced By Private Sector

• Established their presence in the minds of the customers and

create an identity against the one created by LIC.
• The next challenges would be that of setting up infrastructure
and to reach out to as many areas as possible, since life
insurance is based on probability and the wider the spread,
the greater are the chances of success in marinating the
expenses ratios at a reasonable level.
• To find innovative channels of distribution.
• Longer time for settlement.

CONCLUSION

After looking at the various aspects, the areas of difference

between public player and private player’s advantage, I came to
following conclusion:
Innovative products, smart marketing and aggressive distribution
are the three things that have enabled private insurance
companies to attract Indian customers faster than any one ever

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experienced. Indians have always thought Life Insurance as a ‘Tax
Saving’ device but private insurance sectors have proved it as not
only a Tax Saving device but also a need in today’s life. Private
sector has gained momentum by focusing on better service and
relationship. This has been one of the reasons for the LIC to loose
its share. Thus, it should concentrate on this area and take steps
for improvement. The existing new companies are developing
different strategies to retain and enhance their market shares. LIC
will have to bring in new practice and setup new standards and
create new bench-marks.

The state owned company still dominates segments like

endowment and money-back policy. But in the annuity and
pension product business the private insurers have already
wrested over 33% of the market and in the popular unit linked
insurance schemes. They have virtual monopoly, with over 90% of
the customers.

With the initiation of de-regulation in the Indian Insurance Market,

the monopoly of the big sector companies in Life Insurance as well
as General (Non-Life Insurance) market has been broke.
New private players have entered the market and with their
innovative approaches and better use of distribution channels and
technology, they are eating in to the shares of established public
sector companies in the Indian Insurance Market. It was the entry
of the private players that forced LIC to start innovative thinking.
Because of various new policies being brought out by the private
players even LIC was forced to do the same in order not to loose
its market.

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Since the de-regulation has been put into place, the market share
of LIC has come down to 71.4% in Life Insurance Market, while the
Private players have captured around 17% market in the general
insurance segment. Despite having said that, Public Sector
Insurance Companies such as LIC and New India Assurance have
registered impressive double digit growths, which reflect on the
overall health of the Indian Insurance Sector.

There is not much marketing in the nationalized life insurance

sector. It is only recently that LIC started advertising its products,
whereas private sector brought in the advertising culture in Indian
Insurance Market. With the intervention of the private sector in the
sector new modes of reaching to customers, i.e., through banc-
assurance, telemarketing was started.

Even because of deregulation, LIC has started observing more

discipline in its working where prior it used to take 15-20days for
processing and issue of policy, LIC has recently started with Green
Channel System where by the policy is issued within 3 days to the
insured. This step of LIC has been a good answer in response to
the various quick processing activities of the private players.

While the private insurance companies have attained only 13-14%

share of the overall insurance market, their share in the key metros
(Mumbai & Delhi) is as high as 30-40 %. Because of the entry of
the private players in the market LIC is finding it difficult to sell its
insurance in metros. As the people have now started comparing
the products and are asking for better deals.

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However from the entire analysis I found that the saying “In the
fight of Two Cats Monkey took away the benefits” is true. The
competition between the 2 players in the Market, benefits the
consumers most as it is making their life simple by getting things at
their wish. Each and every company, be that LIC or private players
are trying to come up with new and innovative products to tap on
to the customers first. Earlier, people used to buy only from LIC
because they thought that LIC was trustworthy as it was
nationalized and had a backing by the government. But now there
has been a shift in the thinking of the people as they are willing to
buy from the private companies.

Thus, both the players are good in one way or the other, if private
is ahead because of its innovativeness. Then public sector is
ahead because of its trustworthiness. Therefore, in this battle field
of Indian Insurance Sector neither public player nor the private
player is looser. However there is an opportunity for both to be the
king and we have to just see in the near future who is finally
crowned.
BIBLIOGRAPHY

Websites:
www.google.co.in
www.licindia.com
www.bajalalliaz.com
www.hdfcinsurrance.com

Books:

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Insurance Management
Life Insurance Vol. 1
Life Insurance Vol. 2

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