Monday, March 16, 2009


When some one would talk about insurance in India it was generally implied that it is about the life insurance and only company that would come in to every one’s mind before about 6-8 years was LIC of India. LIC is “Life Insurance Corporation of India” a fully owned government undertaking with huge influence over the Indian Stock markets and about 6-8 years back was the only public sector insurer of life in India. As per the records available the first Life Insurance company, Oriental Life Insurance Co. was established in Calcutta in 1818 and first general insurance company Triton Insurance Co Ltd. was established in 1850. In 1956 total 245 local & foreign insurance companies were nationalized by the Indian Government by an act parliament and Life Insurance Corporation of India was formed. The general insurance act 1972 of India nationalized all general insurances in India with effect from 1st of January 1973. and General Insurance Corporation of India (GIC) was formed with four subsidiaries.

Whenever there are monopolies in any business then the worst sufferer is always the consumer and rightly so was the case with LIC of India. There were lots inefficiencies, delays, unaccountability and neglect of the consumers but fortunately many of the LIC agents in India would fill the gap by maintaining good coordination with the customers and would resolve most of the customers issues. Indian government was aware of the problem and was thinking about creating competition thereby improving services in public sector insurance companies and give choices to the Indian consumer. In last 8-10 years the world economy was also becoming more integrated and open and therefore the Government of India gave permission to the private sector to invest in Insurance sector in a limited way by first allowing the private sector to invest in General Insurance which would mean all kinds of insurances other than the Life. After the success of opening up of the General Insurance the Government also allowed private sector to invest in Life Insurance sector with Investment cap of 26 % for participation by foreign insurers. With that the names like Prudential, Aviva, ING, Allianz, New York Life, Met Life, Sun, AIG, Standard and few more joined hands with local business houses and thus the long awaited private sector Life Insurance & General Insurance companies came in to play. With increase in number of players in Life & General Insurance business there was need to monitor their activities and protect the consumers and therefore INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA ( IRDA) was constituted by the Government of India in 1999by an act of parliament. With this the IRDA became the first independent entity to Regulate, Promote & ensure orderly Growth of Insurance & reinsurance businesses in India.

In general insurance also the government was the only player after the nationalization of the private insurance by the Indian government. There are four subsidiaries of government owned General Insurance Corporation of India (GIC) Oriental Insurance Co Ltd., United India Insurance Co. Ltd., National Insurance Co Ltd. & New India Insurance Co Ltd.. which were between them handling the entire general insurance business. When the Indian government opened up the General Insurance sector to the private sector many private sector players started the business as a joint venture with other foreign players like AIG, Allianz, ANZ , Sun Life and others. While the government owned general Insurance companies were least motivated to expand or increase their business, private players started to increase their businesses in double digits soon after starting them. Private players also launched number of innovative products in the health care sector and started grabbing the market from the public sector players.

While Auto, Motorbike etc vehicular insurances are compulsory in India other forms of general insurances like House, Fire, Theft or Burglary, Flood, Hurricane, Earthquake, etc are not common except in the established large commercial establishments. Health care insurance is not wide spread because of an easy Access & Affordable fees from General Physians, Private Hospitals and Hospitals run by the federal & state Governments and Municipal Corporations. With changing life style in all Indian Metros, Increase in the valuations of real estate, frequent floods, and earthquakes, increase in the number of diabetes, coronary related problems, respiratory and allergy problems the need and awareness for long term medical insurances, house insurances, and insurance against natural calamity risks have increased in great proportions.

Among the Life insurance sector Term Life Insurance, Whole Life, Money Back Plans, Pension plans, Unit Link Linked Plans, Endowment and Group Life Insurance policies are very common. While the Pension plan is more like an annuity it also offers life cover but on maturity offers a pension for a fixed period of time and then the base amount is passed on the policy beneficiaries. Unit linked plans are generally Mutual Fund units where there is a chance for the unit values to appreciate plus it offers a life cover in proportion to the number of units held.

The general insurance business in India grew at 13 % per annum in 2007 and with only 0.65 % penetration the Indian General Insurance business market was expected to be around Rs. 30,000 Crores ( Rs. 300 Billion) in 2008. While the private sector insurers in the general insurance sector have grabbed 65% of the market share in a short period of time the Auto insurance sector however was dominated by Government owned insurer with 68 % market share. ICICI Lombard the insurance arm of the ICICI Bank topped in the Accident insurance with 53 % of the market share. LIC of India has largest share in life insurance market. LIC is fully owned by government of India, funds 24.6 % government expenses, contributes 7 % to India’s GDP, has 8 zonal offices, 101 divisional offices, 2048 branch offices and huge network of around 1million and 200 thousand agents. 180 million policies with corpus over INR 3.4 trillion, commands a huge 55 % share of life insurance market in India and is rated as the “ Number 1 service brand of India” by Economic Times of India. It is understood that LIC bought equities worth around Rs 450 billion for the year 2008-09 from the Indian exchanges. LIC is also slated to buy up bonds worth Rs1.15 trillion in the current fiscal year. LIC expects to earn a gross investment income ranging from Rs 400 billion to Rs 450 billion in the current year, depending upon the prevalent market conditions. It may be noted that, LIC manages total assets worth around US$175 billion. While LIC is still the most trusted Life Insurance Product other private Life Insurers are catching up very fast. Among the noted players are Birla Sun Life, Prudential ICICI, Max New Yrok Life, Bajaj Allianz, Kotak Mahindra, etc.

Taking into account the changing socio-economic demographics, rate of GDP growth, behavior of consumers, and occurrences of natural calamities at regular intervals the market of Life Insurance in India is expected grow to the value of around US $ 41.44 billion by the year 2009. The Market is expected to grow at a compounded annual growth rate (CAGR) of more than 200 % year over year (YOY) from year 2006 onwards. The same will be the case with General Insurance market. The Indian insurance market is being increasingly characterized by the presence of young pensioners, as per an article in the 'Times of India'. Young pensioners are typically under 40 individuals who are purchasing retirement plans. The growing Indian economy has created an upwardly mobile ,affluent young generation, who believe in going for a planned retirement. As per data from IRDA, 28% of the premiums collected by the Indian Insurance companies are from retirement plans.

The period after the 1990s witnessed sudden incremental growth of the annual average gross domestic product of the Indian economy and till then it used to be around 4.5% to 5%. With the meteoritic rise of Indian Information Technology, Indian service industry and the Indian BPO sector, the average Indian GDP skyrocketed to around 6%, during the period from 1988 to 2003. From the financial year 2004 onwards the average gross domestic product of India 'at cost factor' reflected a stable growth. This period marks the meteoritic rise of gross domestic product of India and this rise was affected by service and manufacturing industry. The Indian GDP registered an impressive growth rate of 8.5% during this period and the present growth was targeted at 9.5% to 10 %.

Some of the high lights of Government proposals and Economic Indicators those may fuel higher India GDP numbers
Investments –
Gross domestic capital formation in 2005-06 grew by 23.7%; in April- January, foreign direct investment amounted to US$12.5 billion and outpaced portfolio investment of US$6.8 billion
It was planned by Central Public Sector Enterprises to invest Rs.165,053 crore through internal and extra budgetary resources in 2007-08
Infrastructure –
Seven more Ultra Mega Power Projects under process
Provision for National Highway Development Programme to increase from Rs.9,945 crore to Rs.10,667 crore
Industry –
162 production sharing contracts awarded in Petroleum and Natural Gas sector
SMEs (Small & Medium Enterprises) has witnessed increase in outstanding credit from Rs.135, 200 crore to Rs.173,460 crore
Services –
Provision for tourist infrastructure to increase from Rs.423 crore to Rs.520 crore
General Review of Financial sector development
Bank's differential rate of interest scheme providing finance @ of 4% to weaker section
Others –
Defense expenditure allocation to increase to Rs.96, 000 crore
IT allocation for e-governance to increase from Rs.395 crore to Rs.719 crore
Sarva Shiksha Abhiyan and Mid-day Meal Scheme allocation increased by 35%
All districts must emphasize on mother and child care and on prevention & treatment of communicable diseases

All these & several other factors indicate a strong GDP numbers and increase in Per capita income of India resulting in higher consumption, more savings and also higher spending towards retirement plans, Life, Health Care, House & other Insurance products. It could be therefore inferred that there is a tremendous scope for Insurance Products in India
( 1 Crore = 10 Million, 1 Lakh = 100 Thousand )


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