The word “Fear” just has four alphabets like love but both of them have different e meaning. Whatever man (malor female) does with the love of their own families always begins with the background of fear. Generally, so frequently we have already been asking our selves that, what is going to happen when we were not there, but we carry on asking instead than doing something correctly. Time matters, it never stops for virtually everyone so we are living in the field of uncertainty; the uncertainty of job, the uncertainty of capital, the uncertainty of property and in this way the story goes continuously for your whole life of a guy.
A thriving insurance sector is crucial to every modern economy. Firstly because doing so encourages the habit of saving, secondly because doing so provides a safety net to rural and urban enterprises and productive individuals. And perhaps just remember it generates long- term invisible funds for infrastructure building. The nature on the insurance clients is such that the bucks inflow of insurance carriers is constant as you move the payout is deferred and contingency related.
This characteristic feature in their business makes insurance firms the biggest investors in long-gestation infrastructure development projects in every developed and aspiring nations. This is the most compelling reason private sector (and foreign) companies, that can spread the insurance plan habit within the societal and consumer interest are urgently required in this vital sector from the economy. Opening up of insurance to the personal sector including foreign participation has resulted in various opportunities and challenges in India.
LIFE INSURANCE MARKET
The Life Insurance market in India is definitely an underdeveloped market that had been only tapped because of the state owned LIC till the entry of personal insurers. The penetration of life insurance policy products was 19 percent of the total 400 million from the insurable population. The state owned LIC sold insurance as being a tax instrument, not like a product giving protection. Most customers were under- insured without any flexibility or transparency inside products. With the entry on the private insurers, the rules in the game have changed.
The 12 private insurers inside life insurance market previously grabbed nearly 9 percent of the market regarding premium income. The new business premium in the 12 private players has tripled to Rs 1000 crore in 2002- 03 over this past year. Meanwhile, regarding state owned LIC’s new premium business has fallen.
Innovative products, smart marketing, and aggressive distribution. That’s the triple whammy combination which has enabled fledgling private insurance firms to sign up Indian customers faster than anyone ever expected. Indians, who’ve always seen insurance coverage as a tax saving device, are suddenly looking towards the private sector and snapping the new innovative products being offered.
The growing popularity of the private insurers is evidenced in different ways. They are coining cash in new niches they may have introduced. The state owned companies still dominate segments like endowments and funds back policies. But inside annuity or pension products business, the non-public insurers have previously wrested over 33 percent on the market. And from the popular unit-linked insurance schemes they’ve got a virtual monopoly, with well over 90 percent in the customers.
The private insurers also are scoring big in different ways- these are persuading visitors to take out bigger policies. For instance, the standard size of a life insurance policy before privatization was around Rs 50,000. That has risen to about Rs 80,000. But an individual can insurers are ahead with this game and the normal size of the policies is just about Rs 1.1 lakh to Rs 1.2 lakh- way larger than the industry average.
Buoyed by their quicker than expected success, many private insurers are fast- forwarding the next phase with their expansion plans. No doubt the aggressive stance of personal insurers is paying rich dividends. But a rejuvenated LIC can be trying to fight to woo clients.
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to guage the Indian insurance industry and recommend its future direction. The Malhotra committee was put in place with the objective of complementing the reforms initiated from the financial sector.
With the setup of the Insurance Regulatory Development Authority (IRDA) the reforms started inside the Insurance sector. It has become necessary as after we compare our Insurance penetration and per capita premium, we’re much behind then your rest with the world. The table above provides statistics for that year 2000.
With the expected surge in per capita income to 6% for the next ten year and with all the improvement inside awareness levels, the interest in insurance is supposed to grow.
As per a completely independent consultancy company, Monitor Group has estimated an improvement form Rs. 218 Billion to Rs. 1003 Billion by 2008. The estimations seem achievable because the performance of 13 life Insurance players in India to the year 2002-2003 (nearly October, depending on the first year premium) is Rs. 66.683 million being LIC the largest contributor with Rs. 59,187 million. As of now, LIC has 2050 branches in 7 zones with a strong team of 5,60,000 agents.
IMPACT OF GLOBALISATION
While nationalized insurance carriers have done a commendable job in extending the volume with the business, setting up insurance sector to personal players was obviously a necessity inside the context of globalization of economic sector. If traditional infrastructural and semi-public goods industries like banking, airlines, telecom, power etc., have significant private sector presence, continuing scenario of monopoly in the provision of insurance was indefensible and so, the globalization of insurance continues to be done as discussed earlier. Its impact should be seen within the form of creating various opportunities and challenges.
The introduction of personal players inside the industry has added colors to your dull industry. The initiatives were taken because the private players have become competitive and possess given immense competition on the on-time monopoly with the market LIC. Since the advent of the private players within the market, a has seen new and innovative steps taken with the players inside the sector. The new players have improved the service quality from the insurance. As a result, LIC along the years have witnessed the declining to use career. The business was distributed among individual can players. Though LIC still holds 75% with the insurance sector the upcoming nature of these private players is enough to present more competition to LIC inside near future. LIC share of the market has decreased from 95%(2002-03) to 81% (2004-05). The following company sports ths rest on the market share on the insurance industry.
TABLE – 1
IMPACT OF GLOBALISATION
NAME OF THE PLAYER MARKET SHARE (%)
ICICI PRUDENTIAL 5.63
BIRLA SUN LIFE 2.56
BAJA ALLIANZ 2.03
SBI LIFE 1.80
HDFC STANDARD 1.36
TATA AIG 1.29
MAX NEW YORK 0.90
OM KOTAK MAHINDRA 0.51
ING VYASA 0.37
AMP SANMAR 0.26
PRESENT SCENARIO OF GLOBALISATION
In a hardcore battle to inflate market shares in which you sector a life insurance policy industry composed of 14 life insurance carriers at 26% you are 3% of market share to your state owned Life Insurance Corporation(LIC) inside domestic a life insurance policy industry in 2006-07. According to to the figures released by Insurance Regulatory & Development Authority, the overall premium of such 14 companies has raised by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crores.
LIC which has a total premium mobilization of Rs 55,934 crore continues to be able to retain a share of the market of 74.26 % through the reporting period. In total, the term life insurance industry in 1st-year premium has exploded by 110% to Rs 75, 406 crores during 2006-07. The 2006-07 performance has thrown several surprises from the ranking among an individual can sector life insurance agencies. New entrants like Reliance Life and SBI Life had shown a massive growth of over 381% and 210% respectively through the year. Reliance Life which includes become one of the top five companies ended the year that has a premium of Rs 930 crore in the year.
Though ICICI Prudential Life Insurance remained as being the No 1 private sector term life insurance company through the year. Bajaj Allianz overtook ICICI Prudential when it comes to monthly share of the market in March, for that first time ever. Bajaj’s share of the market among private players in non-single premium for March stood at 29.1% vs. ICICI Prudential’s 23.8%. Bajaj gained 4.6 percentage point share of the market among private sector players for FY07.
Among other private players, SBI Life and Reliance Life continued to perform well, each gaining 4% business in FY07. SBI Life’s growth was driven by increased contribution from ULIP premiums. Other notable developments with the 2006-07 performance have become the expansion of retail markets because of the life insurance companies. Bajaj Alliannz Life insurance has added 20 lakh policies while ICICI Prudential has expanded over 19 lakh policies in the year.
With the most significant number of life insurance coverage policies in force inside the world, Insurance is surely a mega opportunity in India. It’s a business growing with the rate of 15-20 percent annually and presently is in the order of Rs 450 billion. Together with banking services, it adds about 7 percent of the country’s GDP. The gross premium collection is almost 2 % of GDP and funds provided with LIC for investments are 8 percent of GDP.
Yet, nearly 80 per-cent of Indian human population is without a life insurance policy cover while health care insurance and non-term life insurance continues to be below international standards. And this part of the population is usually subject to weak social security and pension systems with almost no old age income security. This itself is surely an indicator that growth potential for your insurance sector is immense.
A well-developed and evolved insurance sector is necessary for economic development the way it provides long-term funds for infrastructure development and for the same time strengthens raise the risk taking ability. It is estimated that on the next several years India would require investments from the order of merely one trillion US dollar. The Insurance sector, at some level, can enable investments in infrastructure development to sustain economic growth from the country.
Insurance can be a federal subject in India. There are two legislations that govern the sector- The Insurance Act- 1938 along with the IRDA Act- 1999. The insurance sector in India has turned into a full circle from as a possible open competitive sell to nationalization and returning to a liberalized market again. Tracing the developments inside Indian insurance sector reveals the 360-degree turn witnessed for almost two hundred years.
Important milestones inside life insurance business in India
1912: The Indian Life Assurance Companies Act enacted because of the first statute to the insurance coverage business.
1928: The Indian Insurance Companies Act enacted to allow the government to gather statistical details about both life and non-life insurance coverage businesses.
1938: Earlier legislation consolidated and amended to through the Insurance Act for the exact purpose of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies were taken over with the central government and nationalized. LIC formed by an Act of Parliament- LIC Act 1956- using a capital contribution of Rs. 5 crore through the Government of India.
In a troublesome battle to flourish market shares the non-public sector term life insurance industry consisting 14 life insurance firms at 26% have mislaid 3% of market share for the state-owned Life Insurance Corporation(LIC) from the domestic term life insurance industry in 2006-07. According to on the figures released by Insurance Regulatory & Development Authority the overall premium these 14 companies have raised by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crores.
LIC which has a total premium mobilization of Rs 55,934 crore is able to retain a business of 74.26 % through the reporting period. In total, the life insurance coverage industry in newbie premium has exploded by 110% to Rs 75, 406 crores during 2006-07. The 2006-07 performance has thrown some surprises inside ranking among in which you sector life insurance providers. New entrants like Reliance Life and SBI Life had shown a tremendous growth of over 381% and 210% respectively in the year. Reliance Life containing become one of the top five companies ended the year that has a premium of Rs 930 crore throughout the year.
Though ICICI Prudential Life Insurance remained since the No 1 private sector a life insurance policy company through the year Bajaj Allianz overtook ICICI Prudential with regard to monthly business in March, for that first time ever. Bajaj’s business among private players in non-single premium for March stood at 29.1% vs. ICICI Prudential’s 23.8%. Bajaj gained 4.6 percentage point share of the market among private sector players for FY07.
Among other private players, SBI Life and Reliance Life continued to try and do well, each gaining 4% share of the market in FY07. SBI Life’s growth was driven by increased contribution from ULIP premiums. Another notable development with the 2006-07 performance continues to be the expansion of retail markets because of the life insurance providers. Bajaj Allianz Life insurance has added 20 lakh policies while ICICI Prudential has expanded over 19 lakh policies throughout the year.
– A state monopoly has little incentive to innovate or supplies a wide product selection. It can be seen by way of a lack of certain products from LIC’s portfolio and not enough extensive risk categorization in many GIC products like health insurance. More competition on this business will spur firms to make available several new services and more complex and extensive risk categorization.
– It would also cause better customer services and increase the variety and price of insurance products.
– The entry of the latest players would speed the spread of both life and general insurance. A spread of insurance will probably be measured with regard to insurance penetration and measure of density.
– With the entry of personal players, it’s expected that insurance business roughly 400 billion rupees a year now, in excess of 20 % per year even leaving aside the relatively underdeveloped sectors of medical care insurance, pen More importantly, it’ll likewise ensure an incredible mobilisation of funds that could be utilized for the function of infrastructure development which was a factor considered for globalisation of insurance.
– More importantly, it will ensure a fantastic mobilization of funds that may be utilized for the aim of infrastructure development that’s a factor considered for the globalization of insurance.
– With allowing of holding of equity shares by the foreign company either itself or through its subsidiary company or nominee not exceeding 26% of paid-up capital of Indian partners are going to be operated resulting into supplementing domestic savings and increasing economic progress of the nation. Agreements of assorted ventures have previously been built to be discussed later on in this particular paper.
– It may be estimated that insurance sector growth in excess of 3 times the expansion of the economy in India. So a business or domestic firms attempt to invest in the insurance sector. Moreover, continuing development of the insurance business in India is 13 times the development of insurance in the civilized world. So it really is natural, that foreign companies could be fostering an exceptionally strong want to invest something in Indian insurance business.
– Most important not the lowest amount of tremendous employment opportunities are going to be created in the field of insurance which can be burning problem from the present day to day issues.
CHALLENGES BEFORE THE INDUSTRY
New age companies have started their business as discussed earlier. Some of the companies have been competent to float three to four products only and a few have aimed at achieving the degree of 8 or 10 products. At present, these lenders are not able to pose any challenge to LIC and many types of other four companies operating generally speaking insurance sector, but as we see the product quality and standards with the products which issued, they are able to certainly be a challenge from now on. Because the challenge inside the entire environment brought on by globalization and liberalization the is facing these challenges.
– The existing insurer, LIC, and GIC are creating a large number of dissatisfied customers due to the poor quality of service. Hence there will likely be a shift of a large number of customers from LIC and GIC to in which your insurers.
– LIC may face the problem of the surrender of a large number of policies, as new insurers will woo them by the offer of innovative products at more affordable prices.
– The corporate clients under group schemes and salary savings schemes may shift their loyalty from LIC to an individual can insurers.
– There is usually a likelihood of exit of young dynamic managers from LIC to in which you insurer since they will get the higher package of remuneration.
– LIC has to overstaff for an introduction of full computerization, a considerable number of the employees are going to be surplus. However, they are not retrenched. Hence the operating costs of LIC are not reduced. This will probably be a disadvantage inside competitive market because new insurers will operate with lean office and high technology to cut back the operating costs.
– GIC and it is four subsidiary companies are likely to face more challenges, his or her management expenses have become high caused by surplus staff. They can’t reduce their number as a result of service rules.
– Management of claims will put stress on the savings, GIC and it is subsidiaries since it can be not inside the mark.
– LIC has in excess of to 60 products and GLC has in excess of 180 products within their kitty, that happen to be outdated from the present context as these are not suitable towards the changing needs from the customers. Not only that they’re not competent enough to perform with the new items offered by foreign companies inside the market.
– Reaching the individual expectations on par with foreign companies like better yield and improved quality of service particularly from the area of settlement of claims, issue of recent policies, transfer on the policies and revival of policies inside liberalized information mill very difficult to LIC and GIC.
– Intense competition from new insurers in winning the consumers by multi-distribution channels, that may include agents, brokers, corporate intermediaries, bank branches, affinity groups and direct marketing through telesales and interest.
– The market very soon is going to be flooded with a large number of products by a fairly large variety of insurers operating within the Indian market. Even with a limited range of products supplied by LIC and GIC, the customers are confused by the market. Their confusion will further increase inside face for a large volume of products inside the market. The existing volume of awareness on the consumers for insurance products can be quite low. It is so because only 62% of the Indian human population is literate and fewer than 10% educated. Even the educated individuals are ignorant around the various products from the insurance.
– The insurers should face a serious problem in the redressal in the consumers, grievances for deficiency in products.
– Increasing awareness will bring the volume of legal cases filled through the consumers against insurers probably will increase substantially in the future.
– Major challenges in canalizing the continuing development of the insurance sector are product innovation, distribution network, investment management, customer support, and education.
ESSENTIALS TO MEET THE CHALLENGES
– Indian insurance industry needs these to meet the worldwide challenges
– Understanding the client better will enable insurance carriers to design appropriate products, determine price correctly and increase profitability.
– Selection of right style of distribution channel mixes together with prudent and efficient FOS [Fleet On Street] management.
– An efficient CRM system, which may eventually create sustainable competitive advantages and build a long-lasting relationship
– Insurers are obliged to follow best investment practices and must employ a strong asset management company to maximize returns.
– Insurers should increase the client base in semi-urban and rural areas, which offer a massive potential.
– Promoting medical care insurance and using e-broking to enhance the business.
Thus, from the last on reasons for above the discussion you can conclude which need for private sector entry is justifiable on the reasons for enhancing the efficiency of operation, achieving greater density and insurance coverage inside the country as well as greater mobilization of long-term savings for too long gestation infrastructure projects. In the wake for this competition, it’s essential for your government monopolies (LIC and GIC) which they quickly upgrade their technology, restructure themselves on extremely effective lines and operate as a broad run enterprise. New players must not be treated as rivalries to government companies, but they are able to supplement in getting the objective of increase of insurance business in India.