A Comparative Study

OF

LIFE INSURANCE OF INDIA (LIC)

Project Report submitted to

Kalinga University, kotni, Atal Nagar,Raipur, C.G

For the Degree of

BACHELOR OF BUSINESS ADMINISTRATION
in
Management

Submitted By

by
Aviraj Kindo
BBA-5th Semester/Plain
72BBA017101

Under the supervision of

Mr. Paritosh Dubey
Asst. Professor

KALINGA UNIVERSITY
 SELF CERTIFICATE

This is to certify that this project entitled “A COMPARATIVE STUDY OF LIFE

INSURANCE OF INDIA (LIC)” submitted in partial fulfillment of the degree of
Bachelor of Business Administration in Management to the KALINGA
UNIVERSITY, Raipur, done by AVIRAJ KINDO En. No. 72BBA017101 is an
authentic work carried out by him at Kalinga University under my supervision. The
matter embodied in this project work has not been submitted earlier for award of any
degree or diploma to the best of my knowledge and belief.

December, 2018 AVIRAJ KINDO

Place: Raipur En. No. 72BBA017101
Kalinga University,Raipur
 CERTIFICATE FROM THE GUIDE

This is to certify that this project report entitled “A COMPARATIVE STUDY OF

LIFE INSURANCE OF INDIA (LIC)” i done by AVIRAJ KINDO En. No.
72BBA017101 is an authentic work carried out for the partial fulfillment of the
requirement for the award of the degree of Bachelor of Business Administration by
him at Kalinga University under guidance of Mr.Paritosh Dubey. The matter
embodied in this project work has not been submitted earlier for award of any degree
or diploma to the best of my knowledge and belief.

Signature of the Student Signature of the Guide

 DECLARATION
I, the undersigned Aviraj Kindo hereby declare that the Project entitled, “A
Comparative Study of Life Insurance Corporation of India (LIC) ” submitted
to Kalinga University,Kotni,Raipur,(C.G) for the award of the BACHELOR OF
BUSINESS ADMINISTRATION in Management is a record of original and
independent research work carried out during the academic year 2018-2019 and
has not been previously submitted to any other university or institute for the award
of any degree.

I hereby declared that all information in this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Place : RAIPUR AVIRAJ KINDO

DATE : 72BBA017101
 ACKNOWLEDGEMENT
“It is not possible to prepare a project report without the assistance of
encouragement of other people. This one is certainly no exception”

On the very outset of this report. I would like to extend my sincere & heartfelt
obligation towards all the personages who have helped me in this endeavor. Without
their active guidance , help , cooperation & Encouragement , I would not have made
headway in the Project . I am ineffably indebted to Mr. Paritosh Dubey for
conscientious guidance and encouragement to accomplish this assignment. I am
extremely thankful and pay my gratitude to my faculty guide Mr. Paritosh Dubey
for his valuable guidance and support on completion of this project in its presently.

I extend my gratitude to KALINGA UNIVERSITY for giving me this opportunity, I

also acknowledge with a deep sense of reverence, my gratitude towards my parents
and member of my family , who has always supported me morally as well as
economically.
I Also thanks to Chancellor sir, Chairman sir, Registrar, and HOD sir, for giving
me this opportunity.

At last but not least gratitude goes to all of my friends who directly or indirectly
helped me to complete this project.

Any, omission in this brief acknowledgement does not mean lack of gratitude.

AVIRAJ KINDO
72BBA017101
 : Executive Summary :

Life insurance in its modern form came to India from England in 1818 with the
formation of Oriental Life Insurance Company. The Government of India
nationalized the life insurance industry in January 1956 by merging about 245
life insurance companies and forming Life Insurance Corporation of India (LIC),
which started functioning from 01.09.1956. For years thereafter, insurance
remained a monopoly of the public sector. It was only after seven years of
deliberation and debate that R. N. Malhotra Committee report of 1994 became
the first serious document calling for the re-opening up of the insurance sector to
private players. The sector was finally opened up to private players in 2001.The
Insurance Regulatory and Development Authority, an autonomous insurance
regulator set up in 2000, has extensive powers to oversee the insurance business
and regulate in a manner that will safeguard the interests of the insured.
Insurance is a federal subject in India. There are two legislations that govern the
sector- The Insurance Act-1938 and the IRDA Act-1999. The insurance sector in
India has come a full circle from being an open competitive market to
nationalization and back to a liberalized market again.

The objectives of the study are to compare cost efficiency and financial
performance of Life Insurance Corporation of India and private sector life
insurance companies in India, to understand the concept and mechanism of
insurance and to predict the volume of new business and total premium of life
insurance sector in India.

The study is divided into six chapters. The first chapter is introductory in nature
and deals with history of insurance, meaning and concept of insurance
principles of insurance, functions of insurance, importance of insurance, types
of life insurance policies, features of life insurance contract and duties, power
and functions of IRDA. The second chapter deals with literature review.
Research Methodology is dealth with in the third chapter which includes
research statement, hypothesis, objectives of the study, tools and methods of

iv
data analysis, scope and limitations of the study. The fourth chapter describes
profile of twenty two private life insurance Companies and Life insurance
corporation of India. The fifth chapter deals with data analysis. Linear trend,
percentage, ANOVA (one-way) and DEA method were used. The sixth chapter
gives the conclusion of the study and gives suggestions based on findings.

Both Life insurance density and penetration have increased from 2000-01 to
2009-10. The prediction of new business and total premium for both private
and public sector life insurance companies in India for the year 2015 shows an
upward trend. This signifies that there is a lot of scope for life insurance sector
to develop in India. The financial performance of Life Insurance Corporation of
India is better than private life insurance companies in India. The private life
insurance sector has nearly grabbed 30% of the market share in terms of total
premium income. LIC’s new business premium has fallen from 99.23% in
2000-01 to 65.08% in 2009-10. Unless Life Insurance Corporation of India is
alive to the emerging trends, its performance may decline further. Hence, Life
Insurance Corporation of India has to work with renewed vigor and enthusiasm
so as to retain its market share. The findings show a significant heterogeneity in
the cost efficiency scores from 2000-01 to 2009-10.It can be seen that Life
Insurance Corporation of India has consistently secured a cost efficiency score
of 1 in all the years from 2000-01 to 2009-10 and scored the highest rank for all
the years under study. Thus Life Insurance Corporation of India has
consistently been a cost efficient organization. While in the case of the private
life insurance companies, the cost efficiency score has been inconsistent except
for SBI Life insurance company which has secured a cost efficiency score of 1
in seven years out of ten years.

v
 TABLE OF CONTENTS

I Certificate
II Declaration
III Words of Gratitude
IV Executive Summary
V List of Tables

Page
Chapter Title
No.
No.
Chapter - 1 Introduction …………………………………………………………………………………... 1
1.1 Brief history of Insurance……………………………………………………………. 1
1.2 Meaning and concept of Insurance…………………………………………………... 2
1.3 Principles of Insurance………………………………………………………………. 4
1.4 Functions of Insurance……………………………….................................................. 5
1.5 Importance of Insurance……………………………………………………………... 7
1.6 Types of Life Insurance Policies…………………………………………………….. 11
1.7 Features of Life Insurance Contract…………………………………………………. 13
1.8 Life Insurance in India……………………………………………………………….. 27
1.9 Important Milestones in Life Insurance Regulations in India……………………….. 30
1.10 Malhotra Committee…………………………………………………………………. 32
1.11 The Insurance Regulatory and Development Authority…………………………….. 33
Chapter - 2 Literature Review……………………………………………………………………………... 37
Chapter - 3 Research Methodology……………………………………………………………………….. 51
3.1 Introduction…………………………………………………………………………..51
3.2 Research Statement………………………………………………………………….. 51
3.3 Research Design……………………………………………………………………... 52
3.3.1 Objectives of the Study……………………………………………………… 52
3.3.2 Nature of Data and Sources of Data………………………………………… 52
3.3.3 Sample Selection……………………………………………………………. 53
3.3.4 Hypothesis…………………………………………………………………... 54
3.3.5 Tools and Methods of Data Analysis……………………………………….. 55
3.3.5.1 Data Envelopment Analysis……………………………………… 55
3.3.5.1.1Introduction…………………………………………. 55
3.3.5.1.2Concept of Cost Efficiency………………………….. 56
3.3.5.1.3Estimation of cost efficiency- the standard approach.. 56
 3.3.5.1.4Estimation of cost efficiency- the new approach…… 57
3.3.5.1.5Different approaches of DEA under the new
approach……………………………………………... 57
3.3.5.1.6Strong points of DEA……………………………….. 58
3.3.5.1.7Specification of Inputs and Outputs………………… 59
3.3.5.1.7.1 Measurement of Output……………… 59
3.3.5.1.7.2 Measurement of Input………………… 59
3.3.5.2 Analysis of Variance……………………………………………... 60
3.3.5.2.1 Introduction…………………………………………. 60
3.3.5.2.2Assumptions for analysis of variance……………….. 61
3.3.5.2.3Classification of Analysis of Variance……………… 61
3.3.5.2.3.1 One - way classification………………. 61
3.3.5.2.3.2 Two - way classification……………… 64
3.3.5.3 Linear Trend……………………………………………………… 66
3.3.5.3.1 Introduction…………………………………………. 66
3.3.5.3.2Merits and Limitations of Linear Trend…………… 67
3.3.5.3.2.1 Merits of Linear Trend……………… 67
3.3.5.3.2.2 Limitations of Linear Trend………… 67
3.3.5.4 Ratio Analysis……………………………………………………. 68
3.3.5.4.1 Introduction………………………………………..... 68
3.3.5.4.2 Ratios……………………………………………….. 68
3.4Scope of the Study…………………………………………………………………… 70
3.5Limitations of the study……………………………………………………………… 70
Chapter - 4 Profile of Life Insurance Companies in India………………………………………………… 71
4.1 Public Sector…………………………………………………………………………. 71
Life Insurance Corporation of India………………………………………………… 71
4.2 Private Sector………………………………………………………………………… 74
4.2.1 HDFC Standard Life Insurance Co. Ltd………………………………….. 81
4.2.2 Max New York Life Insurance Co. Ltd…………………………………... 82
4.2.3 ICICI Prudential Life Insurance Co. Ltd…………………………………. 83
4.2.4 Kotak Mahindra Old Mutual Life Insurance Co. Ltd………………......... 84
4.2.5 Birla Sun Life Insurance Co. Ltd…………………………………………. 85
4.2.6 TATA AIG Life Insurance Co. Ltd………………………………………. 86
4.2.7 SBI Life Insurance Co. Ltd……………………………………………….. 87
4.2.8 ING Vysya Life Insurance Co. Ltd……………………………………….. 87
4.2.9 Bajaj Allianz Life Insurance Co. Ltd…………………………………….. 88
4.2.10Met Life India Insurance Co. Ltd………………………………………… 89
4.2.11Reliance Life Insurance Co. Ltd………………………………………….. 89
4.2.12Aviva Life Insurance Co. Ltd…………………………………………….. 90
4.2.13Sahara India Life Insurance Co. Ltd……………………………………… 91
 4.2.14 Shriram Life Insurance Co. Ltd…………………………………………..........92
4.2.15 Bharti AXA Life Insurance Co. Ltd……………………………………… 93
4.2.16 Future Generali India Life insurance Co. Ltd…………………………… 93
4.2.17 IDBI FORTIS Life Insurance Co. Ltd……………………………………. 95
4.2.18 Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd…….. 96
4.2.19 Aegon Religare Life Insurance Co. Ltd.............................................................98
4.2.20 DLF Pramerica Life Insurance Co. Ltd..............................................................99
4.2.21Star Union Dai-Ichi Life Insurance Co. Ltd 100
4.2.22India First Life Insurance Co. Ltd 101
Chapter - 5 Data Analysis…………………………………………………………………………………. 103
5.1Life Insurance Density and Penetration in India……………………………………. 103
5.1.1Life Insurance Density……………………………………………………. 103
5.1.2Life Insurance Penetration………………………………………………... 104
5.2 Market share based on Premium and Policies of Public and Private Sector Life
Insurance Companies………………………………………………………………… 105
5.2.1Market Share based on Total Premium…………………………………… 105
5.2.2Market share based on New Business 107
5.2.3Market Share based on Renewal Premium……………………………….. 109
5.2.4Market Share based on Total Policies…………………………………….. 110
5.3 Market share of Private Life Insurance Companies based on Total Premium and
New Business……………………………………………………………………… 113
5.3.1 Market share of Private Life Insurance Companies based on Total
Premium…………………………………………………………………... 113
5.3.2 Ranks given to Private Life Insurance Companies based on Total
Premium…………………………………………………………………... 115
5.3.3 Market Share of Private Life Insurance Companies based on New
Business………………………………………………………………… 117
5.3.4 Ranks given to Private Life Insurance Companies based on New
Business……………………………………………………………… 119
5.4 Prediction of New Business and Total Premium of Life Insurance Sector for the
year 2015…………………………………………………………………………….. 122
5.4.1Prediction of New Business for Public Sector……………………………. 122
5.4.2Prediction of New Business for Private Sector…………………………… 124
5.4.3Prediction of Total Premium for Public Sector………………………… 126
5.4.4Prediction of Total Premium for Private Sector………………………….. 128
5.5Analysis of Variance (ANOVA) (one way)…………………………………………. 130
5.6Cost Efficiency of Life Insurance Companies………………………………………. 134
5.6.1Cost Efficiency Score of Life Insurance Companies…………………….. 134
5.6.2 Ranks given to Life Insurance Companies based on Cost Efficiency
Score……………………………………………………………………… 137
Chapter - 6 Conclusion and Suggestions………………………………………………………………….. 144
6.1 SWOT Analysis of Insurance Industry in India……………………………………... 144
6.1.1 Strengths/Opportunities of Insurance Industry…………………………… 144
6.1.2 Weaknesses/Challenges of Insurance Industry…………………………… 145
6.2 Conclusion and Suggestions…………………………………………………………. 146
Bibliography…………………………………………………………………………………... 153
 LIST OF TABLES

Table Page
No. Title No.
I Importance Milestones Life Insurance Regulations in India……………........ 30

II Private Life Insurance Companies…………………………………………… 74

III Private Life Insurance Companies and their Promoter………….................... 76

IV Insurer wise Life Insurance Offices…………………….................................. 79

V International comparison of Life Insurance Density………………………… 103

VI International comparison of Life Insurance Penetration…………………….. 104

VII Market share based on Total Premium………………………………………. 106

VIII Market share based on New Business……………………………………….. 108

IX Market share based on Renewal premium………………………………........ 109

X Market share based on Total Policies…………………................................... 111

XI Market share of Private Life Insurance Companies based on Total Premium. 113

XII Ranks given to Private Life Insurance Companies based on Total Premium.. 115

XIII Market share of Private Life Insurance Companies based on New Business.. 117

XIV Ranks given to Private Life Insurance Companies based on New Business… 119

XV Trend values of New Business (Public Sector)……………………………… 122

XVI Trend values of New Business (Private Sector)……………………………... 124

XVII Trend values of Total Premium (Public Sector)……………………………... 126

XVIII Trend values of Total Premium (Private Sector)……….................................. 128

XIX Total commission to total premium …………………..................................... 130

XX Total commission to total operating expense………………………………... 130

XXI Actuarial efficiency………………………………………………………….. 131

XXII Current ratio………………………………………………………………….. 132

XXIII Proprietary ratio……………………………………………………………… 132

XXIV Total investment to total liability…………………………………………… 133

XXV Cost Efficiency Score…………………………………................................... 134

XXVI Ranks given to Life Insurance Companies based on Cost Efficiency Score… 137

XXVII Descriptive statistics of Cost Efficiency Score …………................................ 140

XXVIII Cost Efficient Life Insurance Companies…………………………………… 141

 Chapter : 1
Introduction
1.1 BRIEF HISTORY OF INSURANCE

The Indian life insurance industry has its own origin and history, since its
inception. It has passed through many obstacles, hindrances to attain the present
th
status. Insurance owes its existence to 17 century England. In fact, it took shape
in 1688 at a rather interesting place called Lloyd's Coffee House in London,
where merchants, ship-owners and underwriters met to discuss and transact
business. The first stock companies to get into the business of insurance were
chartered in England in 1720. The year 1735 saw the birth of the first insurance
company in the American colonies in Charleston. In 1759, the Presbyterian Synod
of Philadelphia sponsored the first life insurance corporation in America for the
benefit of ministers and their dependents.

Life insurance in its modern form came to India from England in 1818 with the
formation of Oriental Life Insurance Company (OLIC) in Kolkata mainly by
Europeans to help widows of their kin. Later, due to persuasion by one of its
directors (Shri Babu Muttyal Seal), Indians were also covered by the company.
However, it was after 1840 that life insurance really took off in a big way.
By1868, 285 companies were doing business of insurance in India. Earlier
these companies were governed by Indian company Act 1866.

By 1870, 174 companies ceased to exist, when British Parliament enacted

Insurance Act 1870. These companies however, insured European lives. Those
Indians who were offered insurance cover were treated as sub-standard lives
and were accepted with an extra premium of 15% to 20%. By the end of the
th
18 century, Lloyd's had brewed enough business to become one of the first
modern insurance company.

1
1.2 Meaning and concept of Insurance

Life is a roller coaster ride and is full of twists and turns. Insurance policies are
a safeguard against the uncertainties of life. As in all insurance, the insured
transfers a risk to the insurer, receiving a policy and paying a premium in
exchange. The risk assumed by the insurer is the risk of death of the insured in
case of life insurance.

Insurance policies cover the risk of life as well as other assets and valuables
such as home, automobiles, jewelry etc. On the basis of the risk they cover,
insurance policies can be classified into two categories:

(a) Life Insurance

(b) General Insurance

Life insurance products cover risk for the insurer against eventualities like
death or disability. Non-life insurance products cover risks against natural
calamities, burglary, etc.

Insurance is system by which the losses suffered by a few are spread over
many, exposed to similar risks. With the help of Insurance, large numbers of
people exposed to a similar risk make contributions to a common fund out of
which the losses suffered by the unfortunate few, due to accidental events, are
made good. Insurance is a protection against financial loss arising on the
happening of an unexpected event. Insurance policy helps in not only
mitigating risks but also provides a financial cushion against adverse financial
burdens suffered.

Insurance is defined as a co-operative device to spread the loss caused by a

particular risk over a number of persons who are exposed to it and who agree to
ensure themselves against that risk. Risk is uncertainty of a financial loss.
Insurance is also defined as a social device to accumulate funds to meet the
uncertain losses arising through a certain risk to a person injured against the

2
risk. Insurance provides financial protection against a loss arising out of
happening of an uncertain event. A person can avail this protection by paying
premium to an insurance company. A pool is created through contributions
made by persons seeking to protect themselves from common risk. Any loss to
the insured in case of happening of an uncertain event is paid out of this pool.
Life insurance has come a long way from the earlier days when it was
originally conceived as a risk-covering medium for short periods of time,
covering temporary risk situations, such as sea voyages. As life insurance
became more established, it was realized what a useful tool it was for a number
of situations that includes temporary needs, threats, savings, investment,
retirement etc. Insurance is a contract between two parties whereby one party
agrees to undertake the risk of another in exchange for consideration known as
premium and promises to pay a fixed sum of money to the other party on
happening of an uncertain event (death) or after the expiry of a certain period
in case of life insurance or to indemnify the other party on happening of an
uncertain event in case of general insurance. The party bearing the risk is
known as the 'insurer' or 'assurer' and the party whose risk is covered is known
as the 'insured' or 'assured'.

According to the U.S. Life Office Management Inc., “Life Insurance provides a
sum of money if the person who is insured dies whilst the policy is in effect.”

The definition of insurance can be seen from two view points:

(a) Functional Definition

(b) Contractual Definition

(a) Functional Definition

Insurance is a co-operative device of distributing losses, falling on an

individual or his family over large number of persons each bearing a nominal
expenditure and feeling secure against heavy loss.

3
(b) Contractual Definition

Insurance may be defined as a contract consisting of one party (the insurer)

who agrees to pay to other party (the insured) or his beneficiary, a certain sum
upon a given contingency against which insurance is sought.

1.3 Principles OF INSURANCE

Insurance is based upon:

(a) Principles of Co-operation

(b) Principles of Probability

(a) Principles of Co-operation

Insurance is a co-operative device. If one person is providing for his own

losses, it cannot be strictly insurance because in insurance the loss is shared by
a group of persons who are willing to co-operate.

(b) Principles of Probability

The loss in the form of premium can be distributed only on the basis of theory
of probability. The chances of loss are estimated in advance to affix the amount
of premium. Since the degree of loss depends upon various factors, the
affecting factors are analyzed before determining the amount of loss. With the
help of this principle, the uncertainty of loss is converted into certainty. The
insurer will not have to suffer loss as well as gain windfall. Therefore, the
insurer has to charge only so much of amount which is adequate to meet the
losses.

The insurance, on the basis of past experience, present conditions and future
prospects, fixes the amount of premium. Without premium, no co-operation is
possible and the premium cannot be calculated without the help of theory of
probability, and consequently no insurance is possible.

4
1.4 FUNCTIONS OF INSURANCE

The functions of Insurance can be bifurcated into three parts:

(a) Primary Functions

(b) Secondary Functions

(a) Primary Functions

The primary functions of insurance include the following:


Provide Protection

The primary function of insurance is to provide protection against future risk,

accidents and uncertainty. Insurance cannot check the happening of the risk,
but can certainly provide for losses of risk. Insurance is actually a protection
against economic loss, by sharing the risk with others.

Assessment of risk

Insurance determines the probable volume of risk by evaluating various factors

that give rise to risk. Risk is the basis for determining the premium rate also.

Collective bearing of risk

Insurance is a device to share the financial loss of few among many others.
Insurance is a mean by which few losses are shared among larger number of
people. All the insured contribute premiums towards a fund, out of which the
persons exposed to a particular risk are paid.

Savings and investment

Insurance serves as a tool for savings and investment, insurance is a

compulsory way of savings and it restricts the unnecessary expenses by the
insured. For the purpose of availing income-tax exemptions, people invest in
insurance also.
5
(b) Secondary Functions

The secondary functions of insurance include the following:


Prevention of Losses

Insurance cautions individuals and businessmen to adopt suitable device to

prevent unfortunate consequences of risk by observing safety instructions;
installation of automatic sparkler or alarm systems, etc. Reduced rate of
premiums stimulate more business and better protection to the insured.

Small capital to cover large risks

Insurance relieves the businessmen from security investments, by paying small

amount of premium against larger risks and uncertainty.

Contributes towards the development of large industries

Insurance provides development opportunity to large industries having more

risks. Even the financial institutions may be prepared to give credit to sick
industrial units which have insured their assets including plant and machinery.

Source of Earning Foreign Exchange

Insurance is an international business. The country can earn foreign exchange

by way of issue of insurance policies.

Risk Free Trade

Insurance promotes exports insurance, which makes the foreign trade risk free
with the help of different types of policies under marine insurance cover.

6
1.5 IMPORTANCE OF INSURANCE

The process of insurance has been evolved to safeguard the interests of people
from uncertainty by providing certainty of payment at a given contingency.
Insurance not only serve the ends of individuals, or of special groups of
individuals, it tends to pervade and transform our modern social order, too. The
role and importance of insurance, here, has been discussed from an individual,
business and society‟s view:

(A) Individual

Insurance provides security and safety

Insurance provides safety and security against the loss on a particular event. In
case of life insurance, payment is made when death occurs or the term of
insurance expires. The loss to the family at a premature death and payment in
old age are adequately provided by insurance. In other words security against
premature death and old age sufferings are provided by life insurance. In other
insurance, too, this security is provided against the loss at a given contingency.
for eg. property of insured is secured against loss due to fire in fire insurance.

Insurance affords peace of mind

Insurance provide security which is the prime motivating factor. It tends to

stimulate an individual do more work.

Insurance protects mortgaged property

At the death of the owner of the mortgaged property, the property is taken over
by the lender of money and the family is deprived of the use of the property.
On the other hand, the mortgagee wishes to get the property insured because at
the damage or destruction of the property he may lose his right. Insurance
provides adequate amount to the dependents at the early death and the

7
property-owner to pay off the unpaid loans. Similarly, the mortgagee gets
adequate amount at the loss of the property.

Insurance eliminates dependency

At the death of the husband or father or earning mother, the loss to the family
needs no elaboration. Similarly, at destruction of property and goods, the family
would suffer a lot. The economic independence of the family is reduced or,
sometimes, lost totally. Insurance tries to eliminate dependency.

Life Insurance encourages saving

The elements of protection and investment are present only in case of life
insurance. In property insurance, only protection element exists. In most of the
life policies elements of saving predominates. Systematic saving is possible
because regular premiums are required to be compulsorily paid. In insurance
the deposited premium cannot be withdrawn easily before the expiry of the
term of the policy. The compulsion to pay premium in insurance is so high that
if the policy-holder fails to pay premiums within the days of grace, he subjects
his policy to lapsation and may get back only a very nominal portion of the
total premiums paid on the policy. For the preservation of the policy, he has to
try his level best to pay the premium.

Life Insurance provides profitable investment

Individuals unwilling or unable to handle their own funds are pleased to find an
outlet for their investment in life insurance policies. The elements of
investment i.e. regular saving, capital formation, and return of capital along
with certain additional return are perfectly observed in life insurance. Life
insurance fulfils all these requirements at a low cost.

8
(B) Business

Business efficiency is increased with insurance

When the owner of a business is free from the botheration of losses, he will
certainly devote much time to the business. The carefree owner can work better
for the maximization of the profit. The new as well as old businessmen are
guaranteed payment of certain amount with the insurance policies at the death
of the person; at the damage, destruction or disappearance of the property or
goods. The uncertainty of loss may affect the mind of the businessman
adversely. Insurance removes the uncertainty and stimulates the businessmen to
work hard.

Enhancement of Credit

Business can obtain loan by pledging the policy as collateral for the loan. And
persons can get more loans due to certainty of payment at their deaths. The
insurance properties are the best collateral and adequate loans are granted by
the lenders.

Business continuation

In partnership, business may discontinue at the death of any partner although

the surviving partners can re-start the businesses, but in both the cases the
business and the partners will suffer economically. Insurance policies provide
adequate fund at the time of death. Each partner may be insured for the amount
of his interest in the partnership and his dependents may get that amount at the
death of partner. With the help of property insurance, the property of the
business is protected against disasters and the chance of disclosure of the
business is reduced.

Welfare of Employee

The welfare of employees is the responsibility of the employer. The former

work for the latter. Therefore, the latter has to look after the welfare of the
9
former which can be provision for early death, provision for disability and
provision for old age. These requirements are easily met by the life insurance,
accident and sickness benefit and pensions which are generally provided by
group insurance. The premium for group insurance is generally paid by the
employer. This plan is the cheapest form of insurance for employers to fulfill
their responsibilities. The employees will devote their maximum capacities to
complete their jobs when they are assured of the above benefits. The struggle
and strife between employees and employer can be minimized easily with the
help of such schemes.

(C) Society

Wealth of the society is protected

The loss of a particular wealth can be protected with insurance. Life insurance
provides for loss of human wealth. The human force, if it is strong, educated
and care-free, will generate more income. Similarly, the loss of damage of
property at fire, accident etc., can well indemnified by property insurance ,
cattle, crop, profit and machines are also protected against their accidental and
economical losses. With the advancement of the society, the wealth or the
property of the society attracts more hazard and so new types of insurance are
also invented to protect them against possible losses. Through the prevention of
economic losses, insurance protects the society against degradation. Through
stabilization and expansion of business and industry, the economic security is
maximized. The present, future and potential human and the property resources
are well protected.

Economic Growth of the country

For the economic growth of the country, insurance provides protection against
loss of property and adequate capital to produce more wealth. Welfare of
employees creates a conducive atmosphere to work. Adequate capital from
insurers accelerates production cycle. Similarly in business, too, the property

10
and human materials are protected against certain losses, capital and credit are
expanded with the help of insurance. Thus, the insurance meets all the
requirements for the economic growth of a country.

1.6 Types of Life Insurance Policies

A life insurance policy could offer pure protection (insurance), another variant
could offer protection as well as investment while some others could offer only
investment. In India, life insurance has been used more for investment purposes
than for protection in one‟s overall financial planning. Followings are the types
of life insurance policy:

Term Life Insurance Policy

As its name implies, term life insurance policy is for a specified period. It
depends on the length of time. It has one of the lowest premiums among
insurance plans and also carries an added advantage of fixed payments that do
not increase during the term of the policy. In case of the policy holder's
untimely demise, the benefit amount specified in the insurance agreement goes
to the nominees.

Whole Life Insurance Policy

Whole life insurance policies do not have any fixed term or end date and is
only payable to the designated beneficiary after the death of the policy holder.
The policy owner does not get any monetary benefits out of this policy.
Because this type of insurance involves fixed known annual premiums, it's a
good option to ensure guaranteed financial benefits for surviving family
members.

Money Back Plan

With a money back plan, policyholder receives periodic payments, which are a
percentage of the entire amount insured, during the lifetime of policy. It's a

11
plan that offers insurance coverage along with savings. These policies provide
for periodic payments of partial survival benefits during the term of the policy
itself. A unique feature associated with this type of policies is that in the event
of death of the insured during the policy term, the designated beneficiary will
get the full sum assured without deducting any of the survival benefit amounts,
which have already been paid as money-back components. Moreover, the
bonus on such policies is also calculated on the full sum assured.

Pension Plan

Pension plans are different from other types of life insurance because they do
not provide any life insurance cover, but ensure a guaranteed income, either for
life or for a certain period. The Policyholder makes the investment for a
pension plan either with a single lump sum payment or through installments
paid over a certain number of years. In return, he gets a specific sum every
year, every half-year or every month, either for life or for a fixed number of
years. In case of the death of the insured, or after the fixed annuity period
expires for annuity payments, the invested annuity fund is refunded, usually
with some additional amounts as per the terms of the policy.

Endowment Policy

It is the most popular life insurance plan. This policy combines risk cover with
objective of savings and investment. If the policy holder dies during the policy
period, he will get the assured amount. Even if he survives he will receive the
assured amount. The advantage of this policy is if the policy holder survives
after the completion of policy tenure, he receives assured amount plus
additional benefits like bonus from the insurance company. Designed primarily
to provide a living benefit, along with life insurance protection, the endowment
policy makes a good investment if policyholder wants coverage, as well as
some extra money.

12
There are two types of Endowment policy:

(a) Without-profit endowment plan

(b) With- profit endowment plan

(a) Without profit endowment plan

These plans do not participate in the profits the insurance company makes each
year. Apart from the sum assured, the policyholder could possibly get a loyalty
bonus, which is a one time payout.

(b) With-profit endowment plan

These plans share the profits the insurance company makes each year with the
policyholder. So they offer more returns than without-profit endowment plans
and are more expensive i.e. the premiums will be higher than without-profit
endowment plans.

Unit-linked insurance plan (ULIP)

Unit-linked insurance plans gives a policyholder greater control on where

premium can be invested. The annual premium is invested in various types of
funds that invest in debt and equity in a proportion that suits all types of
investors. A policyholder can switch from one fund plan to another freely and
can also monitor the performance of his plan easily. ULIP is suitable for those
who understand the stock market well.

1.7 FEATURES OF LIFE INSURANCE Contract

Human life is an income generating asset. This asset can be lost through
unexpected death or made non functional through sickness or disability caused
by an accident. On the other hand there is a certainty that death will happen,
but its timing is uncertain. Life insurance protects against loss.

13
Life insurance contract may be defined as the contract, whereby the insurer in
consideration of a premium undertakes to pay a certain sum of money either on
the death of the insured or on the expiry of a fixed period. The definition of the
life insurance contract is enlarged by Section 2(ii) of the Insurance Act 1938 by
including annuity business. Since, the life insurance contract is not an
indemnity contract; the undertaking on the part of the insurer is an absolute one
to pay a definite sum on maturity of policy at the death or an amount in
installment for a fixed period or during the life.

Features of Life Insurance Contract:

Followings are the features of life insurance contract:

i. Nature of General Contract

ii. Insurable Interest

iii. Utmost Good Faith

iv. Warranties

v. Proximate Cause

vi. Assignment and Nomination

In life insurance contract the first three features are very important while the
rest of them are of complementary nature.

(i) Nature of General Contract

Since the life insurance contract is a sort of contract it is approved by the

Indian Contract Act. According to Section 2(H) and Section 10 of Indian
Contract Act, a valid contract must have the following essentialities:

(a) Agreement (offer and acceptance)

(b) Competency of the parties

14
 (c) Free consent of the parties

(d) Legal consideration

(e) Legal objective

(a) Agreement (offer and acceptance)

An offer or proposal is intimation to another of one‟s intention to do or to

abstain from doing anything with a view to obtaining the assent of that other
person to such an act or abstinence. When the person to whom the proposal or
offer is made signifies his assent to it, the offer is said to be accepted. The offer
and acceptance in life insurance is of typical nature. The Agents‟ canvassing or
publication of prospectus and of uses of insurance constitutes invitation to offer
because the public in general and individual in particular are invited to make
proposal for insurance. Submission of proposal along with the premium is an
offer and the dispatch of acceptance-letter is the acceptance. The risk will
commence as soon as the acceptance letter is dispatched by the insurer. When
the proposal is not accompanied with the first premium, it would be an
invitation to offer by the prospect and the letter of insurer (generally acceptance
letter with modification is sent) asking the proposal to pay the first premium
without any alteration is an offer and the payment of first premium by the
prospect is acceptance. As soon as premium is dispatched, acceptance is made
provided there was no alteration in the terms and conditions.

Another case may be when the insurer desires to accept the proposal only on
certain modifications. The letter (generally the acceptance letter) sent to the
prospect about the desire of change in terms and conditions are an offer if the
first premium was not sent along with the proposal. But if the first premium
was sent along with the proposal, it would be a counter-offer. If the premium
was not already sent, it would be an acceptance. Thus the acceptance letter sent
by the insurer is not always acceptance. It would be acceptance only when the
first premium was accompanied with the proposal and the proposal is

15
acceptable on normal rates and terms. In other cases it would be an offer or
counter-offer.

(b) Competency of the Parties

The essential element of a valid Contract is that the parties to it must be legally
competent to contract. Every person is competent to contract who is of the age
of majority according to the law, who is of sound mind, and who is not
disqualified from contracting by any law. The insurer will be competent to
contract if he has got the license to carry on insurance business. Majority is
attained when a person completes age of 18 years. A minor is not competent to
contract. A contract by a minor is void excepting contracts for necessaries. The
minor can repudiate the contract at any time during his minority. If the life
insurance policy is issued to a minor, the insurer cannot repudiate it but the
minor can repudiate it during his minority. At the attainment of majority, he has
to exercise the option, within a reasonable time, whether he would continue to
carry on the policy or not. Generally, insurer accepts the proposal forms
completed by the guardians of the minors. So, the incompetence of contract
does not arise. Persons of sound mind can enter into a contract. A person is said
to be of sound mind for the purpose of making a contract if at the time when he
makes it, he is capable of understanding it and of forming a rational judgment
as to its effect upon his interests. A person who is usually of unsound mind, but
occasionally of sound mind may make a contract when he is of sound mind. A
person usually of sound mind, but occasionally of unsound mind, may not
make a contract when he is of unsound mind. So, an intoxicated person cannot
enter into a contract. The contract may be avoidable at his option, but in order
to be avoided, it must be repudiated by the insured within a reasonable time of
his becoming sober. Similarly, when an originally valid contract has been
entered into, it will not be affected by one of the parties becoming lunatic
afterwards. A contract with an alien enemy is void. An alien enemy is
disqualified from, and is incapable of entering into contract or enforcing it.
When an alien with whom an insurance contract has been entered into becomes

16
an enemy afterwards, the contract is either suspended or terminated as from the
declaration of war.

(c) Free Consent of the Parties

In life insurance, both parties must know the exact nature of the risk to be
underwritten. If the consent is not free, the contract is generally avoidable at
the option of the party whose consent was not freely given.

(d) Legal Consideration

The presence of a lawful consideration is essential for a legal contract. The

insurer must have some consideration in return of his promise to pay a fixed
sum at maturity or death whichever may be the case. The consideration need
not be money only. It should be anything valuable or to which value may be
assigned. It may be interest, right, dividend, etc. The first premium is
consideration and subsequent premiums are merely conditions to contract.

(e) Legal Objective

The contract would be legal only when the object is legal. The object of a legal
life insurance contract is to protect oneself or one‟s family against financial
losses at the death of the insured. The contract is, sometimes, to provide for
financial emergencies that may occur in old age. In brief the contract will be
lawful only when the objective is legal. The objective will be legal only when
there is insurable interest. Without having this interest, the object of the
contract would not be legal. It would be wager contract and against public
policy.

(ii) Insurable Interest

Insurable interest is the pecuniary interest. The insured must have insurable
interest in the life to be insured for a valid contract. Insurable interest arises out
of the pecuniary relationship that exists between the policy-holder and the life
assured so that the former stands to loose by the death of the latter and/or

17
continues to gain by his survival. If such relationship exists, then the former has
insurable interest in the life of the latter. The loss should be monetary or
financial. Mere emotion and expectation do not constitute insurable interest in
the life of his friend or father merely because he gets valuable advices from
them.

Insurable interest in life insurance may be divided into two categories.

(a) Insurable interest in own life and

(b) Insurable interest in other‟s life.

The latter can be sub-divided into two classes:

(a) Where proof is not required and

(b) Where proof is required

Again this insurable interest where proof is required can be divided into
two classes:

(i) Insurable interest arising due to business relationship, and

(ii) Insurable interest in family relationship

Insurable interest

Own‟s life Other‟s life

Proof is not required Proof is required

Business Relationship Family Relationship

18
(A) Insurable interest in own’s Life

An individual always has an insurable interest in his own life. Its presence is
not required to be proved. Bunyon says, „Every man is presumed to possess an
insurable interest in his estate for the loss of his future gains or savings which
might be the result of his premature death’. The insurable interest in own life is
unlimited because the loss to the insured or his dependents cannot be measured
in terms of money and, therefore, no limit can be placed to the amount of
insurance that one may take on one‟s own life. Thus, theoretically, a person can
take a policy of any unlimited amount on his own life but in practice no insurer
will issue a policy for an amount larger than amount seems suitable to the
circumstances and means of the applicant.

(B) Insurable interest in other’s life

Life insurance can be affected on the lives of third parties provided the
proposed has insurable interest in the third party. There are two types of
insurable interest in other‟s life. First where proof is not required and second,
where proof is required.

(a) Proof is not required

There are only two such cases where the presence of insurable interest is
legally presumed and therefore need not be proved.

Wife has insurable interest in the life of her husband

It is presumed and decided by Reed vs. Royal Exchange (1795) that wife has
an insurable interest in the life of her husband because husband is legally
bound to support his wife. The wife will suffer financially if the husband is
dead and will continue to gain if the husband is surviving. Since, the extent of
loss or gain cannot be measured in this case; the wife has insurable interest in
the husband‟s life up to an unlimited extent.

19

Husband has insurable interest in the life of his wife

It was decided in Griffith vs. Fleming (1909) that the husband has insurable
interest in his wife‟s life because of domestic services performed, by the wife.
If the wife is dead, husband has to employ other person to render the domestic
services and other financial expenditures will involve at her death which are
not calculable. The husband is benefited at the survival of his wife, so it is self-
proved that husband has insurable interest in his wife‟s life. Since the monetary
loss at her death or monetary gain at his survival cannot be measured, there is
unlimited insurable interest in the life of wife.

(b) Proof is required

Insurable interest has to be proved in the following cases:


Business Relationship

The policyholder may have insurable interest in the life of assured due to
business or contractual relationship. In this case, the amount of insurance
depends on the amount of risk involved. Example, a creditor may lose money if
the debtor dies before the loan is repaid. The continuance of debtor‟s life is
financially meaningful to the creditor because the latter will get all his money
repaid at the former‟s survival. The maximum amount of loss to a creditor may
be the amount of outstanding loan plus interest thereon and the amount of
premium paid. So, the maximum amount of insurable interest is limited to the
outstanding loan, plus interest and amount of premium expected to be paid. The
interest is calculated on the estimation of duration of debt to be paid. The full
amount of policy is payable irrespective of the payment of loan and interest.
Since it is life insurance, the full policy amount is paid. A trustee has insurable
interest in respect of the interest of which he is trustee because at the survival
of the other person, the trustee is benefited and at his death he will suffer. A
surety has insurable interest in the life of his principal. If the principal (the
debtor) is dead, the surety is responsible for payment of outstanding loan, or

20
obligated amount. At the survival of principal, he will not suffer this loss.
Insurable interest is limited, up to the amount of outstanding loan, interest and
premium paid. A partner has insurable interest in the life of each partner. At the
death of a partner, the partnership will be dissolved and the surviving partner
will lose financially. Even if the firm continues at the death of the partner, the
firm has to pay deceased partner‟s share to his dependents. This will involve a
huge financial loss to the partnership. Therefore, the firm collectively can
purchase insurance policies in the life of each partner of the firm. Similarly all
the partners have insurable interest in life of each partner because they will
financially suffer at the death of partners.

Family Relationship

The insurable interest may arise due to family relationship if pecuniary interest
exists between the policyholders and life assured because mere relationship or
ties of blood and of affection does not constitute insurable interest. The
proposer must have a reasonable expectation of financial benefit from the
continuance of the life of the person to be insured or of financial loss from his
death. The interest must be based on value and not on mere sentiments.
Similarly, mere moral obligation is not sufficient to warrant existence of
insurable interest although legal obligation to get support will form insurable
interest of the person who is supported in life of the person. Thus a son can
insure his father‟s life only when he is dependent on him and the father can
take insurance policy on his son‟s life only when he is dependent on his son.

General Rules of Insurable Interest in Life Insurance:


Time of Insurable Interest

Insurable interest must exist at the time of proposal. Policy, without insurable
interest, will be wager. It is not essential that the insurable interest must be
present at the time of claim.

21

Services

Except the services of wife, services of other relatives will not essentially form
insurable interest. There must be financial relationship between the proposer
and the life-assured. In other words, the services performed by the son without
dependence of his father, will not constitute insurable interest of the father in
the life of his son. Vice-versa is not essential for forming insurable interest.

Insurable Interest must be valuable

In business relationship the value or extent of the insurable must be determined

to avoid wager contract of additional insurance. Insurance is limited only up to
the amount of insurable interest.

Insurable interest should be valid

Insurable interest should not be against public policy and it should be

recognized by law. Therefore, the consent of life assured is very essential
before the policy can be issued.

Legal responsibility may be basis of insurable interest

Since the person will suffer financially up to the extent of responsibility, the
proposal has insurable interest to that extent.

Insurable Interest must be definite

Insurable interest must be present definitely at the time of proposal. Mere

expectation of gain or support will not constitute insurable interest.

Legal Consequence

Insurable interest must be there to form legal and valid insurance contract.
Without insurable interest, it would be null and void.

22
(iii) Utmost Good Faith

Life insurance requires that the principle of utmost good, faith should be
preserved by both the parties. The principle of utmost good faith says that the
parties, proposer (insured) and insurer must be of the same mind at the time of
contract because only then the risk may be correctly ascertained. They must
make full and true disclosure of the facts material to the risk.

Material facts

In life insurance material facts are age, income, occupation, health, habits,
residence, family history and plan of insurance. Material facts are determined
not on the basis of opinion, therefore, the proposer should disclose not only
those matters which the proposer may feel are material but all facts which are
material.

Duty of both parties

It is not only the proposer but the insurer also who is responsible to disclose all
the material facts which are going to influence the decision of the proposer.
Since the decision is taken mostly on the basis of subject-matter, the life to be
insured in life insurance, and the material facts relating to the subject-matter
are known or is expected to be known by the proposer; it is much more
responsibility of the proposer to disclose the material facts.

Full and True Disclosure

Utmost good faith says that there should be full and true disclosure of all the
material facts. Full and true means that there should be no concealment,
misrepresentation, half disclosure and fraud of the subject matter to be insured.

Legal Consequence

In the absence of utmost good faith the contract will be avoidable at the option
of the person who suffered loss due to non-disclosure. The intentional non-

23
disclosure amounts to fraud and the unintentional non-disclosure is voidable at
the option of the party not at fault. Once the voidable contract has been
validated by the party not at fault, the contract cannot be avoided by him later
on. For instance, if the insurer has continued to accept the premium when,
certain non-disclosure, say miss-statement of age, has been disclosed the
insurer cannot invalid the contract and cannot refute to pay the amount of
claim. If the party not at fault does not exercise its option, the contract will
remain valid.

Indisputability of Policy

The doctrine of utmost good faith works as a great hardship for a long period
on the plea of miss-statement at the time of proposal. In such cases, it would be
very difficult to prove or disprove whether a particular statement made, at the
time of policy was true. Therefore, to remove this hardship, certain sections in
the concerned Act are provided. In India, Section 45 of the Insurance, Act 1938
deals with such dispute. It is called indisputable clause, “ . . . .No policy of life
insurance, after expiry of two years from the date on which it was effected, be
called into question by an insurer on the ground that a statement made in the
proposal for insurance or in any report of a medical officer or referee or friend
of the insured or in any other document leading to the issue of the policy was
inaccurate or false, unless the insurer shows that such statement was on a
material matter or suppressed facts which it was material to disclose and that it
was fraudulently made by the policy-holder and that the policyholder knew at
the time of making it that the statement was false or that it suppressed facts
which it was material to disclose. Provided that nothing in this section shall
prevent the insurer from calling for proof of age at any time if he is entitled to
do so.

(iv) Warranties

Warranties are an integral part of the contract, i.e., these are the basis of the
contract between the proposer and insurer and if any statement, whether

24
material or non-material, is untrue, the contract shall be null and void and the
premium paid by him may be forfeited by the insurer. The policy issued will
contain that the proposal and personal statement shall form part of the Policy
and be the basis of the contract. Warranties may be informative and promissory.
In life insurance the informative warranties are more important. The proposal is
expected to disclose all the material facts to the best of his knowledge and
belief. Warranties relating to the future may only be statements about his
expectation or intention, for instance, the insured promises that he will not take
up any hazardous occupation and will inform the insurer if he will take the
hazardous occupation.

Breach of Warranty

If there is breach of warranty, the insurer is not bound to perform his part of the
contract unless he chooses to ignore the breach. The effect of a breach of
warranty is to render the contract voidable at the option of the other party
provided there is no element of fraud. In case of fraudulent representation or
promise, the contract will be Void ab initio.

(v) Proximate Cause

The efficient or effective cause which causes the loss is called proximate cause.
It is the real and actual cause of loss. If the cause of loss (peril) is insured, the
insurer will pay; otherwise the insurer will not compensate. In life insurance
the doctrine of Causa Proxima (Proximate Cause) is not applicable because the
insurer is bound to pay the amount of insurance whatever may be the reason of
death. It may be natural or unnatural. So, this principle is not of much practical
importance in connection with life assurance, but in the following cases the
proximate causes are observed in the life insurance, too.

War-risk

Where Policy is issued on exclusion of war and aviation risks, the proximate
cause of death is important because the Insurer waives its liability if death

25
occurred, in this case, while the insured was in field or is engaged in operation
of war and aviation. Only premium paid or surrender value whichever is higher
is payable and the total Policy amount is not payable.

Suicide

If suicide occurs within one year of the policy, or there was intention to commit
suicide, the payment of policy would be restricted, only up to the interest of the
third party in the policy provided, the interest was expressed at least one month
before the suicide.

Accident Benefit

A problem arises when an insured under an accident Policy is killed or suffers

an injury which has an immediate cause and also a remote cause. In accident
benefit policy, double of the Policy amount is paid. So, the cause of death in
this Policy is of paramount importance.

(vi) Assignment and Nomination

The Policy in life insurance can be assigned freely for a legal consideration or
love and affection. The assignment shall be complete and effectual only on the
execution of such endorsement either on the Policy itself or by a separate deed.
Notice for this purpose must be given to the insurer who will acknowledge the
assignment. Once the assignment is completed, it cannot be revoked by the
assignor because he ceases to be the owner of the Policy unless reassignment is
made by the assignee in favour of the assignor. An assignee may be the owner
of the policy both on survival of the life assured, or on his death according to
the terms of transfer. The life policies are the only Policies which can be
assigned whether the assignee has an insurable interest or not.

The holder of a policy of life insurance on his own life may, either at the time
of affecting policy or at any subsequent time before the Policy matures,
nominate the person or persons to whom the money secured by the policy shall

26
be paid in the event of his death. A nomination can be cancelled before
maturity, but unless notice is given of any such cancellation to the insurer, the
insurer will not be liable for any bonafide payment to a nominee registered in
the records. When the policy matures, or if the nominee dies, the sum shall be
paid to the Policy-holder or his legal representatives.

1.8 Life Insurance in India

Life insurance in the modern form was first set up in India through a British
company called the Oriental Life Insurance Company in 1818 followed by the
Bombay Assurance Company in 1823 and the Madras Equitable Life Insurance
Society in 1829. All these companies operated in India but did not insure the
lives of Indians. They insured the lives of Europeans living in India. Some of
the companies that started later did provide insurance for Indians, as they were
treated as “substandard”. Substandard in insurance parlance refers to lives with
physical disability. Pioneering efforts of reformers and social workers like Raja
Rammohan Ray, Dwarakanath Tagore, Ramatam Lahiri, Rustomji Cowasji and
others led to entry of Indians in insurance business. The first Indian insurance
company under the name „Bombay Life Insurance Society‟ started its
operation in 1870, and started covering Indian lives at standard rates. Later
„Oriental Government Security Life Insurance Company‟, was established in
1874, with Sir Phirozshah Mehta as one of its founder directors. Insurance in
India can be traced back to the Vedas. For instance, yogakshema, the name of
Life Insurance Corporation of India's corporate headquarters, is derived from
the Rig Veda. The term suggests that a form of „community insurance‟ was
prevalent around 1000 BC and practiced by the Aryans.

Insurance business was conducted in India without any specific regulation for the
insurance business. They were subject to Indian Companies Act 1866. After the
start of the „Be Indian Buy Indian Movement‟ (called Swadeshi Movement) in
1905, indigenous enterprises sprang up in many industries. It was during the
th
swadeshi movement in the early 20 century that insurance witnessed a big

27
boom in India with several more companies being set up. Not surprisingly, the
Movement also touched the insurance industry leading to the formation of
dozens of life insurance companies along with provident fund companies
(provident fund companies are pension funds). In 1912, two sets of legislation
were passed: the Indian Life Assurance Companies Act and the Provident
Insurance Societies Act. There are several striking features of these legislations.
They were the first legislations in India that particularly targeted the insurance
sector. They did not include general insurance business. The government did
not feel the necessity to regulate general insurance. They restricted activities of
the Indian insurers. As these companies grew, the government began to exercise
control on them. The Insurance Act was passed in 1912, followed by a detailed
and amended Insurance Act of 1938 that looked into investments, expenditure
and management of these companies' funds.

In 1914 there were only 44 companies; by 1940 this number grew to 195.
Business in force during this period grew from Rs.22.44 crores to Rs.304.03
crores (1628381 polices). Life fund steadily grew from Rs.6.36 crores to
Rs.62.41 crores. In 1938, the insurance business was heavily regulated by
enactment of insurance Act 1938 (based on draft bill presented by Sir
N.N.Sarcar in Legislative Assembly in January 1937). From here onwards the
growth of life insurance was quite steady except for a setback in 1947-48 due to
aftermath of partition of India. In 1948, there were 209 insurances, with 712.76
crores business in force under 3,016, 000 policies. The life fund by then grew to
150.39 crores.

By the mid-1950s, there were around 170 insurance companies and 80

provident fund societies in the country's life insurance scene. However, in the
absence of regulatory systems, scams and irregularities were almost a way of
life in most of these companies. Despite the mushroom growth of many
insurance companies, the per capita insurance in Indian was merely Rs.8.00 in
1944 (against Rs.2,000 in US and Rs.600 in UK), besides some companies
were indulging in malpractices, and a number of companies went into

28
liquidation. Big industry houses were controlling the insurance and banking
business resulting in interlocking of funds between banks and insurance
companies. This shook the faith of the insuring public in insurance companies
who were seen as custodians of their savings and security. The nation under the
leadership of Pandit Jawaharlal Nehru was moving towards socialistic pattern
of society with the main aim of spreading life insurance to rural areas and to
channelize huge funds accumulated by life insurance companies to nation
building activities. The Government of India nationalized the life insurance
industry in January 1956 by merging about 245 life insurance companies and
forming Life Insurance Corporation of India (LIC), which started functioning
from 01.09.1956. After completing the arduous task of integration of about 245
life insurance companies, LIC of India gave an exemplary performance in
achieving various objectives of nationalization. The non-life insurance business
continued to thrive with the private sector till 1972. Their operations were
restricted to organized trade and industry in large cities. The general insurance
industry was nationalized in 1972. With this, nearly 107 insurers were
amalgamated and grouped into four companies- National Insurance Company,
New India Assurance Company, Oriental Insurance Company and United India
Insurance Company. These were subsidiaries of the General Insurance
Company (GIC). For years thereafter, insurance remained a monopoly of the
public sector. It was only after seven years of deliberation and debate that R. N.
Malhotra Committee report of 1994 became the first serious document calling
for the re-opening up of the insurance sector to private players. The sector was
finally opened up to private players in 2001.The Insurance Regulatory and
Development Authority, an autonomous insurance regulator set up in 2000, has
extensive powers to oversee the insurance business and regulate in a manner
that will safeguard the interests of the insured. Insurance is a federal subject in
India. There are two legislations that govern the sector- The Insurance Act-
1938 and the IRDA Act- 1999. The insurance sector in India has come a full
circle from being an open competitive market to nationalization and back to a
liberalized market again. Tracing the developments in the Indian insurance

29
sector reveals the 360 degree turn witnessed over a period of almost two
centuries.

1.9 Important Milestones in Life Insurance Regulations

In India

Table : I
Important Milestones in Life Insurance Regulations in India

Year Significant Regulatory Event

1818 Establishment of the Oriental Life Insurance Company in Kolkata

1912 The Indian Life Insurance Companies Act enacted as the first statute to
regulate the life insurance business.

1928 The Indian Insurance Companies Act enacted to enable the government
to collect statistical information about both life and non-life insurance
businesses.

1938 Earlier legislation consolidated and amended by the Insurance Act with
the objective of protecting the interests of the insuring public.

1956 245 Indian and foreign insurers and provident societies taken over by
the Central government and nationalized. LIC formed by an Act of
Parliament, viz. LIC Act,1956, with a capital contribution of Rs. 5
crore from the Government of India.

1972 Nationalization of general insurance business in India

1993 Setting up of Malhotra Committee

30
1994 Recommendations of Malhotra Committee

1995 Setting up of Mukherjee Committee

1996 Setting up of (interim) Insurance Regulatory Authority and

Recommendations of the IRA

1997 Mukherjee Committee Report submitted but not made public

1997 The Government gives greater autonomy to LIC, GIC and its
subsidiaries with regard to the restructuring of boards and flexibility in
investment norms aimed at channeling funds to the infrastructure sector

1998 The cabinet decides to allow 40% foreign equity in private insurance
companies-26% to foreign companies and 14% to NRI‟s, OCB‟s
and FII‟s.

1999 The Standing Committee headed by Murali Deora decides that foreign
equity in private insurance should be limited to 26%. The IRA bill is
renamed the Insurance Regulatory and Development Authority (IRDA)
Bill 1999. Cabinet clears IRDA Bill.

2000 President gives Assent to the IRDA Bill and Monopoly of Public Sector
Insurance company marks an end and Private companies make inroad.

31
1.10 Malhotra Committee

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 Malhotra committee was set up with
the objective of complementing the reforms initiated in the financial sector. The
reforms were 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 recognising that insurance is an
important part of the overall financial system where it was necessary to address
the need for similar reforms. In 1994, the committee submitted the report and
some of the key recommendations included:

(i) Structure

Government stake in the insurance Companies to be brought down to 50%.

Government should take over the holdings of GIC and its subsidiaries so that
these subsidiaries can act as independent corporations. All the insurance
companies should be given greater freedom to operate.

(ii) Competition

Private Companies with a minimum paid up capital of Rs.1bn should be

allowed to enter the sector. No Company should deal in both Life and General
Insurance through a single entity. Foreign companies may be allowed to enter
the industry in collaboration with the domestic companies. Postal Life
Insurance should be allowed to operate in the rural market. Only one State
Level Life Insurance Company should be allowed to operate in each state.

(iii) Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should be

set up. Controller of Insurance- a part of the Finance Ministry- should be made
independent.

32
(iv) Investment

Mandatory Investments of LIC Life Fund in government securities to be

reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than
5% in any company (their current holdings to be brought down to this level
over a period of time)

(v) Customer service

LIC of India should pay interest on delays in payments beyond 30 days.

Insurance companies must be encouraged to set up unit linked pension plans.
Computerisation of operations and updating of technology to be carried out in
the insurance industry. The committee emphasised that in order to improve the
customer services and increase the coverage of insurance policies, industry
should be opened up to competition. But at the same time, the committee felt
the need to exercise caution as any failure on the part of new players could ruin
the public confidence in the industry. Hence, it was decided to allow
competition in a limited way by stipulating the minimum capital requirement of
Rs.100 crores. The committee felt the need to provide greater autonomy to
insurance companies in order to improve their performance and enable them to
act as independent companies with economic motives. For this purpose, it had
proposed setting up an independent regulatory body- The Insurance Regulatory
and Development Authority.

1.11 The Insurance Regulatory and Development

Authority (IRDA)

Reforms in the Insurance sector were initiated with the passage of the IRDA
Bill in Parliament in December 1999. The IRDA since its incorporation as a
statutory body in 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

33
globally compatible regulations. The other decision taken 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.

The regulatory body for insurance IRDA has been established with the
following mission:

„To protect the interests of the policy holders, to regulate, promote and ensure
orderly growth of the insurance industry and for matters connected therewith or
incidental thereto.‟

Duties, Powers and Functions of IRDA

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of
IRDA:

(1) Subject to the provisions of this Act and any other law for the time being in
force, the Authority shall have the duty to regulate, promote and ensure orderly
growth of the insurance business and re-insurance business.

(2) Without prejudice to the generality of the provisions contained in sub-

section (1), the powers and functions of the Authority shall include:

(a) Issue to the applicant a certificate of registration, renew, modify,

withdraw, suspend or cancel such registration;

(b) Protection of the interests of the policy holders in matters concerning

assigning of policy, nomination by policy holders, insurable interest,
settlement of insurance claim, surrender value of policy and other terms
and conditions of contracts of insurance;

(c) Specifying requisite qualifications, code of conduct and practical

34
training for intermediary or insurance intermediaries and agents;

(d) Specifying the code of conduct for surveyors and loss assessors;

(e) Promoting efficiency in the conduct of insurance business;

(f) Promoting and regulating professional organizations connected with

the insurance and re-insurance business;

(g) Levying fees and other charges for carrying out the purposes of this
Act;

(h) Calling for information from, undertaking inspection of, conducting

enquiries and investigations including audit of the insurers,
intermediaries, insurance intermediaries and other organizations
connected with the insurance business;

(i) Control and regulation of the rates, advantages, terms and conditions
that may be offered by insurers in respect of general insurance business
not so controlled and regulated by the Tariff Advisory Committee under
section 64U of the Insurance Act, 1938 (4 of 1938);

(j) Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries;

(k) Regulating investment of funds by insurance companies;

(l) Regulating maintenance of margin of solvency;

(m)Adjudication of disputes between insurers and intermediaries or

insurance intermediaries;

(n) Supervising the functioning of the Tariff Advisory Committee;

(o) Specifying the percentage of premium income of the insurer to

finance schemes for promoting and regulating professional
35
organizations referred to in clause (f);

(p) Specifying the percentage of life insurance business and general

insurance business to be undertaken by the insurer in the rural or social
sector; and

(q) Exercising such other powers as may be prescribed.

36
 Chapter : 2
Literature Review
The initial studies on the efficiency of U.S. life insurers, Grace and Timme
(1992) Yuengert (1993) and Gardner and Grace (1993) mostly focused on scale
economies. These studies tend to find evidence of significant scale economies
in the industry, although larger firms generally are found to exhibit decreasing
returns to scale.

Weiss (1991) analyzed factor productivity of 5 countries of Organization for

Economic co-operation and Development (OECD) - France, Germany, Japan,
Switzerland and US spanning 1975 to 1987.They found that US and Germany
had high productivity while France, Japan and Switzerland were below
average.

Fecher et al.(1993) used the Data Envelopment Analysis and Stochastic

Frontier Approach model and examined the technical efficiency of life insurers
and non life insurers of France during 1984 to 1989. The inputs used in their
model were labor cost and other outlays. On the output side, the factors
included only Gross premium. The conclusion of the study was that there was
high correlation between parametric and non parametric results and wide
dispersion in the rates of inefficiency across companies.

Delhausse et al.(1995) studied technical efficiency of non life insurer in

Belgium and France by using Data Envelopment Analysis and Stochastic
Frontier Approach method. They found that the technical efficiency of France
was more than Belgium. But the overall technical efficiency was quite low in
both countries. They also found that non profit companies were more efficient
than profit companies.

Rai (1996) studied cost efficiency by Stochastic Frontier Approach method

during 1988 to 1992 covering 11 OECD countries- Denmark, Finland, France,
37
Germany, Italy, Japan, Netherlands, Sweden, Switzerland, U.K. and US. He
concluded that the cost efficiency of Finland and France was greater than U.K.
where as small firms were more cost efficient than large firms.

Donni, Fecher (1997) covered both life and non life sector in 15 OECD
countries - Belgium, Canada, Finland, France, Germany, Iceland, Italy, Japan,
Netherlands, Newzealand, Portugal, Switzerland, Turkey, U.K. and US during
1983 to 1988 using Data Envelopment Analysis approach to find out technical
efficiency. They found that US, U.K., France and Germany were the best and
Portugal was the worst. They also found that the technical efficiency level was
high and dispersed.

Cummins and Zi (1998) made comparative analysis of Frontier Cost Efficiency

methodologies by the application of a wide range of econometric and
mathematical programming techniques to a data set consisting of 445 life
insurers over the period 1988 to 1992. The alternative methodologies gave
significantly divergent estimates of efficiency for the in-sample insurers. The
efficiency rankings were quite well-preserved among the econometric
methodologies; but the rank correlations were found to be lower between the
econometric and mathematical programming categories and between
alternative mathematical programming methodologies. Thus, the choice of
methodology had a significant effect on the results. Most of the insurers in the
sample displayed either increasing or decreasing returns to scale.

Sloan A., Conover J. (1998) examined the functional status of Insurance

Companies from 1995 to 1997 in Japan. The result showed that functional
status of insurer does not affect the profitability but public coverage has
significant impact on profitability of insurance companies.

Cummins, Tennyson and Weiss (1998) studied the relationship between

mergers and acquisitions, efficiency, and scale economies in the US life
insurance industry. They estimated cost and revenue efficiency over the period
1988 to1995 using Data Envelopment Analysis. The Malmquist methodology

38
was used to measure changes in efficiency over time. They found that acquired
firms achieved greater efficiency gains than firms that have not been involved
in mergers or acquisitions. Firms operating with non-decreasing returns to scale
and financially vulnerable firms were found to be acquisition targets. Overall,
mergers and acquisitions in the life insurance industry were found to have a
beneficial effect on efficiency.

Cummis, Tennyson, and Weiss (1999) used the Data Envelopment Analysis to
examine the relationship among mergers and acquisitions, efficiency, and
economies of scale in the US life insurance industry over the period 1988 to
1995.They found that acquired firms achieve greater efficiency gains than
firms that have not been involved in mergers or acquisitions.

Mahlberg (1999) included 36 life insurers of Australia and 118 life insurers of
Germany for the period of 1992 to 1996 to find out technical efficiency. The
study revealed that the technical efficiency of Australia was greater than
Germany but at the same time inefficiency was found in both the countries.

Cummins (1999) examined pure technical and cost efficiency of US life

insurers spanning 1988 to 1995 by using Data Envelopment Analysis approach.
The study found that efficiency scores in insurance were relatively low
compared to other financial service industry and brokerage system was most
efficient.

Carr,Cummins,Regan (1999) analyzed cost efficiency as well as revenue

efficiency of 66 life insurers of US by using Data Envelopment Analysis
approach. The result showed that exclusive dealing insurers were less efficient
than non-exclusive dealing or direct writers. The study also found that dealing
insurers should focus on fewer product lines.

Peter Drucker (1999) admitted that by providing financial protection against the
major eighteenth and nineteenth century risk of dying too soon, life insurance
became the biggest financial industry of that century.

39
Berger et al. (2000) analyzed cost efficiency, revenue efficiency and profit
efficiency of 684 insurers in US by using Thick Frontier Approach and
Stochastic Frontier Approach method for the period 1988 to 1992.The result
showed that conglomeration hypothesis holds for some types while strategic
focus hypothesis dominates others.

Hogan, John D (2001) assumed that the banking industry would quickly
expand into non-banking activities, as synergies could be expected from the
large bank customer information base and frequent contacts with customers.
However, this quick response has not taken place, partly because of perception
of risk in the insurance business. The author also suggests that banking
companies should add insurance products to their lines of business for sound
reasons such as small increment costs involved, the presence of existing
customer relationships, revenue diversification, absence of interest rate risk in
insurance compared with loans and banks’ web-based marketing capability.

Carrow Kenneth A.(2001) investigated whether the announcement of a merger

between Citicorp and Travelers abnormally impacted stock prices of financial
and insurance companies. Analysis of abnormal returns surrounding the merger
show that life insurance companies and large banks experienced significant
stock price increases, while the returns of stocks of smaller banks, health
insurers, and property insurers remain relatively unchanged.

Diacon (2001) included 431 general insurers of 6 European countries: France,

Germany, Italy, Netherland, Switzerland and U.K.in 1999. He concluded that
the technical efficiency of U.K. was greater than Germany and Netherlands but
at the same time Germany was more efficient compared to Netherlands.

Kessner (2001) found technical efficiency of 78 life insurers of Germany and

87 life insurers of U.K. spanning 1994 to 1999 by using Data Envelopment
Analysis method. He came to the conclusion that the technical efficiency of
U.K. was more than Germany and at the same time technical efficiency
increased in both markets.

40
Diacon,Starkey,O’Brien (2002) included 454 life insurers of 15 European
countries such as Australia, Belgium, Denmark, France, Germany, Greece,
Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, Switzerland
and U.K. The study examined pure technical efficiency, scale and mix
efficiency by using Data Envelopment Analysis approach of life insurers from
the year 1996 to 1999.The study reached a logical conclusion that the
efficiency level had decreased and there was striking international differences.

Boonyasai,Grace,Skipper (2002) examined technical efficiency of Life insurers

of 4 Asian countries: Korea, Philippines, Taiwan and Thailand. The study
covered 33 life insurers of Korea, 33 life insurers of Philippines, 31 life
insurers of Taiwan and 13 life insurers of Thailand. The conclusion of the study
was that the productivity of Korea and Philippines was more than Taiwan and
Thailand. The technical efficiency of all life insurers had increased.

Carrow Kenneth A. and Heron R. (2002) investigated how the passage of the
Financial Services Modernization Act of 1999 (FMA) affected stock prices of
banks, thrifts, finance companies and insurance companies. The study looks at
stock excess returns across sectors and company size. FMA opens doors for
potential mergers and consolidations across banking, financial and insurance
sectors, translating into abnormal positive returns for businesses that are likely
candidate for mergers and consolidation. The results of the study suggest that
the largest returns to the FMA passage were realized by large investment banks
and insurance companies. The stock prices of banks, both small and large,
seemed to be unaffected by the new legislation while thrifts, finance companies
and foreign banks lost value.

Madabhushi Sridhar (2002) traces the evolution of the principle of moral

hazard in a life insurance contract and its gradual dilution with the changing
style of human civilization and understanding the influence of criminal' acts on
the civil contract. The study reached a logical conclusion that the principle of
moral hazard plays a reduced role in a life insurance contract with reference to

41
suicide and that the terms of the contract should prevail to fix the liability of
the insurer to fulfill the purpose and objective of a life insurance contract i.e. to
help the dependents to absorb the shock of sudden death of the insured, either
by natural or suicidal death, in sane or insane conditions.

Lin (2002) applied the Data Envelopment Analysis approach to measure

efficiency scores and to examine whether life insurers in Taiwan have fully
recognized the new market structure after deregulation. Results showed no
change in overall efficiency, no pure technical efficiency change, and no scale
efficiency change after deregulation.

Da Han Chung, Yen Lin Hung, Yu Hsuang Lee,Jun Min Wang (2003)
compared bancassurance sales and insurer’s own team of Taiwan from 2000 to
2002.They used Data Envelopment Analysis approach to compute the
efficiencies of bancassurance and traditional channels separately. The
conclusion of the research was that the efficiency score of a life insurance
company’s own sales representatives is significantly higher than that of its
bancassurance representatives and the efficiency relationship between the
bancassurance channel and traditional selling channel is independent.

A.K. Jain (2004) revealed that waves of liberalization have done wonders to
the insurance occupation. The average mindset, particularly of younger
generation in India is very amenable to these changes in insurance as an avenue
where exhilarating opportunities were opened up in changed environment.

Akihisa Oda (2004) studied natural catastrophe insurance systems of Japan and
compared them from three aspects: government commitment, insurance
scheme, and mitigation incentives. Through the study, the strengths and
weaknesses of the Japanese earthquake insurance system are implied and future
improvements are suggested. The comprehensiveness of the Japanese insurance
system seems to be one of the strengths. On the other hand, further
improvements are expected for the system in the participation rate, basis risk
and mitigation incentives.

42
Chen, Wong (2004) examined determinants of financial health of insurance
companies of China from 2001 to 2003.The result showed that size, investment
and liquidity are important determinants of financial health of insurance
companies.

Madhukar Palli (2004) assessed Life Insurance Potential in India. The report
focused on risk security, the core product of life insurance. It provides estimates
of the Life Insurance Gap to maintain dependents’ living standards after the
death of the primary wage earner. The primary drivers of demand for risk
security are 'Age', 'Income', 'Affordability', 'Wealth' and finally the desire to
protect income from Inflation. Though aggregate demand is driven by these
factors, various researches have shown that there is little correlation between a
specific family's need for security and its actual purchase of insurance. Many
families, especially young ones, have either no risk security or inadequate
security.

Tapen Sinha (2005) analyzed the evolution of insurance in India. He concluded

that India is fast becoming a global economic power. India is among the
important emerging insurance markets in the world. The fundamental
regulatory changes in the insurance sector in 1999 will be critical for future
growth. Despite the restriction of 26% on foreign ownership, large foreign
insurers have entered the Indian market. State-owned insurance companies still
have dominant market positions. But, this would probably change over the next
decade.

Barros, Barroso, Borges (2005) covered 27 life and non-life insurers of

Portugal country during 1995 to 2001.In this study they found technical
efficiency, pure technical efficiency and scale efficiency by using DEA method.
The study concluded that the technical efficiency improved over time but
deteriorated in terms of technological change. At the same time pure technical
efficiency and scale efficiency had increased.

43
AK Sukla (2006) reviewed the measures of liberalization initiated in insurance
sector. Six years into competitive market, the Indian insurance industry
exhibited a healthy growth trend of new business and market share. The life
insurance industry saw the new players stabilize their operations keenly
matched by LIC of India and the premium numbers brought out the fact that the
size of the insurance market grew over the six years of liberalization. He also
viewed that with liberalization, India was penning the script of insurance
convergence and not Insurance divergence. It clearly indicated the comfort
zone of operation of the players.

Hwang, Shiuh-Nan; Kao, Tong-Liang (2006) studied managerial efficiency in

Life Insurance Companies with an application of two-stage Data Envelopment
Analysis. The results revealed that marketability can be explained by
percentage of outer servers, number of branches, premium investment
percentage and corporate image, while profitability can be explained by market
share. This paper uses the two-stage data envelopment analysis (DEA), which
was first used by Seiford and Zhu (1999), to measure managerial performance
in 10 life insurance companies in Taiwan. Performance was measured by
Marketability in the first stage and Profitability in the second stage. In addition,
this paper uses the Tobit regression model to examine factors that significantly
influence managerial efficiency.

Hussels,Ward (2006) analyzed the cost efficiency as well as technical

efficiency of 31 life insurers of Germany and 47 life insurers of U.K. during
1991 to 2002.They concluded that the cost and technical efficiency of U.K. was
greater than Germany. There was limited evidence of improvement in post
deregulation efficiency as well as limited influence of deregulation on
efficiency.

Cummins et al. (2006) were the first to explicitly investigate the relationship
between risk management, financial intermediation, and economic efficiency.
In their application to the US property-liability industry, they analyzed whether

44
both activities contribute to efficiency through reducing costs of providing
insurance. In order to show the contribution of risk management and financial
intermediation to efficiency, they estimated shadow prices of these two
activities. They found positive shadow prices of both activities and concluded
that they significantly contribute to increasing efficiency.

Badunenko, Grechanyuk, Talavera (2006) studied technical and scale

efficiency of 163 life and non life insurers of Ukraine country from 2003 to
2005 by using Data Envelopment Analysis method. They found that increased
capitalization requirements have positively influenced Ukrainian markets and
helped to improve both technical and scale efficiency.

T. Sri Jyothi (2007) focused on the devastation caused by extreme climatic

changes, with particular reference to those experienced in the USA and
Australia, and the role of insurance industry and government in the occurrence
of such events. The concepts like adaptation, mitigation are also explained.
Further, it also deals with the recent tools available for the insurers to mitigate
the loss and new policies developed by government to provide financial
stability to these companies. It concludes with the new disaster and
catastrophic risk insurance policies started by insurance companies in the US
and Australia. It mainly focuses on the devastation caused by Hurricane-
Katrina in 2005 and its aftermath.

Klumpes (2007) covered 1183 both life and general insurance companies of 7
European countries such as France, Germany, Italy, Netherlands, Spain,
Switzerland and U.K. during 1997 to 2001.The study used Data Envelopment
Analysis approach to find out cost efficiency, technical efficiency and revenue
efficiency. The study concluded that acquiring firms achieved greater efficiency
gains than target firms or firms not involved in mergers.

Yao, Han, and Feng (2007) used a panel data set of 22 insurance companies
over the period 1999 to 2004 to evaluate their efficiency by applying Data
Envelopment Analysis approach. In their study, labor and capital were input

45
factors while premium, benefits and claims costs were output factors to
measure the efficiency of insurance companies.

Jeng et al. (2007) used the DEA model and examined the efficiency changes of
US life insurers before and after demutualization in the 1980s and 1990s. The
inputs used in their model were labor, business service, equity cost, assets and
underwriting and investment expenses. On the output side, the factors included
benefit payments and return on assets.

CS Rao (2007) reported that Insurance is a vital economic activity and there is
an excellent scope for its growth in the emerging markets. The opening up of
the insurance sector has raised high hopes among people both in India and
abroad. The recent detarrification in the non-life domain has provided a great
deal of operational freedom to the players.

Gamarra (2007) estimated cost and profit efficiency of three groups of German
life insurance companies: multichannel insurers, direct insurers, and
independent agent insurers. Nonparametric Data Envelopment Analysis was
used to estimate efficiencies for a sample of German life insurers for the years
1997 to 2005. Testing a set of hypothesis, she found economic evidence for the
coexistence of the different distribution systems. Further, she found evidence
for scale economies in the German life insurance industry.

Sabera (2007) studied the opening of the insurance sector. He concluded that
the entry of private players helped in spreading and keeping the operation in
the Indian insurance sector which in turn results in restructuring and
revitalizing of public sector.

Barros,Obijiaku (2007) covered 10 life and non-life insurers of Nigeria during

2001 to 2005.The study analyzed technical efficiency, pure technical efficiency
and scale efficiency by using Data Envelopment Analysis approach. The study
showed that the most of the companies of Nigeria were VRS efficient.

46
Mohit Anand (2007) analyzed the impact of JV insurers upon growth and
innovation in the industry. Besides innovative ideas applied in product, Insurers
face rising pressure to retain clients. Hence innovation in information systems,
customer service and imaginative marketing approach are necessary. Many of
the JV insurers bank upon product innovation and an increased acceptance of
its global products to survive in this highly competitive insurance market which
is even today dominated by public sector insurers. Hence for JV firms,
innovation is a necessity but also the key to competitively survive and grow in
long haul prospects of this market.

Naveed Ahmed,Zulfqar Ahmed,Ahmad Usman (2008) examined the impact of

firm level characteristics (size, leverage, tangibility, risk, growth, liquidity and
age) on performance of listed life insurance companies of Pakistan over seven
years from 2001 to 2007.The results showed that Ordinary Least Square
regression analysis indicate the size risk and leverage are important
determinants of performance of life insurance companies of Pakistan while
ROA has statistically insignificant relationship with growth ,profitability , age
and liquidity.

Fenn et al. (2008) covered 14 Europeans countries such as Austria, Belgium,

Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Sweden and Switzerland and found cost efficiency by using
Stochastic Frontier Approach method. The study covered both life and non life
insurance companies during 1995 to 2001. The result of the study was that in
case of life insurers, Portugal and Austria were the best and Netherlands and
U.K. was the worst. Among non life insurers U.K. was the best and
Luxembourg was the worst. The study also found that there were no
improvement in cost efficiency and returns to scale increased for most of the
insurers. It also concluded that the larger firms with high market shares were
less cost efficient.

47
Martin Eling, Michael Luhnen (2008) reviewed 87 studies and put them into a
joint evaluation of efficiency measurement in the field of insurance. A broad
efficiency comparison of 350 insurers from 34 countries was conducted. They
found a steady technical and cost efficiency growth in international insurance
markets from 2002 to 2006, with large differences across countries. Denmark
and Japan had the highest average efficiency, whereas the Philippines was the
least efficient.

Martin (2008) studied the performance of micro insurance with Frontier

Efficiency Analysis. This was the first paper to use frontier efficiency analysis
for measuring performance of micro insurance programs. While research on
performance in micro insurance has focused on traditional financial ratio
analysis in the past, they believed that frontier efficiency might provide a new,
powerful performance measurement technique and a valuable addition to the
existing performance measures in the field. They illustrated efficiency values
for 21 micro insurance programs from Asia, Africa, and Latin America for the
years 2004 to 2008 based on data provided by the Micro insurance Network.
They found that there was significant improvement with regard to productivity
and efficiency for many programs. The results also illustrated the diversity of
different micro insurance providers and emphasized the relevance of
benchmarking in order to identify best practices across different micro
insurance providers, countries and organizational forms.

Davutyan,Klumpes (2008) studied technical efficiency, pure technical

efficiency and scale efficiency using Data Envelopment Analysis method. The
study covered 472 insurers of 7 European countries: France Germany, Italy,
Netherlands, Spain, Switzerland and U.K. during 1996 to 2002.They included
both life and non-life insurers in their study. The inputs used in their model
were labor, business service and equity capital. On the output side, the factors
included present value of losses incurred premiums and invested asset. The
study analyzed that the efficiency score was very low in seven European
countries. In life insurance France was the best and Netherlands was the worst

48
where as in non life insurers Switzerland was the best and Spain was the worst.
It also concluded that in life insurance, after mergers, business inputs replaced
labor for both targets and acquisition and mergers do not significantly impact
acquirer behavior.

Sharon Tennyson (2008) studied the state Regulation and Consumer Protection
in the Insurance Industry. This paper analyzed the need for market conduct
regulation in insurance markets, and argued for state versus federal provisions
and regulation. It also examined the provision of consumer protection
regulation by the states in light of proposals for an increased federal role in
insurance regulation.

Chiang Ku Fan, Shu Wen Cheng. (2009) compared the efficiency of

bancassurance, an indirect marketing channel formed through the creation of
subsidiaries, with an insurer's own team, a direct marketing channel, in the
Taiwan insurance sector. The three major findings were: the efficiency score of
a direct marketing channel is significantly higher than that of a comparable
indirect marketing channel. The efficiency relationship between the indirect
marketing channel and the direct marketing channel is independent. A
marketing efficiency evaluation, when divided into different marketing
channels for evaluation, provides meaningful results for marketing decision-
makers.

Chen et. al. (2009) examined the determinants of profitability of insurance

companies of Japan from 2003 to 2008.The result showed that profitability of
insurance companies decreased with an increase in equity ratio. He added that
insurance companies have to diversify their investment and use effective
hedging techniques which help them to create better financial revenues.

R. Rajendran,B. Natarajan (2009) studied the impact of Liberization,

Privatization and Globalization on Life Insurance Corporation of India. They
concluded that in India the insurance habit among the general public during the
independence decade was rare and in the following decades, it slowly

49
increased. There was a remarkable improvement in the Indian insurance
industry soon after the acceptance and adaptation of Liberalization,
Privatization, and Globalization in the year 1991. After 1991 the Indian life
insurance industry had geared up and was forced to face a lot of healthy
competition from many national as well as international private insurance
players. The fall in the savings rate and increased competition in the primary
market and particularly the aggressive mobilization by the Mutual Fund posed
serious challenges before LIC.

Sandeep Ray Chaudhuri and Joy Chakraborty (2009) focused on the ins and
outs of the strategies adopted by the private life insurers to overcome the
product-selling challenges in the Indian life insurance market. The result
showed that private life insurance companies focused more on selling Unit
Linked Insurance plan.

Skyline Business School (2010) examined the customer preference for

purchasing life insurance product during 2009. Out of the 500 people surveyed,
70.60% respondents said that tax saving was the most important motivator for
taking up a Life Insurance Policy. 67.40% said that financial security was the
most important motivator. When asked which company the respondent would
recommend, most of them i.e. 43.20% said they would recommend LIC of
India, reason being the high quality image. 87.80% respondents said they
would consider LIC of India while buying their Life Insurance Policy.

The above literature reveals that most of the studies focused on cost and
technical efficiency for insurance companies abroad. Very few studies have
attempted to study about the impact of liberization on the insurance sector and
the performance of LIC in India. Even in this direction, the efforts are
fragmented. No research has been undertaken to compare LIC of India vis a vis
the new private life insurance companies in terms of cost efficiency. The
present research seeks to fill this gap.

50
 Chapter : 3
Research Methodology
3.1 Introduction

The core concept underlying research is its methodology. The methodology

controls the study, dictates the acquisition of the data, and arranges them in
logical relationships, sets up a means of refining the raw data, contrives an
approach so that the meanings that lie below the surface of those data become
manifest, and finally issue a conclusion or series of conclusions that lead to an
expansion of knowledge. The entire process is a unified effort as well as an
appreciation of its component parts.

According to J.W.B. est, “Research is considered to be formal, systematic,

intensive process of carrying on the scientific method of analysis. It involves a
more systematic structure of investigation usually resulting in some sort of
formal record of procedures and report of result or conclusions.”

According to P.M.Cook, “Research is an honest, exhaustive, intelligent

searching for facts and their meanings or implications with reference to a given
problem. It is the process of arriving at dependable solutions to problem
through planned and systematic collection, analysis and interpretation of data.
The best research is that which is reliable, verifiable and exhaustive so that it
provides information in which we have confidence.”

3.2 Research STATEMENT

The research statement studied is entitled, “A comparative study of Life

Insurance Corporation of India and Private Life Insurance Companies in
India”. The present study focuses on the analysis of the performance of public

51
and all private life insurance companies in India with the help of mean,
percentage, ratios, ANOVA, Data Envelopment Analysis and linear trend.

3.3 RESEARCH DESIGN

A Research design is a plan of action to be carried out in connection with a

research project. It is the conceptual structure within which research is
conducted and it constitutes the blue print for the collection, measurement and
analysis of data. It is the specification of methods and procedures for acquiring
the information needed for solving the problem. Decisions regarding what,
where, when, how much, by what means concerning an inquiry or a research
study constitute a research design.

3.3.1 OBJECTIVES OF THE STUDY

The objectives of the study are as follows:


To understand the concept and mechanism of insurance.


To compare and analyze the financial performance of private sector life
insurance companies and Life Insurance Corporation of India.


To predict the volume of new business and total premium of life insurance
companies in India.

To compare the cost efficiency of life insurance companies in India.

3.3.2 Nature of data and sources of data

Collection of the data is essential part of research. The nature of data which is
collected and used for this research is secondary in nature. The relevant and
required data has been collected from journals, dailies, annual reports,
magazines, literature and websites of selected companies and through various
search engines.

52
3.3.3 SAMPLE SELECTION

All private and public sector life insurance companies in India from
2000-01 to 2009-10 were selected for the study.

The companies selected for the research work are as follows:

(a) Public Sector:

Life Insurance Corporation of India.

(b) Private Sector:

1. HDFC Standard Life Insurance Co. Ltd.

2. Max New York Life Insurance Co. Ltd.

3. ICICI Prudential Life Insurance Co. Ltd.

4. Kotak Mahindra Life Insurance Co. Ltd.

5. Birla Sun Life Insurance Co. Ltd.

6. TATA AIG Life Insurance Co. Ltd.

7. SBI Life Insurance Co. Ltd.

8. ING Vysya Life Insurance Co. Ltd.

9. Bajaj Allianz Life Insurance Co. Ltd.

10. Met Life India Life Insurance Co. Ltd.

11. Reliance Life Insurance Co. Ltd.

12. Aviva Life Insurance Co. Ltd.

13. Sahara India Life Insurance Co. Ltd.

53
 14. Shriram Life Insurance Co. Ltd.

15. Bharti AXA Life Insurance Co. Ltd.

16. Future Generali India Life Insurance Co. Ltd.

17. IDBI Fortis Life Insurance Co. Ltd

18. Canara HSBC Oriental Bank of Commerce Life Insurance Co.Ltd.

19. Argon Religare Life Insurance Co.Ltd.

20. DLF Pramerica Life Insurance Co.Ltd.

21. Star Union Dai-ichi Life Insurance Co. Ltd.

22. India First Life Insurance Co.Ltd.

3.3.4 HYPOTHESIS

In order to achieve the objectives of the study, the following hypothesis are
framed:

1. Ho: There is no significant difference in the total commission to total

premium ratio of the public and private sector life insurance companies.

2. Ho: There is no significant difference in the total commission to total

operating expense ratio of the public and private sector life insurance
companies.

3. Ho: There is no significant difference in the Actuarial Efficiency ratio of the

public and private sector life insurance companies.

4. Ho: There is no significant difference in the current ratio of the public and
private sector life insurance companies.

5. Ho: There is no significant difference in the Proprietary ratio of the public

and private sector life insurance companies.
54
6. Ho: There is no significant difference in the total investment to total
liability ratio of the public and private sector life insurance companies.

7. Ho: The cost efficiency score of Life Insurance Companies in India is equal.

3.3.5 TOOLS and methods of data analysis

The present study involves calculation of different ratios to evaluate the

financial performance of life insurance companies in India from 2000-01 to
2009-10. It also compares the cost efficiency of all life insurance companies in
India during the same period. Prediction of new business and total premium of
the life insurance companies has also been done. Various statistical measures
like percentage, mean, ANOVA, Data Envelopment Analysis and Linear trend
are used in this study.

3.3.5.1 Data Envelopment Analysis (DEA)

3.3.5.1.1 Introduction

Data Envelopment Analysis (DEA) is a non-parametric linear programming

tool generally used for performance evaluation of economic units through the
construction of an economic frontier. It was originally developed for
performance measurement. The advantage of DEA is that it requires very few
prior assumptions on input-output relationship. The DEA method enables
extension of the single input-single output technical efficiency measure to the
multiple output-multiple input case. In its constant returns to scale form, the
DEA methodology was developed by Charnes, Cooper and Rhodes (1978).
Banker, Charnes and Cooper (1984) extended the approach to the case of
variable returns to scale. The DEA approach constructs the production frontier
from piecewise linear stretches resulting in a convex production possibility set.

The principal advantage of the DEA approach stems from the fact that the
assumption of a specific functional form of the underlying technology is not
necessary. This makes DEA particularly useful when dealing with service

55
industries, since we have very limited knowledge about the underlying
production technology in such cases. Instead of using any functional form,
DEA uses linear programming approaches to envelope the observed data as
tightly as possible. It only requires that the production possibility set is convex
and the inputs and outputs are disposable.

3.3.5.1.2 Concept of Cost Efficiency

Cost efficiency of a productive enterprise is an important indicator of its

performance. The cost efficiency of a firm is defined by the ratio of minimum
costs to actual costs for a given output. Vector is computed by measuring the
distance of its observed (cost) point from an idealized cost frontier.

3.3.5.1.3 Estimation of Cost Efficiency: The Standard Approach

Suppose we have data on r inputs and s outputs for each of the n firms. The i-th
firm (i=1,2,…,n) uses a r x 1 input vector xi= (x1,x2,…,xr) to produce a s x 1
output vector y = (y1,y2,..,ys) where X is a r x n input matrix and Y a s x n
output matrix that represent data for all n sample firms. In the first stage, the
following linear programming problem is solved:

Min ω‟ixi*

Subject to xi≥ Xλ, y≤Yλ, λ≥0,Σλ=1(under variable returns to scale)

Where, wi is a r x 1 input price vector for the i-th firm which corresponds to
the input vector xi and xi* is the cost-minimizing input vector for the i-th firm
which is obtained by the linear programming.

In the second stage, the cost efficiency of the i-th firm is calculated as the ratio
of minimum cost to observed cost:

CE= ω‟ixi*/ ω‟ixi

The measure of cost efficiency is bounded between 0 and 1. A cost efficiency of

1 represents a fully cost efficient firm; 1-Cost Efficiency represents the
56
amount by which the firm could reduce its costs and still produce at least the
same amount of output.

3.3.5.1.4 Estimation of Cost Efficiency: The New Approach

In the life insurance sector, input and output quantities are expressed in
monetary terms. Further, the definition and calculation of input and output
prices is rather difficult. Tone (2002) suggested the new approach and
calculated cost efficiency by replacing the input vector xi expressed in physical
terms by zi where zi is the vector of inputs expressed in monetary terms. . This
approach further allows us to model input prices wi being equal to unity for all
selected inputs. The new linear programming is, therefore:

Min C=Σ zi

Subject to zi≥ Zλ, y≤Yλ, λ≥0,Σλ=1(under variable returns to scale)

3.3.5.1.5 Different Approaches of DEA under the New Approach

The input and outputs of financial service firms are measured according to
three approaches:

(1) The asset (intermediation) approach

(2) The user-cost approach

(3) The value-added approach

(1) The asset (intermediation) approach

The asset approach treats financial service firms as pure financial intermediaries
which borrow funds from their customers which are invested, and transforms them
into assets. Interest payments are paid out to cover the time value of the funds
used. Applying the asset approach would mean that only the intermediation
services provided by life insurance companies are taken

57
into account without any regard to the risk-pooling and risk-bearing services
rendered by them.

(2) The user-cost approach

The user-cost approach determines whether a financial product is an input or an

output by analyzing if its net contribution to the revenues of an insurance firm
is positive or negative. Accordingly, a product is considered an output, if its
financial return exceeds the opportunity costs of funds or if the financial costs
of a liability are lower than the opportunity costs. Otherwise, the financial
product would be classified as an input. This method would require precise
information on product revenues and opportunity costs which can not be
obtained for the Indian life insurance companies.

(3) The value-added approach

The term value added is an economic term and is the money value of all
intermediate inputs in a firm subtracted from the output. The value-added
approach differs from the asset approach and the user-cost approach as it
considers all asset and liability categories to have some output characteristics.
Those categories which have substantial value-added are then used as the
important outputs. An important advantage compared to the user-cost approach
consists in the fact that the value added approach uses operating cost data
rather than determining the costs implicitly or using opportunity costs. The
value added approach is considered to be the most appropriate method to
measure output of financial firms and is widely used in service firms.

3.3.5.1.6 Strong points of DEA


Multiple outputs and inputs possible in the same analysis


It doesn't require an assumption of a functional form relating inputs to
outputs

Inputs and outputs can have very different units

58
3.3.5.1.7 Specification of Inputs and Outputs

3.3.5.1.7.1 Measurement of Output

The results of DEA model are sensitive to the inputs and outputs data. Indeed,
an accurate selection of the indicators, which are best adapted to the objective
of the analysis, is critical to the success the study. In order to use DEA for
estimating cost efficiency, it is essential to identify the relevant inputs and
outputs of the life insurance sector. Selection of input/output variables,
however, is rather difficult for life insurance companies since input prices are
often implicit, and many outputs are intangible.

In the present study I have followed the value-added approach and considered
two outputs:

(1) Benefits paid to the customers

(2) Net premium mobilized by the insurance companies

3.3.5.1.7.2 Measurement of Input

Life insurers have two important cost components:

(1) Operating expenses

(2) Commission expenses

I have included both of them in the research study.

The mean cost efficiency has been calculated as follows:

59
3.3.5.2 Analysis of Variance

3.3.5.2.1 Introduction

The analysis of variance frequently referred to by the contraction ANOVA is a

statistical technique specially designed to test whether the means of more than
two quantitative populations are equal.

The analysis of variance technique, developed by R.A.Fisher in 1920‟s, is

capable of fruitful application to a diversity of practical problems. Basically, it
consists of classifying and cross-classifying statistical results and testing
whether the means of a specified classification differ significantly. In this way
it is determined whether the given classification is important in affecting the
results. Analysis of variance thus enables us to analyze the total variation of our
data into components which may be attributed to various “sources” or “causes”
of variation.

The analysis of variance originated in agrarian research and its language is thus
loaded with such agricultural terms as blocks (referring to land) and treatments
(referring to populations or samples) which are differentiated in terms of seed,
fertilizers or cultivation methods. The word treatment in analysis of variance is
used to refer to any factor in the experiment that is controlled at different levels
or values. The treatments can be different point of sale displays, assembly line
techniques, and sales training programmes or, in short, any controlled factor
deliberately applied to the elementary units observed in the experiment.

Today, procedure of this analysis finds application in nearly every type of

experimental design in natural sciences as well as social sciences. In fact it has
come to acquire a place of great prominence in statistical analysis. This is
because of the fact that the analysis of variance is amazingly versatile: it can be
readily adopted to furnish, with broad limits, a proper evaluation of data
obtained from a large body of experiments which involve several continuous
random variables. It can give us answers as to whether different sample data

60
classified in terms of a single variable area are meaningful. It can also provide
us with meaningful comparisons of sample data which are classified according
to two or more variables.

3.3.5.2.2 Assumptions for Analysis of Variance


Each of the sample is a simple random sample.

Populations from which the samples are selected is normally distributed.

Each one of the samples is independent of the other samples.

The effect of various components are additive.

3.3.5.2.3 Classification of Analysis of Variance

The analysis of variance is mainly carried on under the following two

classifications:

(1) One-way classification

(2) Two-way classification

3.3.5.2.3.1 One-way classification

In One- way classification the data are classified according to only one
criterion. The null hypothesis is :

H0 : μ1 = μ2 = μ3………….μK

H1 : μ1 ≠ μ2 ≠ μ3 ………….. μK. All the means are not equal

That is, the arithmetic means of populations from which the K samples were
randomly drawn are equal to one another. The steps in carrying out the analysis
are:

(a) Calculate variance between the samples

The variance between samples (group) measures the differences between the
sample mean of each group and the overall mean weighted by the number of

61
observations in each group. The variance between the samples takes into
account the random variations from another. The sum of squares between
samples is denoted by SSC. For calculating variance between the samples,we
take the total of the square of the deviations of the means of various samples
from the grand average and divide this total by the degrees of freedom. Thus
the steps in calculating variance between samples will be:

(a) Calculate the mean of each sample i.e. X1, X2, etc.

(b) Calculate the grand average X, pronounced “X double bar”.

Its value is obtained as follows :

X1+X2+ X3+.....
X =
N1+N2+N3+.....

(c) Take the difference between the means of the various samples
and the grand average

(d) Square these deviations and obtain the total which will give
sum of squares between the samples and

(e) Divide the total obtained in step (d) by the degrees of

freedom. The degrees of freedom will be one less than
number of samples, i.e. if there are 4 samples then the degrees
of freedom will be 4-1=3 or u=k-1, where k = number of
samples.

(b) Calculate variance within the samples

The variance (or sum of squares) within samples measures those inter-sample
difference due to chance only. It is denoted by SSE. The variance within
samples (groups) measures variability around the mean of each group. Since
the variability is not affected by group differences it can be considered a
measure of the random variation of values within a group. For calculating the
62
variance within the samples we take the total of sum of squares of the deviation
of various items from the mean values of the respective samples and divide this
total by the degrees of freedom. Thus, the steps in calculating variance within
the samples will be:

(a) Calculate the mean of each sample i.e. X1, X2, X3, etc.

(b) Take the deviations of the various items in a sample from

the mean values of the respective samples

(c) Square these deviations and obtain the total which gives the
mean of square within the samples and

(d) Divide the total obtained in step (c) by the degrees of

freedom. The degree of freedom is obtained by the
deduction from the total number of items the numbers of
samples, i.e. u=N-K, where K refers to the number of
samples and N refers to the total number of all the
observations.

(c) Calculate the ratio F as follows:

Between column variance

F =
Within column variance

Symbolically, S12
F =
2
S2

The F-distribution (named after the famous statistician R.A. Fisher) measures
the ratio of the variance between groups to the variance within groups. The
variance between the samples means is the numerator and the variance within
the sample means is the denominator. If there is no real difference from group
to group, any sample will be explainable by random variation and the variance

63
between groups should be close to the variance within groups. However, if
there is a real difference between the groups, the variance between the groups
will be significantly larger than the variance within groups.

(d) Compare the calculated value of F with the table value of F for the
degrees of freedom at a certain critical level

If the calculated value of F is greater than the table value, it is concluded that
the difference in sample means is significant. On the other hand, if the
calculated value of F is less than the table value, the difference is not
significant.

3.3.5.2.3.2 Two - way classification

In a one factor analysis of variance explained above the treatments constitute

different levels of a single factor which is controlled in the experiment. There
are, however many situations in which the response variable of interest may be
affected by more than one factor. When it is believed that two independent
factors might have an effect on the response variable of interest, it is possible to
design the test so that an analysis of variance can be used to test for the effects
of the two factors simultaneously. Such a test is called a two factor analysis of
variance. With the two factor analysis of variance, we can test two sets of
hypothesis with the same data at the same time.

In a two way classification the data are classified according to two different
criteria or factors.

The sum squares for the source „Residual‟ is obtained by subtracting from the
total sum of squares the sum of squares between columns and rows i.e.,
SSE=SST-[SSC+SSR]

SSC = Sum of squares between columns

SSR = Sum of squares between rows

64
SSE = Sum of squares due to error

SST = Total sum of squares

MSC = Mean sum of squares between columns

MSE = Mean sum of squares due to error

MSR = Mean sum of squares between rows

The total number of degree of freedom = n-1

Where c refers to number of columns and r refers to number of rows,

Number of degrees of freedom between columns = (c-1)

Number of degrees of freedom between columns = (r-1)

Number of degrees of freedom for residual = (c-1) (r-1)

The total sum of squares, sum of squares for „between columns‟ or and sum of
squares for „between rows‟ are obtained in the same way as before.

Residual or error sum of squares = Total sum of squares –Sum of squares

between columns - Sum of squares between rows.

The F values are calculated as follows:

MSC
F ) =
MSE

Where = (c-1) and = (c-1) (r-1)

MSR
F ) =
MSE

65
The calculated value of F is compared with the table values. If calculated value
of F is greater than the table value at pre assigned level of significance, the
null hypothesis is rejected, otherwise accepted.

3.3.5.3 Linear Trend

3.3.5.3.1 Introduction

The method of fitting a mathematical trend to given time series data, is perhaps
the most popular and satisfactory. The form of mathematical equation used for
the determination of trend depends upon the nature of the broad idea of trend
obtained by graphic representation of data or otherwise. Linear trend is one of
the most popular methods of fitting a mathematical trend. The fitted trend is
termed as the best in the sense that sum of squares of deviations of observation,
from it, are minimized. The principle of least square provides us an analytical
or mathematical device to obtain an objective fit to the trend of the given time
series. Most of the data relating to economic and business time series confirm
to definite laws of growth or decay and accordingly in such a situation
analytical trend fitting will be more reliable for forecasting and predictions.

The general form of linear trend is given by the equation , where

t denotes timely is the trend value of variable at time t and α (>0) and β (real
number) are constants. The constant a can be interpreted as the value of trend (

) when t=0 and β gives the change in per unit change in time. It should be

noted that the rate of change of is always constant in case of linear trend.
This implies that for equal absolute changes in t, there are correspondingly
equal absolute changes in ,

Y X

Y n X
XY X X2

66
Y
U

Y n U
U U U2
Y
Y n

Y,
n
UY U2
UY
U2

3.3.5.3.2 Merits and Limitations of Linear Trend

3.3.5.3.2.1 Merits of Linear Trend

The merits of this method can be enumerated here:


This is a mathematical method measuring trend and as such there is no
possibility of subjectivness.

The line obtained by this method is called the line of best fit because it
is the line from where the sum of the positive and negative deviations is
zero and sum of the squares of the deviations least.

Trend values can be obtained for all the given time periods in the series.

3.3.5.3.2.2 Limitations of Linear Trend


Great care has to be exercised in selecting the type of trend curve to be
fitted. Carelessness in this respect may lead to fallacious results.

This method is more tedious and time consuming compared to other
methods.

Predictions are based only on long term variations i.e. trend and the
impact of cyclical, seasonal and irregular variations is ignored.

Being a mathematical method it is not flexible - the addition of even one
more observation makes it necessary to do all the computations again.

67
3.3.5.4 Ratio analysis

3.3.5.4.1 Introduction

Of all the tools of financial analysis available with analyst, the most important
and the most widely used tool is Ratio analysis. Simply stated Ratio analysis is
an analysis of financial statements done with the help of Ratios. A Ratio
expresses the relationship that exists between two numbers taken from the
financial statements. Ratio analysis is among the best tools available to analyze
the financial performance of a company as it allows intercompany and intra
company comparison. Ratio also provides a bird‟s eye view of the financial
condition of the company. The following ratios have been computed for the
present study.

3.3.5.4.2 Ratios

This ratio helps to know the commission paid in relation to the total premium
received by an insurance company. It throws lights on the financial
management of insurance companies.

This ratio indicates the portion of commission in the total operating expenses
of the company. Commission is a major expense for a life insurance company.
Major expenses for the insurers are towards employee expenses (inclusive of
travel, etc.); training expenses (including agents‟ training and seminars); rents,
rates and taxes; advertisement and publicity; legal and professional charges;
and depreciation expenses. This ratio helps to throw light on the type of
insurance policies sold by insurance companies.

68
This ratio shows the actuarial efficiency of life insurance companies. This ratio
shows benefits paid to the customer in relation to total premium.

This ratio throws lights on the short term solvency position of the company. It
shows the ability of company to honor its short term commitments or
obligations. Generally the ratio of 2:1 is considered satisfactory. The ratio
changes throughout the year, due to the composition and character of the
current assets and current liability and the nature of transaction.

Proprietary ratio indicates the general financial strength of the organization.

The ratio measures the cover or protection available to the creditors.
Proprietary ratio is a test of the financial and credit strength of the business. It
relates shareholders‟ funds to total assets .This ratio determines the long term
or ultimate solvency of the company. In other words, Proprietary ratio
determines as to what extent the owners‟ interest and expectations are fulfilled
from the total investments made in the business operations.

This ratio establishes the relationship between total investment and total
liability. It reflects the efficiency of a company in managing funds and their
ability to pay claims.

69
3.4 SCOPE OF THE STUDY

The scope of present study is confined only to Public and all Private life
insurance companies in India from 2000-01 to 2009-10.The study mainly
involves analyzing the financial performance and cost efficiency of public and
all private life insurance companies in India. Similar studies on this line may be
conducted to compare performance of public and private insurance companies
in other countries.

3.5 LIMITATIONS OF THE STUDY

The present research work is undertaken to maximize objectivity and minimize

the errors. However, there are certain limitations of the study, which are to be
taken in to consideration for the present research work.

The study is based on the analysis of the ten years data only.


The study fully depends on financial data collected from the published
financial statements of companies. This study incorporates all the
limitations that are inherent in the financial statements.


The data for analysis is basically derived from financial statements. They
are not adjusted for inflation.

70
 Chapter : 4
Profile of Life Insurance Companies in
India
All private life insurance companies and public sector company operating in
India during 2000-01 to 2009-10 were taken for the study. Life Insurance
Corporation which is the only public sector life insurer and twenty two private
sector life insurers, most of them joint ventures between Indian groups and
global insurance giants, were taken for the study.

4.1PUBLIC SECTOR

Life Insurance Corporation of India

Life Insurance Corporation of India (LIC) is an autonomous body authorized to

run the life insurance business in India with its Head Office at Mumbai. About
154 Indian insurance companies, 16 non-Indian companies and 75 provident
fund societies were operating in India at the time of nationalization.
Nationalization was accomplished in two stages; initially the management of
the companies was taken over by means of an Ordinance, and later, the
ownership by means of a comprehensive bill. The Parliament of India passed
th
the Life Insurance Corporation Act on the 19 of June 1956, and the Life
st
Insurance Corporation of India was created on 1 September, 1956, with the
objective of spreading life insurance much more widely and in particular to the
rural areas with a view to reach all insurable persons in the country, providing
them adequate financial cover at a reasonable cost.

Following are the objectives of Life Insurance Corporation of India:

(i) “Spreading life insurance much more widely and in particular to the rural
areas and to the socially and economically backward classes, with a view to

71
reach all insurable persons in the country and provide them adequate financial
coverage against death at a reasonable cost,

(ii) Maximizing mobilization of people savings by making insurance linked

savings adequately attractive

(iii) Investing funds 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 and

(iv) Meeting the various life insurance needs of the community that would arise
in the changing social and economic environment through its Family Schemes
and Group Insurance Schemes.

Under Indian conditions there are only two broad classifications of insurance
companies: life and non-life insurance. The life insurance activities are solely
managed by Life Insurance Corporation of India in the public sector. The Life
Insurance Corporation (LIC) was established about 55 years ago with a view to
provide an insurance cover against various risks in life. A monolith then, the
corporation, enjoyed a monopoly status and became synonymous with life
insurance.

At the industry level, along with the Government and the General Insurance
Corporation, it has helped establish the National Insurance Academy. It
presently transacts individual life insurance businesses, group insurance
businesses, social security schemes and pensions, grants housing loans through
its subsidiary, markets savings and investment products through its mutual
fund. It has a very wide range of business strategy all over India and abroad.
LIC of India has been one of the pioneering organizations in India who
introduced the leverage of Information Technology in servicing and in their
business.

1964 saw the introduction of computers in LIC of India. Unit Record Machines
introduced in late 1950‟s were phased out in 1980‟s and replaced by

72
Microprocessors based computers in Branch and Divisional Offices for Back
Office Computerization. Standardization of Hardware and Software
commenced in 1990‟s. Standard Computer Packages were developed and
implemented for Ordinary and Salary Savings Scheme (SSS) Policies.

LIC of India had 5 zonal offices, 33 divisional offices and 212 branch offices,
apart from its corporate office in the year 1956. Since life insurance contracts
are long term contracts and during the currency of the policy it requires a
variety of services, a need was felt in the later years to expand the operations
and place a branch office at each district headquarter. Re-organization of LIC
of India took place and large numbers of new branch offices were opened. As a
result of re-organisation servicing functions were transferred to the branches,
and branches were made accounting units. It worked wonders with the
performance of the corporation.

Today LIC of India functions with 3250 fully computerized branch offices, 100
divisional offices, 7 zonal offices and the corporate office. LIC‟s Wide Area
Network covers 100 divisional offices and connects all the branches through a
Metro Area Network. LIC of India has tied up with some Banks and Service
providers to offer on-line premium collection facility in selected cities. LIC‟s
ECS and ATM premium payment facility is an addition to customer
convenience. Apart from on-line Kiosks and IVRS, Info Centres have been
commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad,
Kolkata, New Delhi, Pune and many other cities. With a vision of providing
easy access to its policyholders, LIC of India has launched its Satellite
Sampark offices. The satellite offices are smaller, leaner and closer to the
customer.

73
4.2 PRIVATE SECTOR

The Government having tried various models for the insurance industry such as
privatization with negligible regulation (pre 1956) and nationalization (1956-
2000) and having observed sub optimal performance of the sector, resorted to
adopting a hybrid model of both these, resulting in privatization of the sector
with an efficient regulatory mechanism (post 2000). This was initiated with the
aim of making the industry competitive so that there are more players offering
a greater variety of products over a large section of the population. The
following companies are entitled to do insurance business in India.

Table : II

PRIVATE LIFE INSURANCE COMPANIES

Sr.No. Registration Date of Name of the Insurer

No. Registration

1 101 23/10/2000 HDFC Standard Life Insurance Co. Ltd.

2 104 15/11/2000 Max New York Life Insurance Co.Ltd.

3 105 24/11/2000 ICICI Prudential Life Insurance Co.Ltd.

Kotak Mahindra old mutual Life

4 107 10/01/2001
Insurance Co.Ltd.

5 109 31/01/2001 Birla Sun Life Insurance Co.Ltd.

6 110 12/02/2001 TATA AIG Life Insurance Co. Ltd.

74
7 111 30/03/2001 SBI Life Insurance Co.Ltd.

8 114 02/08/2001 ING Vysya Life Insurance Co.Ltd.

9 116 03/08/2001 Bajaj Allianz Life Insurance Co.Ltd.

10 117 06/08/2001 Met Life India Insurance Co. Ltd.

11 121 03/01/2002 Reliance Life Insurance Co. Ltd.

12 122 14/05/2002 Aviva Life Insurance Co. Ltd.

13 127 06/02/2004 Sahara India Life Insurance Co.Ltd.

14 128 17/11/2005 Shriram Life Insurance Co.Ltd.

15 130 14/07/2006 Bharti Axa Life Insurance Co.Ltd.

Future Generali India Life Insurance

16 133 04/09/2007
Co.Ltd.

17 135 19/12/2007 IDBI Fortis Life Insurance Co. Ltd.

Canara HSBC Oriental Bank of

18 136 08/05/2008
Commerce Life Insurance Co. Ltd.

19 138 27/06/2008 Aegon Religare Life Insurance Co. Ltd.

75
 20 140 27/06/2008 DLF Pramerica Life Insurance Co. Ltd.

Star Union Dai-ichi Life Insurance Co.

21 142 26/12/2008
Ltd.

22 143 05/11/2009 India First Life Insurance Co. Ltd.

Table : III
PRIVATE LIFE INSURANCE COMPANIES AND THEIR
PROMOTER

Indian
Sr.No. Name of the Insurer Foreign Promoter
Promoter

HDFC Standard Life Standard Life Assurance,

1 HDFC Ltd.
Insurance Co.Ltd. UK

Max New York Life

2 MAX India New York life, USA
Insurance Co.Ltd.

ICICI Prudential Life

3 ICICI Bank Prudential, UK
Insurance Co.Ltd.

Kotak Mahindra old

Kotak
4 mutual Life Insurance Old mutual, South Africa
Mahindra Bank
Co.Ltd

Birla Sun Life

5 Birla Group Sun Life, Canada
Insurance Co.Ltd.

76
 TATA AIG Life American International
6 TATA Group
Insurance Co. Ltd. Assurance Co., USA

SBI life Insurance State Bank of BNP Paribas Assurance,

7
Co.Ltd. India France

ING Vysya Life ING insurance

8 VYSYA Bank
Insurance Co.Ltd. International, Netherlands

Bajaj Allianz Life

9 Bajaj Auto Allianz, Germany
Insurance Co.Ltd.

Met Life India Met life International

10 J & K Bank
Insurance Co. Ltd. Holdings Ltd. ,USA

Reliance Life Reliance

11 -
Insurance Co. Ltd. Capital

Aviva Life Insurance

12 Dabour Gruop Aviva International
Co. Ltd.

Sahara India Life

13 Sahara Group -
Insurance Co.Ltd.

Shriram Life Sanlam Group, South

14 Shriram Group
Insurance Co.Ltd. Africa

Bharti Axa Life

15 Bharti Group AXA Holdings, France
Insurance Co.Ltd.

77
 Pantaloon Retail Ltd Sain
Future Genrali India
Marketing Network Pvt.
16 Life Insurance Co. Future Group
Ltd. (SMNPL), Generali,
Ltd.
Italy

IDBI Fortis Life Fedral Bank Fortis,

17 IDBI Bank
Insurance Co. Ltd. Netherlands

Canara HSBC HSBC Insurance (Asia

Oriental Bank of Pacific) Holdings Ltd and
18 Canara Bank
Commerce Life Oriental Bank of
Insurance Co. Ltd. Commerce

Religare
Aegon Religare Life
19 Enterprises Aegon, U.S.
Insurance Co. Ltd.
Limited

DLF Pramerica Life

20 DLF Group PFI , U.S.
Insurance Co. Ltd.

StarUnion Dai-ichi
Bank of India, Dai-ichi Mutual Life
21 Life Insurance Co. Union Bank of
Insurance Co. Japan
Ltd. India

Bank of
India First Life
22 Baroda, Legal General, U.K.
Insurance Co. Ltd.
Andhra Bank

78
 Table : IV
Insurer WISE LIFE INSURANCE OFFICES
(As on 31st March)

2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Life Insurer
01 02 03 04 05 06 07 08 09 10

HDFC standard
Life Insurance Co. 2 4 18 26 90 150 448 569 609 568
Ltd.

MAX NEW
YORK Life 3 15 23 33 64 84 118 194 705 705
Insurance Co. Ltd.

ICICI Prudential
Life Insurance Co. 6 14 29 69 109 175 583 1958 2102 1921
Ltd.

Kotak Mahindra
Life Insurance Co. NA 9 28 39 43 46 75 151 198 215
Ltd.

Birla Sun Life

2 19 29 41 53 97 148 538 660 652
Insurance Co. Ltd

TATA AIG Life

NA 6 13 26 40 72 89 283 454 439
Insurance Co. Ltd.

SBI Life
NA 5 10 19 31 46 138 200 489 494
Insurance Co. Ltd

ING Vysya Life

NA 4 16 26 38 68 183 265 265 254
Insurance Co. Ltd

79
BAJAJ ALLIANZ
Life Insurance Co. NA 17 33 49 153 567 877 1007 1164 1151
Ltd.

MET Life India

NA 3 8 16 35 43 53 94 190 255
Insurance Co. Ltd.

Reliance Life
Insurance Co. Ltd
NA 17 35 48 80 157 159 745 1145 1247

AVIVA Life NA 3 12 22 50 110 140 213 224 186

Insurance Co.Ltd.

SAHARA India
Life Insurance NA NA NA 2 18 18 33 33 49 49
Co.Ltd.

SHRIRAM Life
Insurance Co. NA NA NA NA NA 11 12 53 98 162
Ltd.

Bharti Axa Life

NA NA NA NA NA 10 16 77 200 203
Insurance Co. Ltd.

Future Generali
India Life NA NA NA NA NA NA NA 9 93 90
Insurance Co. Ltd.

IDBI Fortis Life

NA NA NA NA NA NA NA 2 33 37
Insurance Co. Ltd.

Canara HSBC
Oriental Bank of
NA NA NA NA NA NA NA NA 32 33
Commerce Life
Insurance Co. Ltd.

80
Argon Religare
Life Insurance Co. NA NA NA NA NA NA NA NA 58 66
Ltd.

DLF Premercia
NA NA NA NA NA NA NA NA 15 32
Life Insurance Co.
Ltd.

Star Union Dai-

Ichi Life NA NA NA NA NA NA NA NA 2 7
Insurance Co. Ltd.

India First Life

NA NA NA NA NA NA NA NA NA 2
Insurance Co. Ltd.

Life Insurance
Corporation of 2186 2190 2191 2196 2197 2220 2301 2522 3030 3250

India

The no. of offices in case of both Life Insurance Corporation of India and private
life insurance companies have increased during the period 2000-01 to 2009-
10.This indicates that life insurance business has been expanding in India.

4.2.1 HDFC Standard Life Insurance Co.Ltd.

HDFC Standard Life Insurance Company Ltd. is one of India's leading private
insurance companies, which offers a range of individual and group insurance
solutions. HDFC Standard Life Insurance Co. Ltd. is a joint venture between
HDFC Ltd., India's largest housing finance institution and Standard Life
Assurance Company, Europe's largest mutual life company. It was the first life
insurance company to be granted a certificate of registration by the IRDA on
rd
the 23 of October, 2000. HDFC holds about 72.43% of the equity, Standard
Life holds 26% while the rest is held by others.

Standard Life, UK was founded in 1825 and has an experience of over 185

81
years. The company is rated as "very strong" by Standard & Poor's (AA) and
"excellent" by Moody's (Aa2). Headquartered in Edinburgh, Standard Life has
around 9,000 employees across the UK, Canada, Ireland, Germany, Austria,
India, USA, Hong Kong and mainland China. The Standard Life group
includes savings and investments businesses, which operate across its UK,
Canadian and European markets; corporate pensions and benefits businesses in
the UK and Canada; Standard Life Investments is a global investment manager.

HDFC Limited, India's premier housing finance institution has assisted more
than 3.8 million families to own a home, since its inception in 1977 across
2400 cities and towns through its network of over 289 offices. It has
international offices in Dubai, London and Singapore with service associates in
Saudi Arabia, Qatar, Kuwait and Oman to assist NRI's and PIO's to own a
home back in India. HDFC has set benchmarks for the Indian housing finance
industry. Recognition for the service to the sector has come from several
national and international entities including the World Bank that has lauded
HDFC as a model housing finance company for the developing countries.
HDFC has undertaken a lot of consultancies abroad assisting different countries
including Egypt, Maldives, Mauritius , Bangladesh in the setting up of housing
finance companies.

4.2.2 Max New York Life Insurance co.Ltd.

Max New York Life Insurance Company Limited is a joint venture between
Max India Limited, a multi-business corporate, and New York Life
International, a global expert in life insurance.

New York Life is a Fortune 100 company that has over 160 years of experience
in the life insurance business. Max India Limited is a multi-business corporate
dealing in Clinical Research, IT and Telecom Services, and Specialty plastic
product businesses.

th
Max New York Life Insurance started its operations in India on 15 November,

82
2000. It is the first life insurance company in India to be awarded the IS0
9001:2000 certifications. Max New York offers customized products tailored to
suit individual's needs. With its various Products and Riders, they offer more
than 400 product combinations. Today, Max New York Life Insurance has a
network of 705 offices spread over 37 cities all over India.

Max New York Life has identified individual agents as its primary channel of
distribution. The Company places a lot of emphasis on its selection process,
which comprises four stages - screening, psychometric test, career seminar and
final interview. The agent advisors are trained in-house to ensure optimal
control on quality of training. Max New York Life invests significantly in its
training programmer and each agent is trained for 152 hours as opposed to the
mandatory 100 hours stipulated by the IRDA before beginning to sell in the
marketplace. Training is a continuous process for agents at Max New York Life
and ensures development of skills and knowledge through a structured
programmed spread over 500 hours in two years. This focus on continuous
quality training has resulted in the company having amongst the highest agent
pass rate in IRDA examinations and the agents have the highest productivity
among private life insurers.

Having set a best in class agency distribution model in place, the company is
spearheading a major thrust into additional distribution channels to further
grow its business. The company is using a five-pronged strategy to pursue
alternative channels of distribution. These include the franchisee model, rural
business, direct sales force involving group insurance and telemarketing
opportunities, bancassurance and corporate alliances.

4.2.3 ICICI Prudential Life Insurance co. Ltd.

ICICI Prudential Life Insurance Company is a joint venture between ICICI

Bank, a premier financial powerhouse and prudential plc, a leading
international financial services group headquartered in the United Kingdom.

83
ICICI was established in 1955 to lend money for industrial development.
Today, it has diversified into retail banking and is the largest private bank in the
country. Prudential plc was established in 1848 and is presently the largest life
insurance company. Total capital infusion stands at Rs. 33.62 billion, with
ICICI Bank holding a stake of 74% and Prudential plc holding 26%.

th
They began their operations in 24 November, 2000 after receiving approval
from Insurance Regulatory Development Authority (IRDA). Today, their
nation-wide team comprises of over 1,000 offices, over 263,000 advisors; and
22 bancassurance partners. ICICI Prudential was the first life insurer in India to
receive a National Insurer Financial Strength rating of AAA from Fitch ratings.
For three years in a row, ICICI Prudential has been voted as India's Most
Trusted Private Life Insurer, by The Economic Times - AC Nielsen ORG Marg
survey of 'Most Trusted Brands'.

4.2.4 Kotak Mahindra Old Mutual Life Insurance Co.

Ltd.

Kotak Mahindra Old Mutual Life Insurance Ltd. is a joint venture between
Kotak Mahindra Bank Ltd.(KMBL), and Old Mutual plc. Kotak Mahindra is
one of India's leading financial institutions and offers a range of financial
services such as commercial banking, stock broking, mutual funds, life
insurance, and investment banking. Kotak Mahindra Old Mutual Life Insurance
th
Ltd. started its operations in India on 10 January, 2000.

Old Mutual, a company with 160 years experience in life insurance was
established more than 150 years ago and offers a diverse range of financial
services in South Africa, the United States and the United Kingdom. The
company is listed on the London Stock Exchange with a market capitalization
and has its head quarters in London.

Kotak Mahindra Old Mutual Life Insurance is a 74:26 joint venture between
Kotak Mahindra Bank Ltd. and Old Mutual plc. Kotak Mahindra Old Mutual
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Life Insurance is one of the fastest growing insurance companies in India and
has shown remarkable growth since its inception in 2001.

4.2.5 Birla Sun Life Insurance Co.Ltd.

Established in 2001, Birla Sun Life Insurance Company Limited (BSLI) is a

joint venture between the Aditya Birla Group, a well known and trusted name
globally amongst Indian conglomerates and Sun Life Financial of Canada.
Aditya Birla Group is an Indian multinational conglomerate with presence in
India, Thailand, Indonesia, Malaysia, Philippines, Egypt, Canada, Australia and
China.

Sun Life Assurance, Sun Life Financials primary insurance business, is one of
the leading insurance companies of the world and ranks amongst the largest
international financial services organizations in the world. With an experience
of over 10 years, BSLI has contributed significantly to the growth and
development of the life insurance industry in India and currently ranks amongst
the top ten private life insurance companies in the country.

Known for its innovation and creating industry benchmarks, BSLI has several
first to its credit. It was the first Indian Insurance Company to introduce "Free
Look Period" and the same was made mandatory by IRDA for all other life
insurance companies. Additionally, BSLI pioneered the launch of Unit Linked
Life Insurance plans amongst the private players in India. To establish
credibility and further transparency, BSLI also enjoys the prestige to be the
originator of practice to disclose portfolio on monthly basis. These category
development initiatives have helped BSLI be closer to its policy holders'
expectations, which gets further accentuated by the complete bouquet of
insurance products (viz. pure term plan, life stage products, health plan and
retirement plan) that the company offers.

It has an extensive reach through its network of 600 branches and 1, 47,900
empanelled advisors. This impressive combination of domain expertise,

85
product range, reach and ears on ground, helped BSLI cover more than 2.4
million lives since it commenced operations and establish a customer base
spread across more than 1500 towns and cities in India. BSLI has ensured that
it has lowest outstanding claims ratio of 0.00% for FY 2010-11.The company
has web-enabled IT systems for better customer services and a strong
distribution channel. It has professional knowledge and global expertise of
Aditya Birla Group.

4.2.6 TATA AIG Life Insurance Co.Ltd.

Tata AIG Life Insurance Company Limited is a joint venture between Tata
Group and American International Group, Inc. (AIG). Tata Group is one of the
oldest and leading business groups of India. Tata Group has had a long
association with India's insurance sector having been the largest insurance
company in India prior to the nationalization of insurance. The Late Sir Dorab
Tata was the founder Chairman of New India Assurance Co. Ltd., a group
company incorporated way back in 1919.

American International Group, Inc is the leading U.S. based international

insurance and financial services organization and the largest underwriter of
commercial and industrial insurance in the United States. AIG has one of the
most extensive life insurance networks in the world.

Tata AIG Life combines the Tata Group‟s pre-eminent leadership position in
India and AIG‟s global presence as the world‟s leading international insurance
and financial services organization. The Tata Group holds 74 per cent stake in
the insurance venture with AIG holding the balance 26 percent. Tata AIG Life
provides insurance solutions to individuals and corporates. Tata AIG Life
Insurance Company was licensed to operate in India on February12, 2001and
started operations on April 1, 2001.

86
4.2.7 SBI Life Insurance Co.Ltd.

SBI Life Insurance is a joint venture between the State Bank of India and
Cardif of France. State Bank of India is the largest banking franchise in India.
Along with its 7 Associate Banks, SBI Group has a network of over 14,500
branches across the country, the largest in the world.

Cardif is a wholly owned subsidiary of BNP Paribas, which is The Euro Zone's
leading Bank. BNP is one of the oldest foreign banks with a presence in India
dating back to 1860. SBI Life Insurance is registered with an authorized capital
of Rs 1000 crore and a paid up capital of Rs 500 crores. SBI owns 74% of the
nd
total capital and Cardif the remaining 26%.Cardif is ranked 2 worldwide in
creditor‟s insurance offering protection to over 35 million policyholders and
net income in excess of Euro 1 billion. Cardif has also been a pioneer in the art
of selling insurance products through commercial banks in France and in 35
more countries.

SBI Life has a unique multi-distribution model encompassing Bancassurance,

Agency and Group Corporates.SBI Life extensively leverages the SBI Group
as a platform for cross-selling insurance products along with its numerous
banking product packages such as housing loans and personal loans. SBI‟s
access to over 100 million accounts across the country provides a vibrant base
for insurance penetration across every region and economic strata in the
country ensuring true financial inclusion.

4.2.8 ING Vysya Life Insurance Co.Ltd.

ING Vysya Life Insurance Company Limited is a joint venture between Vysya
th
Bank and ING Group of Holland, the world's 4 largest financial services
group, with presence across 50 countries, and a heritage of over 150 years.

ING Vysya Life Insurance Company Limited (the Company) entered the
private life insurance industry in India in September 2001, and has established

87
itself as a distinctive life insurance brand with an innovative, attractive and
customer friendly product portfolio and a professional advisor sales force.

It has a dedicated and committed advisor sales force of over 21,000 people,
working from 140 branches located in 74 major cities across the country and
over 3,000 employees. It also distributes products in close cooperation with the
ING Vysya Bank network. The Company has a customer base of over 4,50,000
and is headquartered at Bangalore. The Company’s portfolio offers products
that cater to every financial requirement, at any life stage. In fact, the company
has developed the Life Maker-a simple method which can be used to choose a
plan most suitable to a specific customer based on his needs, requirements and
current life stage.

4.2.9 Bajaj Allianz Life Insurance Co.Ltd.

Bajaj Allianz is a joint venture between Allianz AG one of the world's largest
insurance companies, and Bajaj Auto, one of the biggest two and three wheeler
manufacturer in the world. Bajaj Allianz is into both life insurance and general
insurance.

Allianz Group is one of the world's leading insurers and financial services
providers. Founded in 1890 in Berlin, Allianz is now present in over 70
countries with almost 174,000 employees. Allianz is a leading insurance
conglomerate globally and one of the largest asset managers in the world,
managing assets worth over a Trillion Euros (Over Rs. 55,00,000 crores).
Allianz SE has over 115 years of financial experience in over 70 countries.

Today, Bajaj Allianz is one of India's leading and fastest growing insurance
companies. Currently, it has presence in more than 550 locations with over
60,000 Insurance Consultants.

88
4.2.10 Met Life India Insurance Co.Ltd.

Met Life Insurance Co.Ltd is a joint venture between Met Life Group and its
Indian partners. The Indian partners include J&K Bank, Dhanalakshmi Bank,
Karnataka Bank, Karvy Consultants, Geojit Securities, Way2Wealth, and Mini
Muthoothu.

Met Life Group has presence in America and Asia and has an experience of
over 139 years in providing financial services. The Met Life companies are the
number one life insurer in the U.S. with approximately US $2.8 trillion of life
insurance in force. MetLife serves 88 of the top one hundred FORTUNE 500
companies. MetLife entered Indian insurance sector in 2001. The MetLife
companies offer life insurance, annuities, automobile and home insurance,
retail banking and other financial services to individuals, as well as group
insurance, reinsurance and retirement and savings products and services to
corporations and other institutions, reaching more than 70 million customers
around the world.

4.2.11 Reliance Life Insurance Co.Ltd.

AMP Sanmar Life Insurance was a joint venture between AMP, Australia and
the Sanmar Group. Headquartered in Chennai, AMP Sanmar had over 90
offices across the country, 9000 agents, and more than 900 employees.
Consequent to the acquisition of the entire equity capital of AMP, Australia and
Sanmar Group in AMP Sanmar Life Insurance Co. Ltd., by Reliance Capital
Limited, „AMP Sanmar Life Insurance Co. Ltd.‟ has changed to „Reliance Life
Insurance Co. Ltd.‟ on 17.01.2006.

Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd. of

the Reliance - Anil Dhirubhai Ambani Group. The company acquired 100 per
cent shareholding in AMP Sanmar Life Insurance Company in August 2005.
RLIC has a huge network of around 1145 branches covering a wide
geographical area. It is one of the ISO 9001:2000 certified life insurance
89
companies of India.

Reliance Capital has interests in asset management and mutual funds, stock
broking, life and general insurance, proprietary investments, private equity and
other activities in financial services. Reliance Group also has presence in
Communications, Energy, Natural Resources, Media, Entertainment,
Healthcare and Infrastructure

4.2.12 Aviva Life Insurance Co.Ltd.

Aviva Life Insurance Company India Pvt. Ltd. is a joint venture between Aviva
of UK and Dabur, one of India's leading producers of traditional healthcare
products. Aviva holds a 26 per cent stake in the joint venture and the Dabur
group holds the balance 74 per cent share. Aviva is UK's largest and the world's
sixth largest insurance Group. It is one of the leading providers of life and
pensions products to Europe and has substantial businesses elsewhere around
the world.

Aviva pioneered the concept of Banc assurance in India. Currently, Aviva has
Bancassurance tie-ups with ABN Amro Bank, American Express Bank, Canara
Bank, Centurion Bank of Punjab, The Lakshmi Vilas Bank Ltd. and Punjab and
Sind Bank, 11 Co-operative Banks in Gujarat, Rajasthan, Jammu & Kashmir
and Maharashtra and one regional Bank in Sikkim. Aviva has 40 Branches in
India (including rural branches) supporting its distribution network. Through its
Bancassurance partner locations, Aviva products are available in 378 towns and
cities across India. Aviva is one of the leading providers of life and pensions
products to Europe and has substantial businesses elsewhere around the world.
With a history dating back to 1696, Aviva has a 40 million-customer base
worldwide. It has more than £377 billion of assets under management.In India;
Aviva has a long history dating back to 1834. At the time of nationalization it
was the largest foreign insurer in India in terms of the compensation paid by
the Government of India. Aviva was also the first

90
foreign insurance company in India to set up its representative office in
1995.With a strong sales force of over 28,000 Financial Planning Advisers
(FPAs), Aviva has initiated an innovative and differentiated sales approach to
the business. Through the “Financial Health Check” (FHC) Aviva‟s sales force
has been able to establish its credibility in the market. The FHC is a free service
administered by the FPAs for a need-based analysis of the customer‟s long-
term savings and insurance needs. Depending on the life stage and earnings of
the customer, the FHC assesses and recommends the right insurance product
for them. Aviva has 176 Branches in India (including rural branches)
supporting its distribution network. Through its Bancassurance partner
locations, Aviva products are available in more than 1600 locations across
India. Through its association with Basix (a micro financial institution) and
other NGOs, it has been able to reach the weaker sections of the society and
provide life insurance to them. Aviva has been felicitated with the "Bronze
Award for Excellence in People Management" by Grow Talent Company
Limited and Business world. This honour is given to Aviva based on the ranks
received in top 25 list of the Great Place to Work India studies conducted in the
last four years.

4.2.13 Sahara India Life Insurance Co. Ltd.

The Sahara Pariwar‟s latest foray is in the field of Life Insurance. The Pariwar‟s
life insurance company – Sahara India Life Insurance Company Ltd.-has been
th
granted license by IRDA on 6 February, 2004. With this approval Sahara India
Life Insurance Company Ltd. becomes the first wholly and purely Indian
company, without any foreign collaboration to enter the Indian Life insurance
market. The launch is with an initial paid up capital of 157 crores.

Sahara Pariwar, the world's largest 'family' with diversified business interests,
is a recent entrant in the field of life insurance. With this approval, Sahara Life
Insurance becomes the first wholly Indian-owned company in the Indian life

91
insurance market without any collaboration with the organizations abroad. The
company offers both individual and group insurance products.

4.2.14 Shriram Life Insurance Co.Ltd.

Shriram Life Insurance Company Ltd. is a joint venture between the Chennai-
based Shriram Group and the South African insurance major Sanlam. The
company launched its operations in India in December 2005.The Shriram
Group has over three decades of experience in Chit Funds, Truck Financing
and other financial services businesses in India. SANLAM is one of the largest
Life Insurance and Asset Management firms in South Africa with assets of over
$ 55.6 billion under management and 87 years of experience in these
businesses.

The Shriram Group has over three decades of experience in Chit Funds, Truck
Financing and other financial services businesses in India. The Shriram Group
is one of the largest and well-respected financial services conglomerates in
India. The Group's main line of activities in financial services include chit fund,
truck financing, consumer durable financing, stock broking, insurance broking
and life insurance. The Group has a customer base of 30 lakh chit subscribers
and investors and operates through a network of 630 offices all over the
country. The Group has the largest agency force in the private sector consisting
of more than 75,000 loyal and dedicated agents.

Sanlam Life Insurance Limited, a part of the Sanlam Group, is one of the
largest providers of life insurance in South Africa with 3.2 million individual
policies under administration. It has a significant presence across South Africa,
United Kingdom and Namibia and is a major provider of life insurance,
retirement annuities, saving and investment products, personal loans, home
loans and trust services to individuals. The shareholder's funds of Sanlam Life
equates to USD 4.4 bilion. The Sanlam Group was established in 1918 and has
a leadership position in financial services in South Africa. Demutualized in

92
1998, the group is listed on the JSE Securities Exchange in Johannesburg and
on the Namibian Stock Exchange. It has a current market capitalization of USD
5.4 billion. The Sanlam Group also operates in the areas of group schemes,
retirement funds, short-term insurance, asset management and other financial
services..

4.2.15 Bharti AXA Life Insurance Co.Ltd.

Bharti AXA Life Insurance Co. Ltd. is a joint venture between Bharti, one of
India's leading business groups in telecom, agricultural business and retail, and
AXA, which is a global leader in financial protection and wealth management.
Bharti Enterprises has been a pioneering force in the telecom sector with over
110 million customers while AXA major operations are in Western Europe,
North America and the Asia/Pacific region. It also has operations in Australia,
New Zealand, Hong Kong, Singapore, Indonesia, Philippines, Thailand, China,
India and Malaysia. Bharti AXA Life Insurance is an entity jointly controlled
by these two giants with Bharti holding 74% stake and AXA, the rest 26%. The
company launched its operations in India in December 2006.Bharti AXA Life
offers a range of innovative products and services that cater to specific
insurance and wealth management needs of customers.

4.2.16 Future Generali India Life insurance co.Ltd.

Future Generali is an insurance joint venture headquartered in Mumbai, India

between the Italy-based Generali Group and the India-based Future Group.
Future Generali operates Life and Non-Life insurance businesses through
„Future Generali India Life Insurance Co. Ltd.‟ and „Future Generali India
Insurance Co. Ltd.‟

The Generali Group is one of the most significant participants in the global
th
insurance and financial product markets and is ranked as the 30 largest
company in the world by Fortune (2007). The Group‟s Parent and principal
operating Company Generali is Assicurazioni Generali, market leader in Italy,
93
founded in 1831 in Trieste. Generali is the largest corporation in Italy.
Characterised from the outset by a strong international outlook and presence in
40 countries through 315 subsidiaries, 113 insurance companies and 126
financial and real estate companies, Generali has consolidated its position
among the world's leading insurance operators, and has grown its importance in
western Europe, the Company‟s principal area of operation, with significant
market shares in Germany, France, Austria, Spain and Switzerland. In recent
years, the Group has made a remarkable return to central-eastern European
markets and has set up offices in the principal markets of the Far East, among
which China and India.

The Generali Group has experience dating back over almost two centuries, and
with its recognized financial strength and consolidated partnerships with major
international reinsures, operates in all classes of property and casualty
insurance, from mass risks (like Auto TPL or Personal Injuries) to highly
complex industrial plants, from simple policies for family protection to
extensive contracts satisfying multinational companies‟ complex needs.
Generali provides coverage to individuals, protecting their incomes and
optimizing their savings, through life insurance products, individual and group
pension schemes. In this field Generali offers highly sophisticated solutions to
multinational companies through a specialized structure, namely GEB
(Generali Employee Benefits) located in Brussels. Assicurazioni Generali is
ranked as „AA‟ by Standard & Poor (19.10.2006).

In the last decade, the Group has widened its product offerings from only
insurance to include the entire range of financial services and asset
management. It has more than 350,000 shareholders and over 66,000
employees. It is one of the largest insurance groups and the largest Bancassurer
in Europe.

94
4.2.17 IDBI FORTIS Life Insurance Co. Ltd.

IDBI Fortis Life Insurance Company is a joint venture between three leading
financial conglomerates – India‟s premier development and commercial bank,
IDBI, India‟s leading private sector bank, Federal Bank and Europe‟s premier
Bancassurer, Fortis, each of which enjoys a significant status in their respective
business segments.

IDBI Fortis launched its first set of products across India in March 2008, after
receiving the requisite approvals from the Insurance Regulatory Development
Authority (IRDA). IDBI Ltd. continues to be, since its inception, India‟s
premier industrial development bank. Created in 1956 to support India‟s
industrial backbone, IDBI has since evolved into a powerhouse of industrial
and retail finance. Today, it is amongst India‟s foremost commercial banks,
with a wide range of innovative products and services, serving retail and
corporate customers in all corners of the country from over 490 branches and
more than 600 ATMs. The Bank offers its customers an extensive range of
diversified services including project financing, term lending, working capital
facilities, lease finance, venture capital, loan syndication, corporate advisory
services and legal and technical advisory services to its corporate clients as
well as mortgages and personal loans to its retail clients. As part of its
development activities, IDBI has been instrumental in sponsoring the
development of key institutions involved in India‟s financial sector – such as
the Securities and Exchange Board of India (SEBI), National Stock Exchange
of India Limited (NSE) and National Securities Depository Ltd.

Federal Bank is one of India‟s leading private sector banks, with a national
network and dominant presence in the state of Kerala. It has a strong network
of over 550 branches and 450 ATMs spread across India. The bank provides
over four million retail customers with a wide variety of financial products.
Federal Bank is one of the first large Indian banks to have an entirely
automated and interconnected branch network. They operate on the core

95
banking platform and are RTGS/ NEFT enabled through which the Bank offers
state-of-the-art technology enabled products and services. In addition to
interconnected branches and ATMs, the Bank has a wide range of services like
Internet Banking, Mobile Banking, Tele Banking, Any Where Banking, debit
cards, co-branded credit cards, online bill payment and call centre facilities to
offer round the clock banking convenience to its customers.

Fortis, a European financial services provider engaged in banking and

insurance with a presence in over 50 countries, offers its personal, business and
institutional customers a comprehensive package of products and services
through its own channels, in collaboration with intermediaries and through
other distribution partners. With a market capitalisation of over EUR 40 billion,
Fortis ranks among the 20 largest financial institutions in Europe. Fortis‟ sound
solvency position and dedicated, professional workforce of over 80,000,
enables it to combine global strength with local flexibility to provide its clients
with optimum support and service.

4.2.18 Canara HSBC Oriental Bank of Commerce Life

Insurance Co. Ltd.
The shareholding pattern of the Joint Venture is as follows - Canara Bank holds
51% equity, HSBC Insurance (Asia Pacific) Holdings Ltd 26% and Oriental
Bank of Commerce 23%. The Venture has an initial paid up capital of INR 325
th
crores.The Company commenced business 16 of June, 2008 after receiving
requisite approvals from the Insurance Regulatory Development Authority
(IRDA). Canara HSBC Life has access to 4100 bank branches all over India.

Canara Bank was established in 1906, and has completed over a century of
operations in the Indian banking industry. It is recognized today as the largest
nationalized bank in India in terms of aggregate business volume. The Bank
has an asset size valued at about US $30 billion as at 31st March, 2006. The
Government of India owns about 73.17% of the Bank. Canara Bank has a
rating of AAA/Stable CRISIL (Credit Rating Information Services of India)
96
respectively. It currently has 2641 branches spread across all geographical
segments and a clientele base exceeding 31 million.

The Bank provides an array of alternative delivery channels for its customers,
including 1900 ATMs at 680 centers, Internet and Mobile banking and
"Anywhere Banking services". The Bank has distinguished itself through
innovations such as the first bank to offer a credit card for farmers and
Agricultural Consultancy Services and through various corporate social
responsibility initiatives promoting rural development, enhancing rural self
employment through training institutes and spearheading the financial
inclusion objective.

The HSBC Group, headquartered in London, is one of the world's largest

banking and financial services organizations with 9500 offices in 81 countries
th
and territories and assets of US $1,738 billion as on 30 June, 2006. One of its
founding and principal members is HSBC Bank. HSBC Bank is one of India's
leading financial services groups, with over 25,000 employees in its banking,
investment banking and capital markets, asset management, insurance broking,
software development and global resourcing operations in the country. With
offices throughout the Asia-Pacific region, it offers retirement benefits, life and
medical cover, business and personal insurance. Among its many awards and
recognitions, the Company was also recognized as the „Life Insurance
Company of the Year 2006‟ by Asia Insurance Review and London-based The
Review - Worldwide Reinsurance.

Oriental Bank of Commerce was established in 1943 and is currently the

eleventh largest bank in India in terms of assets. The Bank's assets totalled at
US $13 billion as on 31st March, 2006. The Government of India owns 51.1%
of Oriental Bank of Commerce. The Bank has a credit rating of
AA+/FAAA/P1+ from CRISIL. It has a distribution network of 1273 branches
and 94 extension counters and 10 million customers. It offers convenient
banking services through its 666 ATMs and currently, 96% of the Bank's

97
business is covered within the CBS branch network. Known for its sound
customer centric business practices, the bank has a base of over 10.4 million
customers.

The Bank has a number of Corporate Social Responsibility initiatives in the

rural sector and for women such as a GRAMEEN PROJECT in Dehradun
District (UP) and Hanumangarh District (Rajasthan). Formulated on the pattern
of the Bangladesh Grameen Bank, the Scheme has a unique feature of
disbursing small loans ranging from Rs. 75 onwards. The beneficiaries of the
Grameen Project are mostly women. The Bank has also implemented a 14
point action plan for strengthening credit delivery to women and has designated
5 branches as specialized branches for women entrepreneurs.

4.2.19 Aegon Religare Life Insurance Co.Ltd.

AEGON, one of the world‟s largest life insurance and pension groups,
Religare, one of India‟s leading integrated financial services groups and
Bennett, Coleman & Company, India‟s largest media house, have come
together to launch AEGON Religare Life Insurance Company Limited.They
launched pan-India multi-channel operations in July, 2008 with over 30
branches spread across India.In an industry first, AEGON Religare Life
Insurance offers policy servicing on the phone via Interactive Voice Response
System (IVR) by issuing the customer a T-Pin for authentication. It is also the
first company to include the customer‟s medical report in the policy kit.

AEGON‟s businesses serve over 40 million customers in over 20 markets

throughout the Americas, Europe and Asia, with major operations in the United
States, the Netherlands and the United Kingdom. With headquarters in The
Hague, Netherlands, AEGON companies employ almost 32,000 people
worldwide. The company‟s common shares are listed on four stock exchanges:
Amsterdam, London, New York and Tokyo. It manages EUR 351 billion in

98
revenue generating investments. AEGON has more than 160 years of
experience with its roots going back to 1844. It holds 26% equity.

Religare is a diversified financial services group of India offering a multitude

of investment options. Financial services which Religare offers can be broadly
clubbed across three key verticals - Retail, Institutional and Wealth spectrums.
Religare has also ventured into the alternative investments sphere through its
holistic arts initiative and Film fund. With a view to expand, diversify and
introduce offerings benchmarked against global best practices, Religare
operates in the wealth management space under the brand name 'Religare
Macquarie Private Wealth'. Religare has a pan India presence, 1837 locations
across 498 cities and towns. It also currently operates from nine international
locations following its acquisition of London's brokerage & investment firm,
Hichens, Harrison & Co. plc. (Now Religare Hichens, Harrison Plc).

Bennett, Coleman & Co. Ltd. (BCCL), part of the mammoth Times Group, is
India‟s largest media house. It reaches out to 2468 cities and towns all over
India. The group owns and manages powerful media brands like The Times of
India, The Economic Times, Maharashtra Times, Navbharat Times, Femina,
Filmfare, Grazia, Top Gear, Radio Mirchi, Zoom, Times Now, Times Music,
Times OOH, Private Treaties and indiatimes.com. From the very first edition
on November 3, 1838 the mammoth BCCL Group has come a long way.

4.2.20 DLF Pramerica Life Insurance Co. Ltd.

DLF Pramerica Life Insurance Company Ltd. (DPLI) is a joint venture

between DLF Limited and Prudential International Insurance Holdings, Ltd.
(referred to hereafter as "PIIH"). PIIH is a fully owned subsidiary of Prudential
Financial, Inc.

DLF Limited is one of the largest and most respected organisations in the real
estate sector in India with over six decades of experience and a track record of
sustained growth, customer satisfaction, and innovation. In September 2006,

99
DLF Limited was the only real estate firm to be nominated amongst the
"Superbrands of India" in the consumer validated category. After strengthening
its position in the core business of residential, commercial and retail property
development, the DLF group has now made forays into the infrastructure, SEZ
and hotel businesses by entering into several strategic alliances with global
industry leaders like Laing O'rourke Plc. and Hilton Hotels Corporation.

PFI is a U.S. based financial services leader with its headquarters in Newark,
New Jersey, with approximately US$ 638 billion of assets under management
as of June 30, 2008 and operations in the United States, Asia, Europe and Latin
America.PFI ranks among the Top 100 in the 2007 Forbes Global 2000 List, an
st
annual tabulation of the world's largest public companies and ranks 1 on
Fortune Magazine's list of World's Most Admired Companies in the Insurance:
Life and Health Insurance Category two years running, in 2007 and 2008.PFI's
businesses offer a variety of products and services, including life insurance,
annuities, retirement-related services, mutual funds, investment management,
and real estate services.

Pramerica is the brand name used in India and select countries by Prudential
Financial, Inc. Prudential International Insurance Holdings, Ltd. and Prudential
Financial, Inc. of the United States.

4.2.21 Star Union Dai-Ichi Life Insurance Co. Ltd.

Bank of India and Union Bank of India, two leading Public Sector Banks in
India and the Dai-ichi Mutual Life Insurance Company, a leading Japanese
Company in the Life Insurance market, have floated a Joint Venture Company,
"Star Union Dai-ichi Life Insurance Co. Ltd." for undertaking Life Insurance
Business in India. The Company, was incorporated, registered with the
th
Registrar of Companies, Maharashtra on 25 September, 2007. The Company
was issued the license for undertaking life insurance business in India by
Insurance Regulatory and Development Authority (IRDA) on 26.12.2008. The

100
Company has a capital stake of 48% by BOI, 26% by Union Bank and 26% by
Dai-ichi Life. The Company has authorized capital of Rs. 250.00 Crores. Star
Union Dai-ichi Life, with the strength of the domestic partners in the Indian
Financial Sector coupled with the Dai-ichi Life‟s strong domain expertise is a
strong player in the Indian Life Insurance market. The Company offers various
products.

Bank of India and Union Bank have a strong nationwide network of more than
5400 offices, which provide distribution outlets with a wide reach. More than
48 million strong banking customer base of the two banks provides ready scope
for cross selling of insurance products. The two banks have strong brand
equity, and command high level of trust among their customers and people at
large. Additionally the Regional Rural Banks sponsored by the two banks
provide more than 1400 branches to tap the life-insurance business in the rural
areas.

Dai-ichi Life is a leading player in the Life Insurance Segment in Japan and is
one of the top ten Life Insurers in the world and the second largest Life
Insurance Company in Japan. Established in 1902, it has more than a century of
experience in Life Insurance business.

4.2.22 India First Life Insurance Co. Ltd.

India First Life Insurance is the youngest life insurance company in India with
a rich legacy of over 360 years of combined service of its promoters - Bank of
Baroda, Andhra Bank and Legal & General(UK). Headquartered in Mumbai,
with a capital base of Rs. 455 crore it is one of the most capital efficient life
insurance companies in the industry today. Bank of Baroda holds a 44 per cent
stake in India First, while Andhra Bank and Legal & General hold a 30 per cent
and 26 per cent stake respectively.

Bank of Baroda is one of the largest public sector banks in the country with an
enviable network of over 3050 branches that spreads across the geography of

101
India and over 70 branches across 22 countries globally. This behemoth
financial institution is over 100 years old. Andhra Bank has been serving the
Indian customer for over 85 years and currently has a network of over 1557
branches. Both the banks are nationalized and provide best in class products
and services to every Indian citizen.

Legal & General is one of UK‟s leading financial institutions with a heritage of
over 150 years. It provides life assurance, pensions, investments and general
insurance plans to over 5 crore customers across countries. Legal and General
brings rich fund management and insurance experience into India.

102
 Chapter : 5
Data Analysis
5.1 Life Insurance Density and Penetration in India

The potential and performance of the Insurance sector is universally

assessed with reference to two parameters.
1. Insurance Density
2. Insurance Penetration
The measure of Life Insurance penetration and density reflects the level of
development of life insurance sector in a country.
5.1.1 Life Insurance Density
Life Insurance density is defined as the ratio of premium underwritten in a given
year to the total population.
Table : V
International comparison of Life insurance Density
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Countries
01 02 03 04 05 06 07 08 09 10
Developed Countries

US 1602.0 1662.6 1657.5 1692.5 1753.2 1789.5 1922.0 1900.6 1602.6 1498.3
UK 2567.9 2679.4 2617.1 3190.4 3287.1 5139.6 5730.5 5582.1 3527.6 3025.7
France 1268.2 1349.5 1767.9 2150.2 2474.6 2922.5 2728.3 2791.9 2979.8 3251.9
Germany 674.3 736.7 930.4 1021.3 1042.1 1136.1 1234.1 1346.5 1359.7 1390.5
South
763.4 821.9 873.6 1006.8 1210.6 1480.0 1656.6 1347.7 1180.6 1080.7
Korea
Japan 2806.4 2783.9 3002.9 3044.0 2956.3 2829.3 2583.9 2869.5 3138.7 3865.8

Developing Countries

Brazil 10.8 27.2 35.8 45.9 56.8 72.5 95.3 115.4 127.9 139.4
Russia 33.2 23.1 33.9 24.8 6.3 4.0 6.1 5.4 4.50 4.30
Malaysia 129.5 118.7 139.8 167.3 188.0 189.2 221.5 225.9 206.9 198.2
India 9.1 11.7 12.9 15.7 18.30 33.2 40.4 41.2 47.7 52.2
China 12.2 19.2 25.1 27.3 30.5 34.1 44.2 71.7 81.1 93.6
South
377.2 360.5 476.5 545.5 558.3 695.6 719.0 707.0 574.2 498.2
Africa
Australia 1040.3 1010.4 1129.3 1285.1 1366.7 1389.0 1674.1 2038.0 1524.8 1328.6

103
Observation:

Table V provides a comparison of Indian life insurance density levels of

developed and developing countries from 2000-01 to 2009-10.

The life insurance density of India was 9.1 percent in the year 2000-01 when the
private sector was opened up. It increased to 52.2 percent in 2009-10.India’s life
insurance density is very low as compared to the developed countries and
developing countries, inspite of India being the second most populous country in
the world. This shows that there is much scope for life insurance sector to
develop in India.

5.1.2 Life Insurance Penetration

Life Insurance penetration is defined as the ratio of premium underwritten in a
given year to the Gross Domestic Product (GDP).
Table : VI
International Comparison of life insurance
penetration
Countries 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
01 02 03 04 05 06 07 08 09 10
Developed Countries

US 4.40 4.60 4.38 4.22 4.14 4.00 4.20 4.10 3.50 3.10
UK 10.73 10.19 8.62 8.92 8.90 13.10 12.60 12.80 10.00 9.20
France 5.73 5.61 5.99 6.38 7.08 7.90 7.30 6.20 7.20 8.40
Germany 3.00 3.06 3.17 3.11 3.06 3.10 3.10 3.00 3.30 3.50
South
Korea 8.69 8.23 6.77 6.75 7.27 7.90 8.20 8.00 6.50 6.20
Japan 8.85 8.64 8.61 8.26 8.32 8.30 7.50 7.60 7.80 8.10
Developing Countries

Brazil 0.36 1.05 1.28 1.36 1.33 1.30 1.40 1.40 1.60 1.62
Russia 1.55 0.96 1.12 0.61 0.12 0.10 0.10 0.00 0.00 0.00
Malaysia 3.38 2.94 3.29 3.52 3.60 3.20 3.10 2.80 2.90 3.10
India 2.15 2.59 2.26 2.53 2.53 4.10 4.00 4.00 4.60 4.90
China 1.34 2.03 2.30 2.21 1.78 1.70 1.80 2.20 2.30 2.60
South
Africa 15.19 15.92 12.96 11.43 10.84 13.00 12.50 12.50 10.00 9.10
Australia 5.70 5.02 4.42 4.17 3.51 3.80 3.80 4.40 3.40 3.10

104
Observation:

Table VI shows the comparison of Indian life insurance penetration of developed

and developing countries from 2000-01 to 2009-10.

The Indian life insurance market is drawing intense attention, fuelled in part by
the fast expansion of its insurance markets and the fact that this growth potential
is now available to all (subject to the regulatory restriction on foreign equity
holding).India is the second most populous country of the world with more than
one billion population. The economic growth record is strong (more than 6%
during the past one decade). Inspite of these positive developments, the life
insurance market in India is extremely under-penetrated.

The life insurance penetration of India was 2.15 percent in the year 2000-
01when the private sector was opened up. It increased to 4.90 percent in 2009-
10.Since opening up of Indian Insurance sector for private participation, India
has reported an increase life insurance penetration. But compared to UK, France,
South Korea, Japan and South Africa, India is way behind. Among developing
counties it stands second to South Africa. There is much scope for the life
insurance sector to develop in India.

5.2 Market share based on premium and policies of

public and private sector Life insurance companies

5.2.1 Market Share based on Total Premium

The most important indicator to assess life insurers is the amount of premium
collected. The sum assured is fragmented into installments of premium. In other
words, premium is the fragmented value of the Sum Assured of policy, payable
continuously at regular intervals until the maturity of the policy. The total
premium consists of first year premium, Renewal Premium and Single Premium.

105
The amount of premium otherwise called premium rate, depends on:

Mortality experience of insured lives

Expenses incurred by the company in administrating the life fund

Yield on investments of life fund

Besides these three, the premium rates may also be affected by other factors
namely interest rates and taxation rates.

Table : VII
Market Share based on Total premium

Year Public Sector (%) Private sector (%)

2000-01 99.98 0.02
2001-02 99.46 0.54
2002-03 97.99 2.01
2003-04 95.29 4.71
2004-05 90.67 9.33
2005-06 85.76 14.24
2006-07 81.90 18.10
2007-08 74.40 25.60
2008-09 70.92 29.08
2009-10 70.10 29.90

Market Share based on Total Premium

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Public Private
Sector sector

106
Observation:

Table VII shows the market share of public and private sector life insurance
companies based on total premium.

The total premium of Life Insurance Corporation of India increased continuously

since 2000-01 to 2009-10.However a significant decline is noticed in market
share from 99.98% in 2000-01 to 70.10% in 2009-10. While in case of private
sector, the total premium income and market share of total premium have both
increased.

The market share of private sector life insurance companies on the basis of total
premium has increased from 0.02% in 2000-01 to 29.90% in 2009-10. It reflects
that the private sector has been successful in capturing the market share from
Life Insurance Corporation of India.

Due to stiff competition from the private players, Life Insurance Corporation of
India has lost nearly 30% market share based on total premium. Life Insurance
Corporation of India is still the market leader at present.

5.2.2 Market Share based on New Business

Premium collected on the new business is called first year premium. It also
includes single premium. It is the first Premium collected by the insurance
companies from policy holders.

107
 Table : VIII
Market Share based on new business

Year Public Sector (%) Private sector (%)

2000-01 99.93 0.07
2001-02 98.65 1.35
2002-03 94.30 5.70
2003-04 87.66 12.34
2004-05 78.78 21.22
2005-06 73.52 26.48
2006-07 74.32 25.68
2007-08 64.02 35.98
2008-09 60.89 39.11
2009-10 65.08 34.92

Market Share based New Business

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Public Private
Sector sector

108
Observation:

Table VIII shows the market share of public and private sector life insurance
companies based on New Business.

The market share of Life Insurance Corporation of India on the basis of the first
year premium in the year 2000-01 was 99.93% but it declined to 60.89% in
2008-09 and has slightly risen to 65.08% in 2009-10 while the market share of
private sector life insurance companies was only 0.07% in 2000-01, which
increased up to 39.11% in 2008-09 and slightly declined to 34.92% in 2009-
10.The growth in first year premium of private sector was fuelled by sales of unit
linked products.

5.2.3 Market Share based on Renewal Premium

Premium collected on business in force is called renewal premium. Increase in

the renewal premium is a good measure of quality of the business underwritten
by the insurer. It reflects increase in their persistency ratio and enables insurers
to bring down overall cost of doing business.
Table : IX
Market Share based on Renewal premium

Year Public Sector (%) Private sector (%)

2000-01 99.99 0.01
2001-02 99.98 0.02
2002-03 99.60 0.40
2003-04 98.55 1.45
2004-05 96.18 3.82
2005-06 92.82 7.18
2006-07 89.02 10.98
2007-08 83.42 16.58
2008-09 77.43 22.57
2009-10 73.64 26.36

109
 Market Share based on Renewal
Premium

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Public Private
Sector sector

Observation:
Table IX shows the market share of public and private sector life insurance
companies based on Renewal premium.

The public sector recorded 99.99% market share based on renewal premium in
the year 2000-01 but it has decreased to 73.64% in the year 2009-10. While that
of the private sector recorded 0.01% in the year 2000-01 which increased to
26.36% in the year 2009-10. Private sector has managed to take away nearly
26% of the market share from LIC of India. LIC of India is still the market
leader in this segment.

5.2.4 Market Share based on Total Policies

The life insurance contract provides elements of protection and investment. After
getting insured, the policy-holder feels a sense of protection because he shall be
paid a definite sum at death or maturity. Since a definite sum must be paid, the
element of investment is also present. In other words, life insurance provides
110
against pre-mature death and a fixed sum at maturity of policy. The two elements
of protection and investment exist in various degrees in different types of
policies.

The older the policy, the lesser the element of protection and higher the element
of investment and vice-versa is also true. Having different elements in different
policies, the policy-holders are free to choose the best policies according to their
requirements.

It should be known that no one policy is the best policy for all the policy-holders
due to variance in cost, elements of investments and protection, requirements of
the policy-holders and availability of the policy. Life insurance policies are
divided on the basis of duration of policy, method of premium payments and
participation.
Table : X
Market Share based on total policies
Year Public Sector (%) Private sector (%)
2000-01 99.23 0.77
2001-02 93.98 6.02
2002-03 96.75 3.25
2003-04 94.21 5.79
2004-05 91.48 8.52
2005-06 89.08 10.92
2006-07 82.83 17.17
2007-08 73.93 26.07
2008-09 70.52 29.48
2009-10 73.02 26.98

111
 Market Share based on Total Policies

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Public Private
Sector sector

Observation:

Table X shows the market share of both the public and the private sector life
insurance companies based on total policies. The market share of LIC of India
was 99.23% in the year 2000-01.It has decreased to 73.02% in the year 2009-10.
While that of the private sector was 0.77% in the year 2000-01 and increased to
26.98% in the year 2009-10.

There are concerns over Life Insurance Corporation of India’s declining market
share based on total policies and concurrent rise of private insurers who have just
entered ten years ago. Innovative products, smart marketing and aggressive
distribution channels has enabled private life insurance companies to sell
policies. As of today, Life Insurance Corporation of India has retained the market
share based on total policies.

112
5.3 market share of private life insurance companies
based on Total Premium and New Business

5.3.1 Market Share of Private Life Insurance Companies based on

Total Premium
Table : XI
Market share of private life insurance companies
based on total premium (%)

2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Life Insurer 01 02 03 04 05 06 07 08 09 10

HDFC standard
Life Insurance
9.54 12.27 13.30 9.54 8.89 10.41 10.11 9.43 8.63 8.83
Co.Ltd.
Max New York
Life Insurance
2.24 14.29 8.63 6.90 5.35 5.23 5.31 5.27 5.98 6.12
Co.Ltd.
ICICI Prudential
Life Insurance
83.73 42.70 37.32 31.70 30.59 28.26 28.02 26.31 23.81 20.83
Co.Ltd.
Kotak Mahindra
Life Insurance Co.
NA 2.78 3.60 4.83 6.03 4.12 3.44 3.28 3.63 3.61
Ltd.
Birla Sun Life
4.49 10.38 12.86 17.23 11.85 8.33 6.25 6.32 7.09 6.94
Insurance Co. Ltd.
TATA AIG Life
NA 7.77 7.26 8.13 6.43 5.84 4.84 3.97 4.26 4.40
Insurance Co. Ltd.
SBI Life
NA 5.39 6.47 7.23 7.78 8.10 10.37 10.90 11.18 12.73
Insurance Co. Ltd.
ING Vysya Life
NA 1.54 1.89 2.84 4.39 2.82 2.50 2.25 2.24 2.07
Insurance Co. Ltd.
BAJAJ ALLIANZ
Life Insurance Co.
NA 2.61 6.18 7.08 12.96 20.78 18.93 18.87 16.47 14.39
Ltd.

113
MET Life India
NA 0.17 0.71 0.92 1.06 1.37 1.74 2.25 3.10 3.20
Insurance Co. Ltd.
Reliance Life
NA 0.10 0.58 0.99 1.37 1.48 3.56 6.26 7.65 8.32
Insurance Co. Ltd.
AVIVA Life
NA NA 1.20 2.61 3.28 3.98 4.07 3.67 3.09 2.99
Insurance Co.Ltd.
SAHARA India
NA NA NA NA 0.02 0.18 0.18 0.28 0.32 0.32
Life Insurance
Co.Ltd.
SHRIRAM Life
NA NA NA NA NA 0.07 0.65 0.68 0.68 0.77
Insurance Co.Ltd.
Bharti Axa Life
NA NA NA NA NA NA 0.03 0.23 0.56 0.84
Insurance Co.Ltd.
Future Generali
India Life
NA NA NA NA NA NA NA 0.005 0.24 0.68
Insurance Co.Ltd.
IDBI Fortis Life
NA NA NA NA NA NA NA 0.02 0.50 0.72
Insurance Co. Ltd.
Canara HSBC
Oriental Bankl of
NA NA NA NA NA NA NA NA 0.46 1.06
Commerce Life
Insurance Co.Ltd.
Argon Religare
NA NA NA NA NA NA NA NA 0.05 0.21
Life Insurance
co.Ltd.
DLF premercia
NA NA NA NA NA NA NA NA 0.005 0.05
Life Insurance
Co.Ltd.
Star Union Dai-
Ichi Life
NA NA NA NA NA NA NA NA 0.08 0.67
Insurance co. Ltd.
India First Life
NA NA NA NA NA NA NA NA NA 0.25
Insurance Co. Ltd.

114
5.3.2 Ranks given to Private Life Insurance Companies based on
Total Premium
Table : XII
Ranks given to private life insurance companies
based on total premium

2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Life Insurer 01 02 03 04 05 06 07 08 09 10

HDFC standard
Life Insurance
2 3 2 3 4 3 4 4 4 4
Co.Ltd.
MAX New York
Life Insurance
4 2 4 7 8 7 6 7 7 7
Co.Ltd.
ICICI Prudential
Life Insurance
1 1 1 1 1 1 1 1 1 1
Co.Ltd.
Kotak Mahindra
Life Insurance Co.
NA 7 8 8 7 8 10 10 9 9
Ltd.
Birla Sun Life
3 4 3 2 3 4 5 5 6 6
Insurance Co. Ltd.
TATA AIG Life
NA 5 5 4 6 6 7 8 8 8
Insurance Co. Ltd.
SBI Life
NA 6 6 5 5 5 3 3 3 3
Insurance Co. Ltd.

ING Vysya Life

NA 9 9 9 9 10 11 11 12 12
Insurance Co. Ltd.

BAJAJ ALLIANZ
Life Insurance Co.
NA 8 7 6 2 2 2 2 2 2
Ltd.
MET Life India
NA 10 11 12 12 12 12 12 10 10
Insurance Co. Ltd.
Reliance Life
NA 11 12 11 11 11 9 6 5 5
Insurance Co. Ltd.

115
AVIVA Life
NA NA 10 10 10 9 8 9 11 11
Insurance Co.Ltd.
SAHARA India
NA NA NA NA 13 13 14 14 17 19
Life Insurance
Co.Ltd.
SHRIRAM Life
NA NA NA NA NA 14 13 13 13 15
Insurance Co.Ltd.
Bharti Axa Life
NA NA NA NA NA NA 15 15 14 14
Insurance Co.Ltd.
Future Generali
India Life
NA NA NA NA NA NA NA 17 18 17
Insurance Co.Ltd.
IDBI Fortis Life
NA NA NA NA NA NA NA 16 15 16
Insurance Co. Ltd.
Canara HSBC
Oriental Bankl of
NA NA NA NA NA NA NA NA 16 13
Commerce Life
Insurance Co.Ltd.
Argon Religare
NA NA NA NA NA NA NA NA 20 21
Life Insurance
co.Ltd.
DLF premercia
NA NA NA NA NA NA NA NA 21 22
Life Insurance
Co.Ltd.
Star Union Dai-
Ichi Life
NA NA NA NA NA NA NA NA 19 18
Insurance co. Ltd.
India First Life
NA NA NA NA NA NA NA NA NA 20
Insurance Co. Ltd.

Observation:

Table XI and XII shows the market share based on total premium and their ranks
on the basis of total premium of private life insurance companies respectively.

Private Life Insurance companies have raised their market share based on total
premium from 0.02% in 2000-01 to 39.90 % in 2009-10. ICICI Prudential Life
Insurance Company has consistently retain its first position based on total
premium from 2000-01 to 2009-10, even though the company has reduced its

116
market share from 83.73% in 2000-01 to 20.83% in 2009-10.The market share
based on total premium of SBI Life Insurance Co. Ltd. has increased from
5.39% in 2001-02 to 12.73% in 2009-10.While that of Bajaj Allianz Life
Insurance Co. Ltd. has increased from 2.61% in 2002-03 to 14.39%. Also
Reliance Life Insurance Co. Ltd. increased its market share from 0.10 in 2002-03
to 8.32% in 2009-10.

This signifies that there is lot of competition among the private life insurance
companies in India. ICICI Prudential Life Insurance Company continues to be
the largest private life insurance player.

5.3.3 Market Share of Private Life Insurance Companies based on

New Business
Table : XIII
Market share of private life insurance companies
based on new business (%)

2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Life Insurer 01 02 03 04 05 06 07 08 09 10

HDFC standard
Life Insurance
0.03 12.21 13.39 8.58 8.74 10.15 8.49 7.95 7.76 8.49
Co.Ltd.
MAX New York
Life Insurance
2.48 14.45 6.97 5.62 4.20 4.59 4.70 4.74 5.40 4.82
Co.Ltd.
ICICI Prudential
92.53 42.21 37.70 30.76 28.47 25.34 26.57 23.83 19.95 16.51
Life Insurance
Co.Ltd.
Kotak Mahindra
Life Insurance Co.
NA 2.82 3.65 5.14 6.72 3.86 3.17 3.28 3.93 3.48
Ltd.
Birla Sun Life
4.96 10.47 13.42 18.43 11.17 6.60 4.54 5.83 8.26 7.71
Insurance Co. Ltd.
TATA AIG Life
NA 7.87 6.19 7.44 5.35 4.52 3.32 2.86 3.35 3.45
Insurance Co. Ltd.

117
SBI Life
NA 5.47 7.44 8.48 8.71 9.10 13.20 14.22 15.77 18.35
Insurance Co. Ltd.
ING Vysya Life
NA 1.56 1.83 2.95 5.08 2.77 2.41 20.90 2.02 1.67
Insurance Co. Ltd.
BAJAJ ALLIANZ
Life Insurance Co.
NA 2.66 6.56 7.36 15.41 26.45 22.15 19.80 13.15 11.60
Ltd.
MET Life India
NA 0.18 0.80 0.96 1.03 1.45 1.75 2.45 3.35 2.77
Insurance Co. Ltd.
Reliance Life
NA 0.10 0.65 1.12 1.64 1.88 4.80 8.16 10.29 10.22
Insurance Co. Ltd.
AVIVA Life
NA NA 1.40 3.16 3.45 3.96 3.71 3.13 2.12 2.08
Insurance Co.Ltd.
SAHARA India
NA NA NA NA 0.03 0.26 0.22 0.36 0.39 0.33
Life Insurance
Co.Ltd.
SHRIRAM Life
NA NA NA NA NA 0.11 0.93 0.91 0.92 1.09
Insurance Co.Ltd.
Bharti Axa Life
NA NA NA NA NA NA 0.04 0.34 0.86 1.14
Insurance Co.Ltd.
Future Generali
India Life
NA NA NA NA NA NA NA 0.007 0.44 1.27
Insurance Co.Ltd.
IDBI Fortis Life
NA NA NA NA NA NA NA 0.04 0.93 1.04
Insurance Co. Ltd.
Canara HSBC
Oriental Bankl of
NA NA NA NA NA NA NA NA 0.87 1.62
Commerce Life
Insurance Co.Ltd.
Argon Religare
NA NA NA NA NA NA NA NA 0.09 0.10
Life Insurance
co.Ltd.
DLF premercia
NA NA NA NA NA NA NA NA 0.01 0.39
Life Insurance
Co.Ltd.
Star Union Dai-
Ichi Life
NA NA NA NA NA NA NA NA 0.14 1.35
Insurance co. Ltd.
India First Life
NA NA NA NA NA NA NA NA NA 0.52
Insurance Co. Ltd.

118
5.3.4 Ranks given to Private Life Insurance Companies based
on New Business
Table : XIV
Ranks given to private life insurance companies
based on New Business

2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Life Insurer 01 02 03 04 05 06 07 08 09 10

HDFC standard
Life Insurance
4 3 3 3 4 3 4 6 6 5
Co.Ltd.
MAX New York
Life Insurance
3 2 5 7 9 6 6 8 7 7
Co.Ltd.
ICICI Prudential
1 1 1 1 1 2 1 1 1 2
Life Insurance
Co.Ltd.
Kotak Mahindra
Life Insurance Co.
NA 7 8 8 6 9 10 9 8 8
Ltd.
Birla Sun Life
2 4 2 2 3 5 7 7 5 6
Insurance Co. Ltd
TATA AIG Life
NA 5 7 5 7 7 9 11 9 9
Insurance Co. Ltd
SBI Life
NA 6 4 4 5 4 3 4 2 1
Insurance Co. Ltd

ING Vysya Life

NA 9 9 10 8 10 11 2 12 12
Insurance Co. Ltd

BAJAJ ALLIANZ
Life Insurance Co.
NA 8 6 6 2 1 2 3 3 3
Ltd

MET Life India

NA 10 11 12 12 12 12 12 10 10
Insurance Co. Ltd.

Reliance Life
NA 11 12 11 11 11 5 5 4 4
Insurance Co. Ltd

119
AVIVA Life
NA NA 10 9 10 8 8 10 11 11
Insurance Co.Ltd.

SAHARA India
NA NA NA NA 13 13 14 14 18 21
Life Insurance
Co.Ltd.

SHRIRAM Life
NA NA NA NA NA 14 13 13 14 17
Insurance Co.Ltd.

Bharti Axa Life

NA NA NA NA NA NA 15 15 16 16
Insurance Co.Ltd.

Future Generali
India Life
NA NA NA NA NA NA NA 17 17 15
Insurance Co.Ltd.

IDBI Fortis Life

NA NA NA NA NA NA NA 16 13 18
Insurance Co. Ltd.

Canara HSBC
Oriental Bankl of
NA NA NA NA NA NA NA NA 15 13
Commerce Life
Insurance Co.Ltd.

Argon Religare
NA NA NA NA NA NA NA NA 20 22
Life Insurance
co.Ltd.

DLF premercia
NA NA NA NA NA NA NA NA 21 20
Life Insurance
Co.Ltd.

Star Union Dai-

Ichi Life
NA NA NA NA NA NA NA NA 19 14
Insurance co. Ltd.

India First Life

NA NA NA NA NA NA NA NA NA 19
Insurance Co. Ltd.

120
Observation:

Table XIII and XIV shows the market share based on first year premium
(including single premium) and their ranks on the basis of first year premium
(including single premium) of private life insurance companies in India.

The success of life insurance companies to a large extent depends upon the new
growth and development of new business. Private Life Insurance companies
have raised their market share based on first year premium (including single
premium) from 0.07% in 2000-01 to 34.92 % in 2009-10.

st
ICICI Prudential Life Insurance Company ranked 1 on the basis of market share as
per first year premium (including single premium) in eight years out of ten years.
The Market share based on first year premium (including single premium) of SBI
life Insurance Company consistently increased from 5.47% in 2001-02 to 18.35% in
2009-10.The market share based on first year premium (including single premium)
of Reliance Life Insurance Co. Ltd. has increased from 0.10% in 2001-02 to 10.22%
in 2009-10.While that of Bajaj Allianz Life Insurance Co. Ltd. has increased from
2.66% in 2002-03 to 11.60%. ICICI Prudential Life Insurance Company is the
largest life insurance company in the private sector.

121
5.4 Prediction of new business and total premium of
life insurance sector for the year 2015

5.4.1 Prediction of New Business for Public Sector

Table : XV
Trend values of new business (Public sector)
Year Public Sector Trend values
(Rs.) (Rs.)
2000-01 970098 23949.22
2001-02 1958877 899722.34
2002-03 1597676 1775495.46
2003-04 1734762 2651268.58
2004-05 2065306 3527041.70
2005-06 2851587 4402814.82
2006-07 5622356 5278587.94
2007-08 5999657 6154361.06
2008-09 5317908 7030134.18
2009-10 7152190 7905907.30

New Business - Public Sector Trend

Values (in lacs)
9000000

8000000

7000000

6000000

5000000

4000000

3000000

2000000

1000000

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
-1000000

122
Observation:
Table XV depicts the trend values of new business Life Insurance Corporation
India from 2000-01 to 2009-10.

= 875773.12
Y = α+ β(X-2005)
= 3527041.70 + 875773.12 (2015-2005)
= 12284772.90
Based on the year 2004-05 the trend value for the year 2015 is calculated using

linear function where, are constant. Substituting values in the

trend line equation, the expected new business in India for Life Insurance
Corporation of India for the year 2015 would be Rs.12284772.90 lakh. New
business in India for Life Insurance Corporation of India shows an increasing
trend.

123
5.4.2 Prediction of New Business for Private Sector
Table : XVI
Trend values of new business (Private sector)
Year Private sector Trend Values
(Rs.) (Rs.)
2000-01 645.20 -776581.60
2001-02 26852 -219482.82
2002-03 96570 337615.96
2003-04 244071 894714.74
2004-05 556457 1451813.52
2005-06 1026967 2008912.30
2006-07 1942566 2566011.08
2007-08 3371595 3123109.86
2008-09 3415200 3680208.64
2009-10 3837212 4237307.42

New Business - Private sector Trend

Values (in lacs)
5000000

4000000

3000000

2000000

1000000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

-1000000

-2000000

124
Observation:
Table XVI depicts the trend values of new business of Private Sector life
insurance companies from 2000-01 to 2009-10.

= 1451813.52

= 557098.78

Y = + (X-2005)
= 1451813.52 + 557098.78 (2015-2005)
= 7022801.32

Based on the year 2004-05 the trend value for the year 2015 is calculated using

linear function where, are constant. Substituting values in the

trend line equation, the expected new business in India for Private sector for the
year 2015 would be Rs.7022801.32 lakh. New business in India for private
sector also shows an increasing trend.

125
5.4.3 Prediction of Total Premium for Public Sector
Table : XVII
Trend values of total premium (public sector)
Year Public Sector Trend Values
(rs.) (Rs.)
2000-01 3489202 9816621.00
2001-02 4982191 3209765.85
2002-03 5462849 5437869.60
2003-04 6316760 7665973.35
2004-05 7512729 9894077.10
2005-06 9079222 12122180.85
2006-07 12782284 14350284.60
2007-08 14978999 16578388.35
2008-09 15728804 18806492.10
2009-10 18607731 21034595.85

Total Premium - Public Sector Trend

Values (in lacs)
25000000

20000000

15000000

10000000

5000000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

126
Observation:
Table XVII depicts the trend values of total premium of Life Insurance
Corporation of India from 2000-01 to 2009-10.

= 9894077.10

= 2228103.75

Y = + (X-2005)
= 9894077.10 + 2228103.75 (2015-2005)
= 32175114.60

Based on the year 2004-05 the trend value for the year 2015 is calculated using

linear function where, are constant. Substituting the values in

the trend line equation, the expected total premium in India for Life Insurance
Corporation of India for the year 2015 would be Rs.32175114.60 lakh. Total
premium in India for public sector shows an upward trend.

127
5.4.4 Prediction of Total Premium for Private Sector

Table : XVIII
Trend values of total premium (private sector)

Year Private Sector Trend Values

(Rs.) (Rs.)
2000-01 713 -1607105.54
2001-02 27253 -577865.63
2002-03 111905 451374.28
2003-04 312035 1480614.19
2004-05 772751 2509854.10
2005-06 1507953 3539094.01
2006-07 2824249 4568333.92
2007-08 5154636 5597573.83
2008-09 6449741 6626813.74
2009-10 7937305 7656053.65

Total premium - Private Sector Trend Values

(in lacs)
10000000

8000000

6000000

4000000

2000000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

-2000000

-4000000

128
Observation:
Table XVIII predicts the trend values of total premium of Private Sector life
Insurance Company from 2000-01 to 2009-10.

= 2509854.10

= 1029239.91

Y = + (X-2005)
= 2509854.10 + 1029239.91(2015-2005)
= 12802253.20

Based on the year 2004-05 the trend value for the year 2015 is calculated using

linear function where, are constant. Substituting the values in

the trend line equation, the expected new business in India for Private sector for
the year 2015 would be Rs.12802253.20 lakh. Total premium in India for private
sector shows an upward trend.

Thus we can conclude that new business and total premium for both the public
sector and private sector life insurance companies will increase in future as there
is much scope for life insurance business in India.

129
5.5 Analysis of Variance (ANOVA)(one way)
Table : XIX
Total commission to total premium
Sources of Sum of Degree of Mean F value F(crit) Ho
variation squares freedom square value R/A

Between 0.01 h-1=2-1=1 0.01 10 4.41 R

samples

Within samples 0.02 N-h=20-2=18 0.001

Total 0.03 N-1=20-1=19

Observation:

The F value is >F crit value, therefore the null hypothesis is rejected at 5% level
of significance. Hence it can be concluded that there is significant difference
between total commission to total premium ratio of the public and private sector
life insurance companies. The private sector life insurance companies incur huge
commission expense in relation to the premium earned. This reflects bad
financial management in case of private sector life insurance companies.
Table : XX
Total commission to total operating expense
Sources of Sum of Degree of Mean F value F(crit) Ho
variation squares freedom square value R/A

Between 3.28 h-1=2-1=1 3.28 252.31 4.41 R

samples

Within samples 0.24 N-h=20-2=18 0.013

Total 3.52 N-1=20-1=19

130
Observation:

The F value is >F crit value, therefore the null hypothesis is rejected at 5% level
of significance. Hence it can be concluded that there is significant difference
between total commission to total operating expense ratio of the public and
private sector life insurance companies. The private sector life insurance
companies lure the agents with huge commission especially on ULIP.
Commission given by private life insurance companies on an average ranges
from 15% to 20% on ULIP while LIC of India on an average gives commission
on traditional plans between 5% to 10%.Thus commission becomes a major part
of the operating expense for private life insurance companies. This also reflects
bad financial planning in case of private sector life insurance companies.

Table : XXI
Actuarial efficiency
Sources of Sum of Degree of Mean F value F(crit) Ho
variation squares freedom square value R/A

Between 0.50 h-1=2-1=1 0.50 250 4.41 R

samples

Within samples 0.03 N-h=20-2=18 0.002

Total 0.53 N-1=20-1=19

Observation:

The F value is >F crit value, therefore the null hypothesis is rejected at 5% level
of significance. Hence it can be concluded that there is significant difference in
actuarial efficiency ratio of the public and private sector life insurance
companies. Life Insurance Corporation of India has won the trust of its
policyholders by being more efficient in payments of benefits. The private sector
life insurance companies have to improve their actuarial efficiency and win the
trust and loyalty of its policyholders.

131
 Table : XXII
Current ratio
Sources of Sum of Degree of Mean F value F(crit) Ho
variation squares freedom square value R/A

Between 5.91 h-1=2-1=1 5.91 12.85 4.41 R

samples

Within samples 8.29 N-h=20-2=18 0.46

Total 14.20 N-1=20-1=19

Observation:

The F value is >F crit value, therefore the null hypothesis is rejected at 5% level
of significance. Hence it can be concluded that there is significant difference
between current ratio of the public and private sector life insurance companies.
The liquidity position of public sector is much better than the private sector life
insurance companies. The private sector life insurance companies have to
improve their current ratio and thus their liquidity position.

table: XXIII
Proprietary ratio
Sources of Sum of Degree of Mean F value F(crit) Ho
variation squares freedom square value R/A

Between 0.80 h-1=2-1=1 0.80 16 4.41 R

samples

Within samples 0.94 N-h=20-2=18 0.05

Total 1.74 N-1=20-1=19

132
Observation:

The F value is >F crit value, therefore the null hypothesis is rejected at 5% level
of significance. Hence it can be concluded that there is significant difference
between Proprietary ratio of the public and private sector life insurance
companies. The proprietary ratio of the public sector is much better than private
sector life insurance companies. This reflects the financial strength of Life
Insurance Corporation of India and its solvency is better than private sector life
insurance companies.

table: XXIV
Total investment to total liability
Sources of Sum of Degree of Mean F value F(crit) Ho
variation squares freedom square value R/A

Between 0.09 h-1=2-1=1 0.09 15 4.41 R

samples

Within samples 0.10 N-h=20-2=18 0.006

Total 0.19 N-1=20-1=19

Observation:

The F value is >F crit value, therefore the null hypothesis is rejected at 5% level
of significance. Hence it can be concluded that there is significant difference
between total investment to total liability ratio of the public and private sector
life insurance companies. Life Insurance Corporation of India has been able to
manage its funds well as compared to private life insurance companies. This
shows that Life Insurance Corporation of India is more efficient in managing its
investments.

133
 5.6 Cost Efficiency of Life Insurance Companies

5.6.1 Cost Efficiency Score of Life Insurance Companies

Table : XxV
Cost Efficiency Score

LIFE Year
Insurer 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
01 02 03 04 05 06 07 08 09 10
HDFC
standard Life
Insurance 1 0.1689 0.3341 0.5415 0.0139 0.0889 0.1123 0.0126 0.0220 0.0450
Co.Ltd.
MAX NEW
YORK Life
Insurance 1 0.0795 0.2081 0.2875 0.0120 0.0292 0.0302 0.0128 0.0186 0.0438
Co.Ltd.
ICICI
Prudential
Life Insurance 0.2979 0.0866 0.1340 0.1840 0.0137 0.2018 1 0.0043 1 1
Co.Ltd.
Kotak
Mahindra Life
Insurance Co. NA 0.1786 0.3796 0.5342 0.0409 0.1245 0.1795 0.0283 0.0460 0.1596
Ltd.
Birla Sun Life
Insurance Co. 1 0.1418 0.2616 0.3875 0.0156 0.0412 0.0453 0.0191 0.0217 0.0464
Ltd.
TATA AIG
Life Insurance NA 0.1684 0.3668 0.4337 0.0104 0.0325 0.0447 0.0159 0.0319 0.0639
Co. Ltd.
SBI Life
Insurance Co. NA 1 1 1 1 1 1 0.0692 0.1607 1
Ltd.
ING Vysya
Life Insurance
Co. Ltd. NA 0.2851 0.4034 0.4592 0.0210 0.0585 0.0696 0.0276 0.0834 0.1572

134
BAJAJ
ALLIANZ
Life Insurance NA 0.2649 0.3492 0.3623 0.0121 0.0249 0.0162 0.0064 0.0169 0.0322
Co. Ltd.
MET Life
India
Insurance Co. NA 1 1 1 0.0521 0.0932 0.0664 0.0258 0.0414 0.0706
Ltd.
Reliance Life
Insurance Co. NA 1 1 1 0.1551 1 0.0812 0.0112 0.0131 0.0805
Ltd.
AVIVA Life
Insurance NA NA 0.7994 0.4541 0.0164 0.0371 0.0381 0.0166 0.0504 0.1332
Co.Ltd.

SAHARA
India Life
Insurance NA NA NA NA 1 1 1 0.5944 0.7708 1
Co.Ltd.
SHRIRAM
Life Insurance NA NA NA NA NA 1 0.8816 0.3020 0.5024 0.3525
Co.Ltd.
Bharti Axa
Life Insurance
Co.Ltd. NA NA NA NA NA NA 1 0.0340 0.0634 0.1362
Future
Generali India
Life Insurance NA NA NA NA NA NA NA 1 0.1258 0.1334
Co.Ltd.
IDBI Fortis
Life Insurance NA NA NA NA NA NA NA 1 0.5723 0.4087
Co. Ltd.

Canara HSBC
Oriental Bank
of Commerce
Life Insurance NA NA NA NA NA NA NA NA 0.1636 0.1923
Co.Ltd.

135
Argon
Religare Life
Insurance NA NA NA NA NA NA NA NA 0.2458 0.4562
Co.Ltd.

DLF
premercia Life
Insurance NA NA NA NA NA NA NA NA 1 1
Co.Ltd.

Star Union
Dai-Ichi Life
Insurance co. NA NA NA NA NA NA NA NA 1 0.9334
Ltd.

India First
Life Insurance NA NA NA NA NA NA NA NA NA 1
Co. Ltd.

LIC of India. 1 1 1 1 1 1 1 1 1 1

136
 5.6.2 Ranks given to Life Insurance Companies based on Cost
Efficiency Score

Table : XXVI
Ranks given to life insurance companies based on
Cost Efficiency Score

Year
Life
Insurer 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
01 02 03 04 05 06 07 08 09 10
HDFC
standard Life
Insurance 1 8 10 5 10 9 8 15 18 21
Co.Ltd.
MAX NEW
YORK
Life 1 12 12 12 13 14 15 14 20 22
Insurance
Co.Ltd.
ICICI
Prudential
Life 5 11 13 13 11 6 1 18 1 1
Insurance
Co.Ltd.
Kotak
Mahindra NA 7 7 6 6 7 7 8 15 12
Life
Insurance
Co. Ltd.
Birla Sun
Life 1 10 11 10 9 11 12 11 19 20
Insurance
Co. Ltd

TATA AIG
Life
Insurance NA 9 8 9 14 13 13 13 17 19
Co. Ltd

137
SBI Life
Insurance NA 1 1 1 1 1 1 6 10 1
Co. Ltd
ING Vysya
Life
Insurance NA 5 6 7 7 10 10 9 12 13
Co. Ltd
BAJAJ
ALLIANz
Life NA 6 9 11 12 15 16 17 21 23
Insurance
Co. Ltd
MET Life
India NA 1 1 1 5 8 11 10 16 18
Insurance
Co. Ltd.
Reliance
Life NA 1 1 1 4 1 9 16 22 17
Insurance
Co. Ltd
AVIVA Life
Insurance NA NA 5 8 8 12 14 12 14 16
Co.Ltd.
SAHARA
India Life NA NA NA NA 1 1 1 4 5 1
Insurance
Co.Ltd.
SHRIRAM
Life NA NA NA NA NA 1 6 5 7 10
Insurance
Co.Ltd.
Bharti Axa
Life NA NA NA NA NA NA 1 7 13 14
Insurance
Co.Ltd.
Future
Generali
India Life NA NA NA NA NA NA NA 1 11 15
Insurance
Co.Ltd.

138
IDBI Fortis
Life NA NA NA NA NA NA NA 1 6 9
Insurance
Co. Ltd.
Canara
HSBC
Oriental
Bankl of NA NA NA NA NA NA NA NA 9 11
Commerce
Life
Insurance
Co.Ltd.
Argon
Religare Life
Insurance NA NA NA NA NA NA NA NA 8 8
co.Ltd.
DLF
premercia
Life NA NA NA NA NA NA NA NA 1 1
Insurance
Co.Ltd.
Star Union
Dai-Ichi Life
Insurance co. NA NA NA NA NA NA NA NA 1 7
Ltd.
India First
Life NA NA NA NA NA NA NA NA NA 1
Insurance
Co. Ltd.

LIC of India. 1 1 1 1 1 1 1 1 1 1

139
 Table : XXVII
Descriptive statistics of Cost Efficiency Score

Year

Particulars 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
01 02 03 04 05 06 07 08 09 10
Total Life
Insurers 05 12 13 13 14 15 16 18 22 23

Total
efficiency 4.2979 5.3738 7.2362 7.6440 3.3632 5.7318 6.5651 4.1802 6.9502 9.4451

Mean Cost
Efficiency 0.8596 0.4478 0.5566 0.5880 0.2402 0.3821 0.4103 0.2322 0.3159 0.4107

Total Private
Life Insurer 04 11 12 12 13 14 15 17 21 22

Total Private
insurer 3.2979 4.3738 6.2362 6.6440 2.3632 4.7318 5.5651 3.1802 5.9502 8.4451
efficiency
Mean Cost
Efficiency of 0.8245 0.3976 0.5197 0.5537 0.1818 0.3380 0.3710 0.1871 0.2833 0.3839
Private Life
Insurers
Standard
Deviation 0.3140 0.4121 0.3435 0.3010 0.4135 0.4545 0.4583 0.3822 0.3859 0.4076

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 Table : XXVIII
Cost Efficient Life insurance companies
Cost
Year Efficiency Life Insurer
Score
HDFC Standard Life Insurance Co.Ltd
2000-01 1 MAX NEW YORK Life Insurance Co.Ltd.
Birla Sun Life Insurance Co.Ltd.
Life Insurance Corporation of India
SBI Life Insurance Co.Ltd.
2001-02 1 MET Life India Insurance Co.Ltd.
Reliance Life Insurance Co.Ltd.
Life Insurance Corporation of India
SBI Life Insurance Co.Ltd.
2002-03 1 MET Life India Insurance Co.Ltd.
Reliance Life Insurance Co.Ltd.
Life Insurance Corporation of India

SBI Life Insurance Co.Ltd.

2003-04 1 MET Life India Insurance Co.Ltd.
Reliance Life Insurance Co.Ltd.
Life Insurance Corporation of India
SBI Life Insurance Co.Ltd.
2004-05 1 SAHARA India Life Insurance Co.Ltd.
Life Insurance Corporation of India
SBI Life Insurance Co.Ltd.
Reliance Life Insurance Co.Ltd.
2005-06 1 SAHARA India Life Insurance Co.Ltd.
SHRIRAM Life Insurance Co.Ltd.
Life Insurance Corporation of India

141
 ICICI Prudential Life Insurance Co.Ltd
SBI Life Insurance Co.Ltd.
2006-07 1 SAHARA India Life Insurance Co.Ltd.
BHARTI AXA Life Insurance Co.Ltd.
Life Insurance Corporation of India
FUTURE GENRALI Life Insurance Co.Ltd.
2007-08 1 IDBI FORTIS Life Insurance Co.Ltd.
Life Insurance Corporation of India
ICICI Prudential Life Insurance Co.Ltd
DLF pramercia Life Insurance Co.Ltd
2008-09 1 Star Union Dai-Ichi Life Insurance Co.Ltd
Life Insurance Corporation of India

ICICI Prudential Life Insurance Co.Ltd

SBI Life Insurance Co.Ltd.
2009-10 1 SAHARA India Life Insurance Co.Ltd.
DLF pramercia Life Insurance Co.Ltd
India First Life Insurance Co.Ltd
Life Insurance Corporation of India

Observation:
Table XXV, XXVI, XXVII and XXVIII shows the cost efficiency score of life
insurance companies, ranks on the basis of cost efficiency score, descriptive
statistics of cost efficiency score and cost efficient life insurance companies
respectively.

It can be seen that Life Insurance Corporation of India has consistently secured a
cost efficiency score of 1 in all the years from 2000-01 to 2009-10 and scored
the highest rank for all the years under study. Thus Life Insurance Corporation of
India has consistently been a cost efficient organization. While in the case of the
private life insurance companies, the cost efficiency score has been inconsistent.
Except for SBI Life insurance company which has secured a cost

142
efficiency score of 1 in seven years out of ten years but in 2008-09 it has slipped
th
to the 10 rank. Undoubtfully, Life Insurance Corporation of India has
st
maintained higher score than Mean Cost Efficiency and secured 1 rank from
2000-01 to 2009-10.Thus Ho is rejected and we can conclude that cost efficiency
score of all life insurance companies is not equal.

The findings show a significant heterogeneity in the cost efficiency scores from
2000-01 to 2009-10.In the year 2009-10, ICICI Prudential Life Insurance Co.
Ltd., SBI Life Insurance Co. Ltd., SAHARA India Life Insurance Co.Ltd., DLF
pramercia Life Insurance Co. Ltd. , India First Life Insurance Co. Ltd. and Life
Insurance Corporation of India were fully cost efficient firms as they had secure
a cost efficient score 1. Star Union Dai-Ichi Life Insurance Co. Ltd. is close to a
cost efficient score of 1 while the other private life insurance companies should
have reduced their cost by: HDFC standard Life Insurance Co.Ltd.(0.9550), Max
New York Life Insurance Co. Ltd.(0.9562), Kotak Mahindra Life Insurance
Co.Ltd.-(0.8404), Birla Sun Life Insurance Co.Ltd. (0.9536), TATA AIG Life
Insurance Co.Ltd. (0.9361), ING Vysya Life Insurance Co. Ltd.(0.8428), BAJAJ
Allianz Life Insurance Co. Ltd.(0.9678), MET Life India Insurance Co. Ltd.
(0.9294), Reliance Life Insurance Co. Ltd.(0.9195), AVIVA Life Insurance
Co.Ltd. (0.8668), Shriram Life Insurance Co. Ltd. (0.6475), Bharti Axa Life
Insurance Co.Ltd.(0.8638), Future Generali Life Insurance Co.Ltd. (0.8666),
IDBI Fortis Life Insurance Co.Ltd. (0.5913), Canara HSBC Oriental Bank of
Commerce Life Insurance Co.Ltd. (0.8077), Argon Religare Life Insurance Co.
Ltd. (0.5438) to produce the same amount of output.

143
 Chapter : 6
Conclusion and Suggestions
6.1 SWOT Analysis of Insurance Industry in India

6.1.1 Strengths/Opportunities of Insurance Industry

The intense competition brought about by deregulation has encouraged the

industry to innovate in all areas; from underwriting, marketing, policy holder
servicing to record-keeping.

The existence of stringent licensing requirements ensure that only adequately

capitalized and professionally managed companies are eligible to carry out
insurance and reinsurance.

The Insurance Regulatory Development Authority of India’s (IRDA) emphasis

on quarterly reporting/monitoring of insurer solvency has enhance capital
adequacy and transparency.

Aggressive marketing strategies by private sector insurers will buoy consumer

awareness of risk and expand the markets for products.

Competition in a deregulated environment will allow market forces to set

premiums that are appropriate for exposure and push insurers to differentiate
their products and services.

Innovations in distribution and improvements in market penetration will follow

as public and private insurers compete to market their products. Allowing
insurers to issue their own policy wordings and set their own rates will enable
underwriters to tailor products to meet client needs. Range of available
products will increase because foreign companies bring with them a wide range
of products and product development expertise.

144
Licensed brokers are very much part of the intermediary structure and only
those with adequate capital, professional experience and expertise will be
licensed by IRDA .

Capital structure of entire insurance industry will improve as foreign

companies bring fresh capital with them.

Market efficiency will improve due to information dissemination, global

operating knowledge and increased competition.

Management efficiency will increase because foreign companies bring with

them global experience and management innovation.

Customers’ service will improve competition. which will finally benefit the
consumers.

Globalization will also improve Regulatory and Governance system. It will

also improve market conduct and Ethical Business Standard.

6.1.2 Weaknesses/Challenges of Insurance Industry

Premiums rates will remain under pressure due to intense competition on more
profitable lines. Falling premium income without a corresponding reduction in
claims is likely to drive down profits.

Public and private sector insurers’ greater reliance on their investment

portfolios to generate sufficient income and gains for net profits would subject
them to the volatility of the financial markets.

Private insurers need to raise more capital otherwise growth could be

constrained since reliance on reinsurance for capital relief is not always viable
or available.

Traditional distribution channels, especially tied agents, need to improve to

match the new product offerings.

145
There is general lack of transparency as financial and operational data for
insurers are not readily available as none of India’s insurers are directly listed
on stock exchanges.

Like all developing economies on a fast track, the shortage of trained insurance
professionals and technicians at all levels cannot be remedied in the short term.

Natural catastrophes will always be present; the Indian sub-continent is

vulnerable to cyclones, floods, hurricanes and earthquakes, and until there is a
national capacity (similar to the terrorism pool) to manage losses, dependence
on overseas reinsurers will continue.

6.2 Conclusion and suggestions

The life insurance density of India was 9.1 percent in the year 2000-01 when
the private sector was opened up. It increased to 52.2 percent in 2009-
10.India’s life insurance density is very low as compared to the developed
countries and developing countries, inspite of India being the second most
populous country in the world. This shows that there is much scope for life
insurance sector to develop in India.

The life insurance penetration of India was 2.15 percent in the year 2000-
01when the private sector was opened up.. It increased to 4.90 percent in 2009-
10.Since opening up of Indian Insurance sector for private participation, India
has reported an increase in both life insurance density and penetration. But
compared to UK, France, South Korea, Japan and South Africa, India is way
behind. Among developing countries it stands second to South Africa. There is
much scope for the life insurance sector to develop in India.

The prediction of new business and total premium for both private and public
sector life insurance companies in India for the year 2015 also shows an
upward trend which signifies that there is a lot of scope for life insurance
business in India.

146
For over a century, the United States has been the largest economy in the world
but major developments have taken place in the world economy since then,
leading to the shift of focus from the US and the rich countries of Europe to the
two Asian giants India and China. Economic experts and various studies
conducted across the globe envisage India and China to rule the world in the
st
21 century. India, which is now the fourth largest economy in terms of
purchasing power parity, may overtake Japan and become third major
economic power within 10 years. Life insurance will grow very rapidly over
the next decades in India. The major drivers include sound economic
fundamentals, a rising middle-income class, an improving regulatory
framework and rising risk awareness.

LIC’s Challenges

India opened its insurance market to the private sector in 1999 when Parliament
passed a new law establishing an independent regulatory body to oversee the
insurance market. The law opened the door for participation of private
insurance companies and a limited participation of foreign insurance companies
through joint ventures with Indian companies. Since then, the life insurance
markets have grown impressively. Since 1999, IRDA has licensed 22 new
private Indian insurance companies, who have global insurance companies as
their partners. Due to globalization of financial services and liberalization of
economy, the Life Insurance Corporation of India has been facing intense
competition from the new entrants. The new private players with their
aggressive penetration strategies are creating insurance consciousness in the
minds of a wide cross-section of customers.

The twenty two private insurers in the life insurance market have already
grabbed nearly 30 percent of the market in terms of premium income. The new
business premium of the twenty two private players was 34.92 percent in 2009-
10.Meanwhile, LIC's new premium business has fallen from 99.93% in 2000-
01 to 65.08% in 2009-10.Unless Life Insurance Corporation of India is alive to

147
the emerging trends, its performance may decline further. Hence, Life Insurance
Corporation of India has to work with renewed vigor and enthusiasm so as to
retain and improve its market share. In this regard, Life Insurance Corporation
of India has to focus on key result areas such as improving the productivity of
agents; marketing high sum assured policies and also the introduction of
customer friendly plans or products. Also Life Insurance Corporation of India
has to focus on unit linked plans, which are fast becoming popular in the
current life insurance market.

The financial performance of Life Insurance Corporation of India is better than

private life insurance companies in India. In a business driven by competition,
the high rising costs is due to huge commission expenses by private life
insurance companies. Most of the private life insurance companies are making
losses. It is necessary for them to cut their operating costs. Also private life
insurance companies have to improve their actuarial efficiency, liquidity
position and long term solvency position.

Customer Education

Insurance is a unique service industry. The key industry drivers are related to
life style issues in terms of perceiving insurance as a savings instrument rather
than for risk cover, need based selling, quality of service and customer
awareness. In the present competitive scenario, a key differentiator is the
professional customer service in terms of quality of advice on product choice
along with policy servicing.

Product Innovation

Innovative products, smart marketing and aggressive distribution-That's the

triple whammy combination that has enabled fledgling private insurance
companies to sign up Indian customers faster than anyone ever expected.
Indians, who have always seen life insurance as a tax saving device, are now
suddenly turning to the private sector and snapping up the new innovative

148
products on offer. The private companies are coming out with better products
which are more beneficial to the customer. Among such products are the Unit
Linked Investment Plans which offer both life cover as well as scope for
savings or investment options as the customer desires.

The growing popularity of the private insurers shows in other ways too. Life
Insurance Corporation of India is still dominating segments like endowments
and money back policies which are traditional plans. But in the annuity or
pension products business, the private insurers have already wrested over 30
percent of the market. While in the popular unit-linked insurance schemes they
have a virtual monopoly, with over 90 percent of the customers. The private
insurers also seem to be scoring big in other ways. They are persuading people
to take out bigger policies.

Distribution Network

While companies have been successful in product innovation, most of them are
still grapping with right mix of Distribution Channels for capturing maximum
market share to build brand equity, building strong and effective customer
relationship and cost effective customer service.

In India Insurance is sold and not bought. The agents / Advisors by using
various strategies sell the product by convincing the customers. Moreover, they
push policies with the highest premium to pocket a higher commission. The
consultative approach to selling is the modern approach, which helps customers
and prospects to buy.

While the traditional channel of tied up advisors or agents would be the chief
distribution channel, insurer should innovate and find new methods of
delivering the products to customers. Corporate agency, brokerage,
Bancassurance, e-insurance, co-operative societies and panchayats are some of
the channels, which can be tapped by the insurers to reach the appropriate
market segments. Now days, the urban masses are tapped with the new

149
techniques provided by Information Technology through internet. Rural masses
should be attracted by the consultative approach adopted by the Insurers.

New private insurers have used innovative distribution channels to reach a

broader range of the population. Private insurance companies are also using
banks, microfinance institutions and co-operatives to increase their market
share and compete with well-entrenched state-owned insurance company.
There is huge potential in the largely undeveloped private pension market.
Insurers have to develop new products addressing the new challenges in
society. Companies will need to constantly innovate in terms of product
development to meet ever-changing consumer needs. Understanding the
customer better will enable Insurance companies to design appropriate
products, determine price correctly and to increase profitability. Since a single
policy cannot meet all the insurance objectives, one should have a portfolio of
policies covering all the needs. Product development is made possible by
integrating actuarial, rating, and claims. Moreover, with increased
commoditization of insurance products, brand building is going to play a vital
role. The rural sector has potential for life insurance. To realize this potential,
designing suitable products is important. Insurers will need to pay special
attention to the characteristics of the rural labor force, like the prevalence of
irregular income streams and preference for simple products.

Legislation now allows insurance carriers and other financial institutions, such
as banks and securities firms, to sell each another’s products. More insurance
carriers now sell financial products such as securities, mutual funds and various
retirement plans. This helps access each other's client base and geographical
markets.

Foreign Direct Investment

Insurance is a capital-intensive industry. It is also a long-gestation business.

India's insurance industry needs capital, and a major source of capital would be
from foreign investors, who are now limited to 26 percent ownership. India

150
needs to raise the cap on Foreign Direct Investment (FDI) to attract capital for
the industry. For some time there has been an understanding that the FDI cap
will be raised to 49 percent, and many companies entered the Indian market
with this expectation. Leading foreign companies will bring in more capital to
the insurance industry if the cap on FDI is raised.

Role of IRDA

IRDA should also seek to create a regulatory regime that promotes the most
efficient use of capital, eliminates avoidable micro-management of business
practices, allows companies to price their products prudentially, and level the
playing field between private and state-owned insurance companies. When
markets are competitive and responsive to consumer demand and preference, it
is the consumer that benefits in terms of lower cost and increased ability to
manage risks.

Information Technology

Private Insurance companies have discovered that the Internet is a powerful

tool for reaching potential and existing customers. Most carriers use the
Internet simply to post company information, such as sales brochures and
product information, financial statements, and a list of local agents. New
technology gives the policyholders / insured better, wider and faster access to
products and services. The impact of Information Technology in Insurance
business is being felt at an accelerating pace. In the initial years IT was used
more to execute back office functions like maintenance of accounts,
reconciling broker accounts, client processing etc. With the advent of “database
concepts”, these functions are better integrated in an administrative efficiency.
The real evolution has however emerged out of Internet boom. Internet has
provided brand new distribution channels to the Insurers. Technology has
enabled the Insurer to innovate new products, provide better customer service
and deeper and wider insurance coverage to them. Insurance companies should
give customers a distinct claim id to track claims on-line, entertaining on-line

151
enrollment, eligibility review, financial reporting, billing and electronic fund
transfer to benefit clan customers.

In addition to individual carrier-sponsored Internet sites, several “lead-

generating” sites which have emerged in the developed countries should also
be used in India. These sites allow potential customers to input information
about their insurance policy needs. For a fee, the sites forward customer
information to a number of insurance companies, which review the information
and, if they decide to take on the policy, contact the customer with an offer.
This practice gives consumers the freedom to accept the best rate.

Quality Service

In the global era, Insurance companies are increasingly willing to spend more
on the customer satisfaction and brand building exercises. Though it is one of
the highly regulated industries, it still provides lot of scope for creativity and
innovations. As this industry is predominantly dominated by personal selling
and personalized services, many a time the service standards vary based on the
intermediary involved in the process. In order to achieve the competitive edge
over others, it is necessary to standardize the process and bring about quality
improvement and get feed back from the customers regarding the quality of
services rendered. This will result in customer satisfaction, customer retention,
customer acquisition, employee retention and cost reduction. Servicing focuses
on enhancing the customer’s experience and maximizing his convenience. This
calls for effective Customer Relationship Management system, which
eventually creates sustainable competitive advantage and enables to build long
lasting relationship.

152
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The Business World -13 February, 2006
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Gujarat Samachar -4 May, 2006
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Divya Bhaskar -18 May, 2006
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Times of India -8 June ,2006
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Gujarat Samachar - 9 July, 2006
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Divya Bhaskar -30 August, 2007
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Sandesh -27 December, 2008
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The Business World -5 June, 2009
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