Insurance Sector in India Challenges and Opportunities
Insurance Sector in India Challenges and Opportunities
Insurance Sector in India Challenges and Opportunities
Abstract:
Insurance sector in India is one of the booming sectors of the economy and
is growing at the rate of 15-20 percent per annum. Together with banking
services, it contributes to about 7 per cent to the country's GDP.
Government made a paradigm shift in the economic policy by adopting the
process of liberalization, privatization and globalization at the end of
previous decade. Consequently, Insurance Regulatory and Development
Authority (IRDA) has been established under IRDA Act, 1999 to regulate
the insurance business in the country. As a result, private sector has been
allowed entry
both in general and life insurance sector in India or liberalized in March
2000 with the passage of the Insurance Regulatory and Development
Authority (IRDA) Bill. This allowed foreign players to enter the market with
some limits on direct foreign ownership. There is a 26 percent equity cap
for foreign partners in an insurance company and now it has increase limit
to 49 percent. The opening up of the insurance sector has led to rapid
growth of the sector. The potential for growth of insurance
industry in India is immense as nearly 80 per cent of Indian population is
without life insurance cover while health insurance and non-life insurance
continues to be well below international standards.
The insurance sector in India has come up with 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 sector reveals the
360 degree turn witnessed over a period of almost two centuries. The US$
41 billion Indian life insurance industry is considered the fifth largest life
insurance market,
and growing at a rapid pace of 32-34 per cent annually.
Keywords: Regulatory role, Business Growth, Business potential, threat to
public sector insurance companies
1.0 Introduction:
The origin of life insurance in India can be traced back to 1818 with the
establishment of the Oriental Life Insurance Company in Calcutta. It was
conceived as a means to provide for English Widows. In those days a
higher premium was charged for Indian lives than the non-Indian lives as
Indian lives were considered riskier for coverage.The Bombay Mutual Life
Insurance Society that started its business in 1870 was the first company to
charge same premium for both Indian and non-Indian lives. In
1912,insurance regulation formally began with the passing of Life
Insurance Companies Act and the Provident Fund Act. By 1938, there were
176 insurance companies in India. But a number of frauds during 1920s
and 1930s tainted the image of insurance industry in India. In 1938, the first
comprehensive legislation regarding insurance was introduced with the
passing of Insurance Act of 1938 that provided strict State Control over
insurance business.Insurance sector in India grew at a faster pace after
independence. In 1956, Government of India brought together 245 Indian
and foreign insurers and provident societies under one nationalised
monopoly corporation and
formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC
Act, 1956, with a capital contribution of Rs.5 crore.
The (non-life) insurance business/general insurance remained with the
private sector till 1972. There were 107 private companies involved in the
business of general operations and their operations were restricted to
organised trade and industry in large cities. The General Insurance
Business (Nationalisation) Act, 1972 nationalised the general insurance
business in India with effect from
January 1, 1973. The 107 private insurance companies 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).
In 1993, the first step towards insurance sector reforms was initiated with
the formation of Malhotra Committee, headed by former Finance Secretary
and RBI Governor R.N. Malhotra. The committee was formed to evaluate
the Indian insurance industry and recommend its future direction with the
objective of complementing the reforms initiated in the financial sector. The
formation of the
Malhotra Committee in 1993 started reforms in the Indian insurance sector.
The aim of the Malhotra Committee was to assess the functionality of the
Indian insurance sector. This committee was also in charge of
recommending the future path of insurance in India. The Malhotra
Committee attempted to improve various aspects of the insurance
sector,making them more appropriate and effective for the Indian market.
The recommendations of the committee put stress on offering operational
autonomy to the insurance service providers and also suggested forming
an independent regulatory body The Insurance Regulatory and
Development Authority (IRDA) to provide greater autonomy to insurance
companies in order to improve their performance and enable them to act as
independent companies with economic motives.In 1999: The Standing
Committee headed by Murali Deora decided that foreign equity in private
insurance should be limited to 26%. According to the committee
recommendations the IRA Act was renamed the Insurance Regulatory and
Development Authority (IRDA) Act. During the same year Indian Cabinet
cleared IRDA Act. In 2000 President gave consent to the IRDA Act.This
lifted entry restriction for private players and allowed foreign players to
enter the marketwith some limit on direct ownership.
Insurance is a federal subject in India and Insurance industry in India is
governed by nsurance Act, 1938, the Life Insurance Corporation Act, 1956
and General Insurance Business (Nationalization) Act, 1972, Insurance
Regulatory and Development Authority (IRDA) Act, 1999.
2.0 Review of Literature:
While earlier studies on life insurance sector mainly focused upon LIC, it
was only after reforms in this sector that certain studies covering private
players have taken place. Among
early studies, Arora (2002) highlighted that LIC was likely to
face tough competition from private insurers having large
established network and their trained intermediaries throughout
India. Verma (2003) analyzed the various type of products
offered by public sector giant and the new global players in
the private sector. Kumar and Taneja (2004) highlighted the
opportunities and challenges before the insurance industry
in India due to liberalization, globalization and privatization.
Bhattacharya (2005) advocated that bancassurance provided
the best opportunities to tap the large potential in rural and
semi urban areas as banks have a strong network of more
than 40000 branches in these areas. He suggested that the
insurers should focus on Single Premium policies, Unit Linked
Insurance, Pension Market and Health Insurance. Kumar
(2005) highlighted that private insurance players introduced a
wider range of insurance products and set up brand promotion
as part of their new strategy. These new covers had flexibility
and added benefits to suit the needs of customers who were
unsatisfied with the traditional and rigid plans. Kulshrestha and
market even more attractive for global insurance majors. The insurance
sector in India has come to a position of very high potential and
competitiveness in the market. The insurance agents still remain the main
source through which insurance products are sold. The concept is very well
established in the country like India but still the increasing use of other
sources is imperative. At present the distribution channels that are available
in the market are - Direct selling, corporate agents, Group selling, Brokers
and cooperative societies, Banc-assurance
Insurance Sector Today: Opportunities and Challenges
Opportunities
As compared to the Western countries, where they have already reached a
stage of saturation, India can exploit some golden opportunities in the
following fields.
1. Mass Marketing
India is a highly populated country and would continue to be so in the near
future. New players may tend to favour the "creamy" layer of the urban
population. But, in doing so, they may well miss a large chunk of the
insurable population. A strong case in point is the current business
composition of the dominant market leader - the Life Insurance Corporation
of India. The lion's share of its new business comes from the rural and
semi-rural markets. In a country of 1 billion people, mass marketing is
always a profitable and cost-effective option for gaining market share. The
rural sector is a perfect case for mass marketing.
Competition in rural areas tends to be "kinder and gentler" than that in
urban areas, which can easily be termed cutthroat. Identifying the right
agents to harness the full potential of the vibrant and dynamic rural markets
will be imperative. Rural insurance should be looked upon as an
opportunity and not an obligation. A smaller bundle of innovative products
in sync with rural needs and perceptions, and an efficient delivery system
are the two aspects that have to be developed in order to penetrate the
rural markets.
2. Job Opportunities
As products become simpler and awareness increases, they become offthe-shelf, commodity products. Sellers move to remote channels such as
the telephone or direct mail. Various intermediaries, not necessarily
insurance companies, sell insurance. In some countries like Netherlands
and Japan, insurance is marketed using the Post Office's distribution
channels. At this point, buyers look for low price. Brand loyalty could shift
from the insurer to the seller.
6. Bancassurance
In other markets, notably Europe, this has resulted in bank assurance:
banks entering the insurance business. The Netherlands led with financial
services firms providing an entire range of products including bank
accounts, motor, home and life insurance, and pensions. Other European
markets have followed suit. In France, over half of all life insurance sales
are made through banks. In the UK, almost 95% of banks and building
societies are distributing insurance products today.
In India too, banks hope to maximize expensive existing networks by
selling a range of products. Many bankers have shown an inclination to
enter the insurance market by leveraging their strengths in the areas of
brand image, distribution network, face to face contact with the clients and
telemarketing coupled with advanced information technology systems.
Insurers in India should also explore distribution through non-financial
organizations. For example, insurance for consumer items such as
refrigerators can be offered at the point of sale.
7. Information Technology
Worldwide interest in E-commerce and India's predominant position in
Information Technology and software development are also likely to be
major factors in the marketing of insurance products in the immediate
future. The number of Internet account is increasing and the trend has
already been set by some of the leading insurers and insurance brokers
worldwide.
8. Rural Insurance
Flexible products and new technology will play crucial roles in reducing the
cost and therefore the price of insurance products. Finding niche markets
having the right product mix through add-on benefits and riders, effective
branding of products and services and product differentiation from
competitors offerings will be few challenges faced by insurance companies
8. Agent Attrition.
Employee attrition especially in sales force is one of the critical problems
which are faced by Insurance
Companies during these days. In an ideal situation an employee consider
multiple comfort level while
working in a office for e.g. employer's goodwill in the market, remuneration,
future growth, working
condition, co-workers, current role's scope in the market & most important
future stability with the
organization.
7.1 Statistics of Private Leading Life Insurances Companies:
During financial year 2010-11 the weighted new premium of private sector
insurance registered a growth of around 13 percent as compare with
financial year 2009-10. Against this the life insurance corporation registered
the growth of 31 percent. The weighted new premium income written by
private sector life insurers during financial year 2010-11 as per the statistics
realized is IRDA. The life
insurance industry collected a weighted new premium income of Rs. 632
billion. The new business market share of private sector life insurance
decreased to around 55 percent in this period, down around 59 percent in
previous financial year. SBI life maintained its position as the leading
private
sector life insurer with a market share of 10.1 percent in terms of weighted
new premium income. ICICI prudential and Reliance life were second and
third with market share of
9.6 percent and 5.8 percent respectively.
7.2 General Insurance:
According to the data released by IRDA, the general insurance industry
recorded 13.42 per cent growth in gross premium collected during 2010-11.
The industry collected gross premium of US$ 7.84 billion in 2010-11
compared with US$ 6.91 billion in 2009-10.The public sector players
posted 13.85 per cent growth in gross premium in 2010-11. At the same
time, private players recorded a 12.82 per cent increase in gross premium
till March 2011. During April-May 2011, non-life insurers mopped up US$
1.59 billion against US$ 1.34 billion in the previous year, registering an
increase of 19 per cent
according to IRDA data.The four state-run insurers fared better than their
private counterparts, with New India Insurance collecting the maximum
premium of US$ 294.5 million in April and May 2011, compared to US$
253.15 million in the previous year,growing by 16.34 per cent. According to
the IRDA's Summary Reports of Motor Data of Public and Private Sector
Insurers 2009-10, nearly 30 million vehicle policies were issued and a
total premium worth US$ 1.83 billion wascollected.
Top 10 Insurance companies in INDIA
, Best Insurance Policies in India
Insurance is a nascent area in India offering wide potential for worldwide
players. The life insurance premium account to 2.5% of GDP of the nation
and the premiums of general insurance is 0.65% GDP. The sector of
insurance is going through various changes and as the Indian government
permits private companies the scenario received a boost. The insurance
companies in India such as LIC, ICICI Prudential, Bajaj Alliance, and many
more are booming and the top insurance companies are the one that is
doing roaring business in India.
The best insurance policies in India are offered by giant companies, namely
1. Life Insurance Corporation of India (LIC)
LIC is the largest and is popular with over 2048 branches all over India. LIC
still remains the top with new players entering with customized insurance
products. It has gained credibility and consumers trust that it is able to
sustain the insurance business having estimated assets worth Rs.8 trillion.
2. AIG Tata LIC Ltd
AIG Tata offers various insurance plans for everyone, children to senior
citizens. This LIC is a joint venture with the American International Group
and Tata Group.
3. HDFC life Insurance Co. Ltd (Standard)
HDFC Life specializes in providing an array of solutions for individuals and
groups. This is a joint-venture between UK based Standard Life and HDFC
Ltd, the leading finance institution.
4. Birla Life Insurance Co. Ltd (Sun)
Birla is the only and first insurance company initiating insurance business in
association with Business Continuity Plan and helping small companies
grow bigger. This is a life insurance that is collaboration between Sun Life
Financial Inc and Aditya Birla Group.
5. SBI Life Insurance Co. Ltd
SBI Life Insurance makes highest profit and is the life insurance offering
plans matching different segments from urban to rural divisions.
6. ICICI Life Insurance Co. Ltd (Prudential)
ICICI Prudential Life Insurance is India's trusted private sector insurance
company having collaboration with UK based Prudential Group.
7. Bajaj Allianz Life-Insurance Co. Ltd
Bajaj Allianz offers life and general insurances and is the largest insurers in
the world.
8. Kotak Mahindra Old Mutual Life Insurance Limited
Kotak Mahindra is committed to offer investment-based policies identical to
mutual funds and ULIPs, to name a few.
9. Max New York Life Insurance Co. Ltd
Max New York Life Insurance offers outstanding combination covers. It has
ISO: 9001:2000 certifications.
10. Future Generali Life Insurance
Future Generali is offering comprehensive plans for groups and individuals
and is becoming more competitive.
Author is providing the information in this article about the top insurance
companies in India. This article will help you to take a best insurance policy
in India for your safe future.
8.0 Potential of Indian Insurance Industry:
With a huge population base and large untapped
market, insurance industry is a big opportunity area in India
for national as well as foreign investors. India is the fifth
largest life insurance market in the emerging insurance
economies globally and is growing at 32-34% annually. This
impressive growth in the market has been driven by
liberalization, with new player's significantly enhancing
product awareness and promoting consumer education and
Increase of foreign direct investment (FDI) limit in the insurance sector from
the present 26 per cent to 49 per cent. Alongside, it also cleared
amendments aimed at attracting investments and bringing transparency in
the working of the insurance companies.
The approved amendments include that the foreign equity cap is proposed
to be kept at 49 per cent as provided in the Insurance Laws (Amendment)
Bill, 2008, as against the 26 percent.
This is done to meet the growing capital requirement of insurance
companies. Foreign re-insurers will be permitted to open branches only for
re-insurance business in India and the provisions of Section 27E, which
prohibits an insurer to invest directly or indirectly outside India the funds of
policy holder, would apply to such branches.
To encourage health insurance in India, the capital requirement for a health
insurance company is now proposed at Rs.50 crore (instead of Rs.100
crore for general insurance companies) with a view to reducing the entry
barrier to a priority sector in the insurance space.
The public sector general insurance companies and the GIC will be
permitted to raise capital from the market to meet the future capital
requirements, provided that the governments shareholding would not be
allowed to come below 51 per cent at any point of time.
Sectors of FDI Distribution
Over the last decade, the service sector has been the major winners when
it comes to foreign direct investment with both of them together receiving
over 40% of the total FDI in 2010. They are closely followed by computer
software and hardware, financial and telecom sectors. Service sectors like
finance, banking and insurance are picked by foreign investors because of
the highly educated and vast middle class population that India has. Also,
these are sectors which do not really require a huge expenditure on
infrastructure and production. In other words, these sectors are seen as the
most profitable and relatively of lesser risk by the foreign investors.
.
The four general insurers - New India Assurance, United India Insurance,
Oriental Insurance and National Insurance - are considering setting up
more international centres. While Oriental Insurance might hold stake in
proposed reinsurance firm in Nepal, New India is looking to expand in
Canada, Qatar and Myanmar. United India Assurance is also looking at
South East Asia and Middle East for expansion. Moreover, LIC, GIC Re,
four PSU general insurers are already holding stakes in Kenyan Insurance
joint venture (JV).
Conclusions: India is the important emerging insurance markets in the
world . Over the past three years, around 40 companies have expressed
interest in entering the sector and many foreign and Indian companies have
arranged anticipatory alliances. The threat of new players taking over the
market has been overplayed. As is witnessed in other countries where
liberalization took place in recent years, we can safely conclude that
nationalized players will continue to hold strong market share positions, but
there will be enough business for entry to be profitable
n the world. 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.The fundamental regulatory changes in the insurance sector in
1999 were significant for future growth.
Restriction of 26% on foreign ownership is lift up to 49%, large foreign
insurers is entered the Indian market. State owned insurance companies
still have dominant market positions. Opening up the sector will certainly
mean new products, better packaging and improved customer service.
Both new and existing players will have to explore new distribution and
marketing channels. Potential buyers for most of this insurance lie in the
middle class. New insurers must segment the market carefully to arrive at
appropriate products and pricing. Recognizing the potential, in the past
three years, the nationalized insurers have already begun to target niches
like pensions, women or children.
Competition will surely cause the market to grow beyond current rates,
create a bigger "pie," and offer additional consumer choices through the
introduction of new products, services, and price options. Yet, at the same