Symbiosis Institute of Management Studies Business Environment

Assignment on Insurance Sector in India

Submitted by: NAME : Shilpa Parmar

SECTION : E ROLL NO : 49

Indian insurance industry has seen a significant growth over the past few years on account of growing national economy, increasing per capita income, growing consumer awareness about insurance products, and the entry of foreign players in the Indian market bringing in more innovative products. The Indian insurance industry operates through life and non-life segment, with life insurance, motor and health insurance being the major industry drivers. Life insurance segment, representing the largest share in the total insurance industry, is mainly perceived as a convenient method of tax-saving and hence, products like ULIPs are gaining popularity in the country. Life insurers are now designing new products that bundle life covers with pension plans and health insurance. Life Insurance Corporation of India (LIC) is the largest player within the life insurance business in India. Other major private players include SBI Life, ICICI Prudential, Bajaj Allianz, Reliance Life, HDFC Standard, Birla Sunlife, Max New York and Kotak Mahindra.

Major Players in the Market

The State The Indian insurance sector till recently comprised of only two state insurers the LIC for life insurance and the GIC for general insurance. This is reflected by the fact that LIC in 2000, sold close to 20 million new policies, and enjoyed a turnover of $5 billion. In 2001-02, on the other hand, GIC had a total premium income of $2 billion. In December 2000, the 4 GIC subsidiaries (Oriental Insurance Co. Ltd., New India Assurance Co. Ltd., National Insurance Co. Ltd. and United India Insurance Co. Ltd.) were restructured as independent insurance companies. At the same time, GIC itself was converted into a national reinsurer. In July 2002, Parliament passed a Bill that severed the formal relationship between the four subsidiaries and GIC.

Private Players Non-Life Insurance

The non-life sector primarily consists of fire and miscellaneous risk insurance policies. Also, since motor vehicle cover is compulsory in India, it acts as another chief source of business in the non-life sector. The major players in the non-life sector in India include

Allianz Bajaj General Insurer Co. Ltd. ICICI Lombard General Insurance

IFFCO-TOKIO General Insurance Reliance General Insurance Royal Sundaram Alliance Insurance Begun in 1818, with the establishment of the Oriental Life Insurance Company in Calcutta, the business of life insurance in India has come a long way. The most popular products in this sector are Endowment and Money Back policies. More than 80 percent of the Indian life insurance business comes from these two products.

Private Players Life Insurance The major players in the field of life insurance include:

Birla Sun Insurance Co. Ltd. Bajaj Allianz Life Insurance Co. Ltd. Metlife India Insurance Co. Pvt. Ltd. Life Insurance Corporation of India Om Kotak Mahindra Life Insurance Co. Ltd HDFC Standard Life Insurance Co. Ltd ICICI Prudential Life Insurance Co. Ltd Max New York Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. Tata AIG Life Insurance Co. Ltd. ING Vysya Life Insurance Co. Ltd. AMP Sanmar Insurance Co. Ltd. Dabur CGU Life Insurance Co. Ltd.

The private insurance market has grown despite the continued existence of the public sector providers. LIC has concentrated on retaining its market in traditional products like endowment and money-back policies, and has not slackened its hold in the rural areas. This has prompted many of the private companies to market new and innovative products as a means of competition. LIC in turn is now moving towards new products like unit-linked life products which to date have mainly been sold by the private sector. Growth in Insurance sector

Trends The insurance sector has had one of the smoothest entries into the liberalized era with multiple providers from the public and private sectors. It is time to look ahead and see what needs to be done for the further development of this sector. 1. Fuelled by competition, increased awareness will bring the customers centre-stage. The customer will be the single most important factor driving change in the life insurance business. In an increasingly competitive scenario the key differentiator will be the customer experience that each life insurance player can offer in terms of quality of advice, product choice, policy servicing, and settlement of claims. Service would focus on enhancing the customer experience and maximizing customer convenience. 2. In terms of distribution channels, while insurance will continue to be sold primarily through personal interaction, agents, brokers, direct sales force, the Internet will be effectively used by companies for offering information and by customers for doing comparison shopping. The insurers strategy and target market would influence the choice of appropriate distribution channels. 3. Technology will play a crucial role in delivering the highest standards of service to both the end customer as well as the intermediary. While these trends would be market driven, there are several measures that the insurers, the regulator, and perhaps most importantly, the policymakers will have to address. 1. Regulatory framework: The future development of the insurance industry however, depends on how the regulatory regime is enforced. While the regulatory authority has done a commendable job in putting in place a truly world class regulatory framework, it needs to focus now to maintain consistency in the regulations applicable to each provider, so as

not to create a disadvantageous position for any one provider. 2. Simplification and Rationalization of Insurance Laws: Another cause of concern is the delay in the formulation of a unified Act addressing all issues related to insurance. Experience in other countries suggests that, with the lines between financial services sectors blurring, the law and policies will have to keep pace with changes in such a dynamic environment. 3. Risk Management: As India opens up more to global markets and participants and becomes an integral part of the global economy, it will feel the effects of market movements and shocks from across the world. No more will we be safely protected from the effects of global forces. The role of regulator in monitoring the risk profile of each participant will be crucial to maintain the good health of the sector. Insurers will need to take appropriate risk mitigation measures to minimize risk, while the regulator will need to strengthen their armory of risk measuring tools. 4. The Rural Market: Insurance companies have established a presence and extended coverage in the rural areas as well, but there a lot more that needs to be done. The insurance companies need to design products that meet their life differing needs without sacrificing profits. Appropriate distribution channels, service delivery mechanisms will be crucial to success as will be a proper assessment of the mortality and morbidity risk in rural India. 5. Pension Reforms: An area of business, which has been a key segment for insurers worldwide and will be critical to the growth and development of the Insurance industry in India, is that of insurance against longevity. Since insurance and Pension are complementary issues, there should have been just one regulator for the two sectors. Some countries have experienced with a single operator for the entire financial sector, including banks, capital market players, and insurance and pension companies. Conclusion Since the opening of insurance sector to private players in 2000, there have been many significant developments like product innovations, introduction of riders, corporate agents, group insurance business and new channels of distribution such as banks. These changes have no doubt attracted the attention of various stakeholders - customers, policy makers, regulators and the shareholders. While these changes are most welcome and will benefit the growth of the industry and the customers, there are some key issues that need to be addressed immediately viz. regulating the framework, simplification and rationalization of insurance laws, risk management, the rural market and the role for insurance companies in pension. However, everyone is quite excited about the opportunities, growth and development of the insurance industry in India. This market has the potential to grow into one of the largest markets in the world in the foreseeable future. However, if appropriate steps are not taken now to get the structural aspects right, this industry will face many challenges that might adversely affect its growth.

Symbiosis Institute of Management Studies Business Environment

Assignment on Insurance Sector in India

Submitted by: NAME : Debashree Panda

SECTION : E ROLL NO : 12