CHAPTER 1

INTRODUCTION TO INSURANCE INDUSTRY

Humans have always sought security. This quest for security was an
important motivating force in the earliest formations of families, tribes, and
other groups. The groups have been the primary source of both emotional
and physical security since the beginning of humankind. Humans today
continue their quest to achieve security and reduce uncertainty. We still rely
on groups for financial stability. With industrialization our physical and
economic security has diminished. Mankind is exposed to many serious
hazards, which cause stoppage of income. The biggest worry any human
being has is the economic worry. He is always thinking of tomorrow and the
days to come and he will be planning to meet the demands of his family, his
business and that of his own needs. The economic worries may arise due to
stoppage of income. Our income dependent, wealth- acquiring lifestyle
renders us and our families more vulnerable to environmental and social
changes over which we have no control. There may be accidents, sickness
disability, or due to premature death of the breadwinner. It is impossible to
prevent such calamities. But it is always possible to provide against the loss
of income that may result out of such these perils with the help of the
insurance.

1.1 INSURANCE IN INDIA

Insurance in India started without any regulation in the Nineteenth
Century. It was a typical story of a colonial era: a few British insurance
companies dominating the market serving mostly large urban centers. After
the independence, it took a dramatic turn. Insurance was nationalized. First,
the life insurance companies were nationalized in 1956, and then the general
insurance business was nationalized in 1972. Only in 1999 private insurance
companies have been allowed back into the business of insurance with a
maximum of 26% of foreign holding. In what follows, is described how and
why of regulation and deregulation. The entry of the State Bank of India
with its proposal of bank assurance brings a new dynamics in the game. The
collective experience of the other countries in Asia already deregulated their
markets and have allowed foreign companies to participate is studied. If the
experience of the other countries is any guide, the dominance of the Life
 Insurance Corporation( LIC) and the General Insurance Corporation(GIC) is
not going to disappear any time soon.

1.2 WHAT IS INSURANCE?

Insurance may be described as a social device to reduce or eliminate
risk of loss to life and property. Under the plan of insurance, a large number
of people associate themselves by sharing risks attached to individuals. The
risks which can be insured against include fire, the perils of sea, death and
accidents and burglary. Any risk contingent upon these, may be insured
against at a premium commensurate with the risk involved. Thus collective
bearing of risk is insurance.

 Definition

General definition:
In the words of John Magee, “Insurance is a plan by which large number of
people associate themselves and transfer to the shoulders of all, risks that
attach to individuals.”

Fundamental definition:
In the words of D.S. Hansell, “Insurance may be defined as a social device
providing financial compensation for the effects of misfortune, the payment
being made from the accumulated contributions of all parties participating
in the scheme.”

Contractual definition:
In the words of justice Tindall, “Insurance is a contract in which a sum of
money is paid to the assured as consideration of insurer’s incurring the risk
of paying a large sum upon a given contingency.”
 Insurance = Collective Bearing Of Risk
Insurance is nothing but a system of spreading the risk of one onto the
shoulders of many. While it becomes somewhat impossible for a man to
bear by himself 100% loss to his own property or interest arising out of an
unforeseen contingency, insurance is a method or process which distributes
the burden of the loss on a number of persons within the group formed for
this particular purpose. Insurance is the science of spreading of the risk. It is
the system of spreading the losses of an Individual over a group of
Individuals. Insurance is a method of sharing of financial losses of a few
from a common fund formed out of Contribution of the many who are
equally exposed to the same loss. What is uncertainty for an Individual
becomes a certainty for a Group. This is the basis of All Insurance
Operations. Basic Human trait is to be averse to the idea of risk taking.
Insurance, whether life or non-life, provides people with a reasonable degree
of security and assurance that they will be protected in the event of a
calamity or failure of any sort. Thus insurance convert uncertainties to
certainty.
 Insurance in its pure form is a social good and in a number of cases
can be classified as a public good (that is, it generates desirable
externalities). Insurance companies, mutual and cooperatives enable
individuals and firms to protect themselves against infrequent but extreme
losses at a cost which is small compared to the feared loss. They do this
through the workings of the law of large numbers and the central limit
theorem which ensure that a sufficiently large number of reasonably
homogenous risks will produce well behaved and highly predictable
aggregate results.

Insurance by its nature is an intangible good, involving payment in

advance for an unknowable quality of delivery in the future. Thus trust is a
critical element, and public good classes such as health, disability and work
place injury or illness have to date often been delivered through state
entities. However, most classes of insurance are usually delivered through
private markets and insurance regulation tends to reflect solvency concerns
and information asymmetry between suppliers and policyholders: many
countries have explicit reference to insurance contracts in their civil codes
and specialized laws including specific provisions for retail (B to C)
markets. As fiscal pressures mount there is an increasing trend to entrust
more social good classes, such as workman’s compensation and annuities, to
the private sector and this adds to the pressure for effective market conduct
and prudential regimes.

Thus, in India insurance is generally considered as a tax-saving

device instead of its other implied long term financial benefits. Indian people
are prone to investing in properties and gold followed by bank deposits.
They selectively invest in shares also but the percentage is very small. Even
to this day, Life Insurance Corporation of India dominates Indian insurance
sector. With the entry of private sector players backed by foreign expertise,
Indian insurance market has become more vibrant.
 CHAPTER 2
HISTORICAL PERSPECTIVE
2.1 A PEEP INTO THE INSURANCE
The story of insurance is probably as old as the story of mankind.
The same instinct that prompts modern businessmen today to secure
themselves against loss and disaster existed in primitive men also. They too
sought to avert the evil consequences of fire and flood and loss of life and
were willing to make some sort of sacrifice in order to achieve security.
Though the concept of insurance is largely a development of the recent past,
particularly after the industrial era – past few centuries – yet its beginnings
date back almost 6000 years.

The insurance sector in India has come a full circle from being an
open competitive market to nationalisation 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.

 Milestones In The Life Insurance Business In India

The history of life insurance in India dates back to 1818 when it was
conceived as a means to provide for English Widows. Interestingly in those
days a higher premium was charged for Indian lives than the non-Indian
lives as Indian lives were considered more risky for coverage. The Bombay
Mutual Life Insurance Society started its business in 1870. It was the first
company to charge same premium for both Indian and non-Indian lives. The
Oriental Assurance Company was established in 1880.Till the end of
nineteenth century insurance business was almost entirely in the hands of
overseas companies.

Chronology

1912: The Indian Life Assurance 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 to 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 nationalised. LIC formed by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5
crore from the Government of India.

 Milestones In The General Insurance Business In India

The General insurance business in India, on the other hand, can trace its
roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.

Chronology

1907: The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of

India, frames a code of conduct for ensuring fair conduct and sound
business practices.

1968: The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972

nationalized the general insurance business in India with effect from 1st
January 1973.107 insurers amalgamated and grouped into four companies
viz. the National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd. and the United India
Insurance Company Ltd. The General Insurance Corporation of India was
incorporated as a company in 1971 and it commence business on January 1st
1973. These were subsidiaries of the General Insurance Company (GIC).
 CHAPTER 3

PRESENT SCENARIO OF INSURANCE INDUSTRY

Today the insurance sector is a major global industry covering a huge
range of risks ranging from natural disasters and environmental hazard,
through life and disability and standard property risks (fire, explosion,
burglary, and so forth) to various types of liability under tort and civil codes
to protecting the balance sheets of credit granting institutions. In the latter
case the sector has developed overlaps with, and become the backstop for
significant sections of the banking and shadow banking sectors.

The insurance sector was opened up for private participation four

years ago. For years now, the private players are active in the liberalized
environment. The insurance market have witnessed dynamic changes which
includes presence of a fairly large number of insurers both life and non-life
segment. Most of the private insurance companies have formed joint venture
partnering well recognized foreign players across the globe. There are now
29 insurance companies operating in the Indian market – 14 private life
insurers, nine private non-life insurers and six public sector companies. With
many more joint ventures in the offing, the insurance industry in India today
stands at a crossroads as competition intensifies and companies prepare
survival strategies in a detariffed scenario.

There is pressure from both within the country and outside on the
Government to increase the Foreign Direct Investment (FDI) limit from the
current 26% to 49%, which would help JV partners to bring in funds for
expansion.There, are opportunities in the pensions sector where regulations
are being framed. Less than 10 % of Indians above the age of 60 receive
pensions. The IRDA has issued the first licence for a standalone health
company in the country as many more players wait to enter. The health
insurance sector has tremendous growth potential, and as it matures and new
players enter, product innovation and enhancement will increase. The
deepening of the health database over time will also allow players to develop
and price products for larger segments of society.
 India with about 200 million middle class household shows a huge
untapped potential for players in the insurance industry. Saturation of
markets in many developed economies has made the Indian 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. Indians, have always seen life insurance as a tax saving device, are
now suddenly turning to the private sector that are providing them new
products and variety for their choice. Consumers remain the most important
centre of the insurance sector. After the entry of the foreign players the
industry is seeing a lot of competition and thus improvement of the customer
service in the industry. Computerisation of operations and updating of
technology has become imperative in the current scenario. Foreign players
are bringing in international best practices in service through use of latest
technologies.

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 listed
below.
· Direct selling
· Corporate agents
· Group selling
· Brokers and cooperative societies
· Bancassurance

Customers have tremendous choice from a large variety of products

from pure term (risk) insurance to unit-linked investment products.
Customers are offered unbundled products with a variety of benefits as
riders from which they can choose. More customers are buying products and
services based on their true needs and not just traditional money back
policies, which is not considered very appropriate for long term protection
and savings. There is lots of saving and investment plans in the market.
However, there are still some key new products yet to be introduced - e.g.
health products.

The rural consumer is now exhibiting an increasing propensity for

insurance products. A research conducted exhibited that the rural consumers
are willing to dole out anything between Rs.3,500 and Rs.2,900 as premium
each year. In the insurance the awareness level for life insurance is the
highest in rural India, but the consumers are also aware about motor,
accidents and cattle insurance.
 CHAPTER 4

VIEWS OF SOME EMINENT PERSONALITIES ON

CURRENT DEVELOPMENTS IN INSURANCE
SECTOR

4.1 SHRI N.RANGACHARY – CHAIRMAN OF IRDA

The insurance landscape in India is undergoing a tectonic shift.

Despite its more than teeming one billion populations, India still has a low
insurance penetration of 1.95 per cent, 51st in the world. Although India
boasts a saving rate of around 25 per cent, less than5 percent is spent on
insurance. With the entry of competition, the rules of the game have begun
to change. The market is already beginning to witness a wide array of
products from players whose number is set to grow. In such a scenario, the
differentiators among the different players are the products, pricing, and
service. What really increases the appeal of insurance is the benefit of
protection to assets and lives from insurance products. In this context, the
distribution of insurance products is expected to play an increasingly
important role from strategic (structuring of product supply), cost-efficient
(reduction of intermediation costs) and/or market oriented (customer-
service) points of view. The profile of the Indian consumer is also evolving.
Consumers are increasingly more aware and are actively managing their
financial affairs. Today, while boundaries between various financial
products are blurring, people are increasingly looking not just at products,
 but at integrated financial solutions that can offer stability of returns along
with total protection. In view of this, the insurance managers need to
understand more about the details that go into the formulation of insurance
products to make it attractive in a competitive market. Overcoming
challenges to development requires leadership, commitment, creativity, and
flexibility. Besides helping in expanding the insurance coverage
geographically so that "every family in every remote village in the country
feels safe and secure", this vision alone will help to bring the new ideas, as
well as the capital and technical assistance, necessary to create viable
insurance industry.

4.2 SHRAWAN JALAN – MANAGER OF ASSURANCE

Insurance in India had been under public sector for over four decades.
Life Insurance Corporation of India (LIC) was nationalized in 1956 and
General Insurance of India (GIC) which was nationalized in 1972. Although,
the public sector insurance companies had made significant contributions in
the development of insurance sector in India, the penetration level, however,
remained low. The passing of Insurance Regulatory &Development
Authority (IRDA) Bill in 1999 finally paved the way for opening up of the
insurance sector to private Indian and foreign players. Within a short time of
two years there are twelve private life insurance & seven private
nonlifeinsurance companies have started their operations in India. Most of
these private companies have signed joint agreements with foreign 26%
equity partner. With the passing of Insurance Amendment bill, multi
distribution channels for e.g., corporate agency, brokerage, bancassurance
and cooperative societies have also come into place and provide wider
choice to the insurers. However, even now traditional channel of agency
system is considered as the most effective channel of distributions. One of
the most important challenges for the private insurers is to offer products
that meet ever changing customer needs. Privatisation of insurance sector
has changed mindset of customers. Customers are now looking at insurance
as complete financial solution offering stable returns coupled with total
protection. Understanding the customer better will enable insurance
companies to design appropriate products, determine price correctly and
increase profitability. The private insurance companies are adopting one or
more of following options available to them to survive in the era of strong
competition:

● Gaining profitability by way of underwriting good risks and better policy

administration;
● Development of new products specially healthcare and pension plan to
gain business growth;
● Better distribution channel (through Bancassurance& internet);
● Timely claims settlement and management;
● Adequate re-insurance management;
● Use of information technology;
● Improve customer service and retain the confidence of the clients; and
● Training of agents
 CHAPTER 5

ECONOMIC BEFORE ECONOMY AND

INSURANCE REFORMS

India economy, the third largest economy in the world, in terms of

purchasing power, is going to touch new heights in coming years. As
predicted by Goldman Sachs, the Global Investment Bank, by 2035 India
would be the third largest economy of the world just after US and China. It
will grow to 60% of size of the US economy. This booming economy of
today has to pass through many phases before it can achieve the achieve the
current milestone of 7.25% GDP. The history of Indian economy can be
broadly divided into three phases: Pre- Colonial, Colonial and Post Colonial

5.1 PRE- COLONIAL, COLONIAL ND POST COLONIAL

The economic history of India since Indus Valley Civilization to
1700 AD can be categorized under this phase. During Indus Valley
Civilization Indian economy was very well developed. It had very good
trade relations with other parts of world, which is evident from the coins of
various civilizations found at the site of Indus valley. Before the advent of
East India Company, each village in India was a self sufficient entity. Each
village was economically independent as all the economic needs were
fulfilled with in the village.

Then came the phase of Colonization. The arrival of East India

Company in India ruined the Indian economy. There was a two-way
depletion of resources. British used to buy raw materials from India at
cheaper rates and finished goods were sold at higher than normal price in
Indian markets. During this phase India's share of world income declined
from 22.3% in 1700 AD to 3.8% in 1952.

After India got independence from this colonial rule in 1947, the
process of rebuilding the economy started. For this various policies and
schemes were formulated. First five year plan for the development of Indian
economy came into implementation in 1952. These Five Year Plans, started
by Indian government, focused on the needs of Indian economy. If on one
hand agriculture received the immediate attention on the other side industrial
sector was developed at a fast pace to provide employment opportunities to
 the growing population and to keep pace with the developments in the
world. Since then Indian economy has come a long way. The Gross
Domestic Product (GDP) at factor cost, which was 2.3 % in 1951-52,
reached 9% in financial year 2005-06 and presently at 7.2% .

Trade liberalization, financial liberalization, tax reforms and opening

up to foreign investments were some of the important steps, which helped
Indian economy to gain momentum. The Economic Liberalization
introduced by Man Mohan Singh in 1991, then Finance Minister in the
government of P V Narsimha Rao, proved to be the stepping-stone for
Indian economic reform movements. These include:

 Maintaining fiscal discipline

 Orientation of public expenditure towards sectors in which India is faring
badly such as health and education.
 Introduction of reforms in labour laws to generate more employment
opportunities for the growing population of India.
 Reorganization of agricultural sector, introduction of new technology,
reducing agriculture's dependence on monsoon by developing means of
irrigation.
 Introduction of financial reforms including privatization of some public
sector banks.

5.2 INSURANCE SECTOR REFORMS

In 1993, Malhotra Committee, headed by former Finance Secretary
and RBI Governor R.N.Malhotra was formed to evaluate the Indian
Insurance industry and recommended 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 recognizing that
insurance is an important part of the over all 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:

A. 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

B. Competition
· Private Companies with minimum paid up capital of Rs.1 bn should be
allowed to enter the industry.
· No Company should deal in both Life and General Insurance through a
single entry.
· 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.

C. Regulatory Body
· The Insurance Act should be changed
· An Insurance Regulatory Body should be set up.
· Controller of Insurance (Currently a part from the Finance Ministry)should
be made independent

D. INVESMENTS
· 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
(There current holdings to be brought down to this level over a period of
time).

E. CUSTOMER SERVICE
· LIC should pay interest on delays on payments beyond 30 days.
· Insurance Companies must be encouraged to set up unit linked pension
plans
· Computerization of operations and updating of technology to be carried out
in the insurance industry.

The committee emphasized that in order to improve the customer

service and increase the coverage of insurance industry should 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.

Chapter 6

LIBERALIZING INSURANCE INDUSTRY

 LIBERALISATION
A relaxation of previous government restrictions, usually in areas of
social or economic policy. The benefits are:

-Promotes competition, which leads to lower costs and prices for consumers
-Competition promotes efficiency, so resources are wasted much much less
-Liberalization allows financial markets to provide loans to people who
previously may not have been able to access loans that they can pay off, and
it allows more financial instruments to be developed so people can choose
the one that suits them
-Liberalization removes government regulations on the economy, which
promotes jobs, lower prices, higher incomes and lowers inflation
-Promotes technological advancement, again creating jobs and growing
incomes

 PRIVATIZATION
It is the incidence or process of transferring ownership of business from
the public sector (government) to the private sector (business).The private
sector is more efficient than the public sector.The benefits of privatization
include:
-better quality products
-lower priced products
-more efficient firms which have lower costs
-makes costs lower for other firms who use the product the privatized firm
produces
-this increases employment and incomes across the economy
-Government no longer needs to subsidize product
 GLOBALIZATION
Globalization is often used to refer to economic globalization, that is,
integration of national economies into the international economy through
trade, foreign direct investment, capital flows, migration, and the spread of
technology.The benefits of globalization include:
-Allows specialization, so countries can produce more goods more
efficiently, increasing incomes and lowering prices/costs
-Countries can produce what they are best at and trade it for goods other
countries can produce well, allowing both countries to benefit
-Countries which have a low savings level can borrow money from overseas
to invest, thus increasing their incomes and jobs
-It makes technology improvements flow between countries, so all countries
can reep the benefits of improved technology, by increasing incomes and
jobs
-It allows people to migrate between countries, increasing labour force
mobility. This leads to higher efficiency as people can move to the jobs they
do best. This means higher incomes for all and increased jobs.
-Globalisation increases competition, making firms more efficient
-Globalisation puts downward pressure on inflation
-Promotes technological advancement, again creating jobs and growing
incomes

In this context, it brings into focus the importance of portfolio

management in the insurance business and the nature and impact of portfolio
related regulations on the asset quality of the insurance companies. It also
provides a rationale for the increased autornatisation of insurance
companies, and the increased emphasis on agent independent marketing
strategies for their products. If politicized, regulations have potential to
adversely affect the pricing of risks, especially in the non-life industry, and
hence the viability of the insurance companies. Finally, the backdrop of US
experience provides some pointers for Indian policymakers.There are several
reasons for discussion of liberalizing India's insurance industry:

 First, the possible liberalizing of the insurance industry would be very

much apart of the ongoing economic reforms.
 Secondly, government decision on important
recommendations in insurance sector has been withheld pending the
development of national consensus on the subject.
  Thirdly, to oppose the idea of competition because it
encourages unhealthy & illegal practice

6.1 OPENING UP OF INSURANCE SECTOR – 1999 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. 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's 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, which
are expected to be introduced by early next year. Since being set up as an
independent statutory body the IRDA has put in a framework of globally
compatible regulations. In the private sector 14 life insurance companies
have been registered.

 Entry Of Private Companies

Under the IRDA Act, private companies can now operate in India's
insurance industry. However, they must obtain a license from the IRDA
before being permitted to write business. To have its license application
considered, a domestic private company must be registered in accordance
with the Companies Act of 1956 and have approximately US$ 20 million of
investment capital. The specific licensing requirements that Private Indian
Companies must fulfill are set forth in the Registration on Indian Insurance
Companies Regulations, Published By The IRDA 2000.

 Lifting Of Barriers To Foreign Investment

The IRDA Act also lifts certain barriers to foreign direct investment in
Indian insurance industry. Global insurers are now permitted to set up and
register a domestic company in order to write business in India. However,
regulations stipulate that they have a capital base of at least US $ 20 million,
and their investment in such company is capped at 26 percent. Thus, to
participate in the market, they must form a joint venture with an Indian
 partner that is able to invest the remaining funds. The equity investments
limit is the same for global reinsures seeking to write business in India, but
they are required to put up a capital of approximately US$ 45 million in
order to establish a domestic company. Since the IRDA first enacted these
rules, 13 new life insurance companies have entered the market. On the
other hand, no global reinsurer has established a domestic company. Instead,
most of the top international reinsurance companies operate from their
overseas offices by sharing the reinsurance risks picked up by the GIC. A
recent proposal has been put forward to increase foreign direct investment to
49 percent. In addition, global companies are pushing for the right to
establish branch offices in India. These changes are likely to substantially
increase the presence of international insurers, reinsures, and brokers in
India.

6.2 ECONOMIC LIBERALIZATION

Economic liberalizations in brief refers to the efforts taken by state
toward faster economic development by adopting changes in existing
economic policy, rules and Regulations and bringing flexibility in
administrative control and procedures economic liberalization encourage the
use of new technology and improve knowledge n the production process by
global participation and marketing.

 Need for Global Integration:

Recent economic liberalization started few years ago have started
bringing in new investments from global giants and the government was
hard pressed to facilitate global integration by lowering trade barriers for the
free flow of technology, intellectual and financial capital. Additionally,
reforms are essential if the Indian economy is to achieve and sustain a
growth rate of 7 to 8 per cent per annum. reaching a faster growth path also
implies attracting foreign direct investment inflows of $ 10 Billion every
year, up from the current level of $ 3 to $ 3.5 Billion.

Thus liberalization of insurance creates an environment for the

generation of longtermcontractual funds for infrastructural investment.
Report on Infrastructure says that 85% of funds for infrastructure
development have to come from the domestic industry. It further says that
India would need $ 100 Billion over the next five years tomeet its
infrastructure needs. Given the rate of savings in India, there is much
 moreroom to grow and one can expect an additional revenue of about $ 10
Billion a year entering the market to enhance infrastructure. Insurance is
definitely going to be one area that will assist in mobilization of these funds.

 Multinationals' interest:
Multinational insurers are indeed keenly interested in emerging
insurance because their home markets are saturated while emerging
countries have low insurance penetrations and high growth rates.
International insurers often derive a significant part of their business from
multinational operations. As early as 1994,many of the UK’s largest life and
general insurers derived 40 per cent to 60 per cent of their total premium
from outside their home markets. The figure at Commercial Union was 76
per cent in that year. While the impact of global operations on their business
may be large, typically foreign insurers take only a small share of an
individual country’s market. In Taiwan for example, foreign companies took
only a 3 per cent share even seven years after opening up. In Korea, their
share was 1 per cent after 20 years. In China, a large and complex market
like India, private insurers have not made much headway. Yet, new entrants
find insurance attractive because even a small share of a large and growing
market can be profitable. The Korean insurance market for example, was
only the 30th largest market in the world by premium volume in 1971. It
moved up to 6th largest in 1996. In any case, in India multinational insurers
will be restricted to a minority shareholding in new companies. The new
entrants will therefore be private Indian companies.

The other reason why these large MNCs are interested in India is the
economies of the insurance market. Insurance companies survive on the
principle of spreading of risk. No matter what the size of each player, an
insurer cannot afford to operate in a niche market. Operating in a particular
region would expose them to the economic downtrends in the region and
derail their profits. In the developed world, the growth in life insurance
premium has been a meager 1.5%. As compared to this, LIC despite all its
handicaps has been growing at a healthy clip of around 20%.

 Privatization: Start Up Strategy:

Potential private entrants therefore expect to score in the areas of

customer service, speed and flexibility. They point out that their entry will
mean better products and choice for the consumer. Critics counter that the
benefit will be slim, because new players will concentrate on affluent, urban
 customers as foreign banks did until recently. This might seem a logical
strategy from the point of view of new players. Start-up costs-such as those
of setting up a conventional distribution network-are large and high-end
niches offer better returns. However, in the long run 'middlemarket' offers
the greatest potential as in terms of it is the second largest market in the
world. This may still be an urban market but goes beyond the affluent
segment. Insurance, even more than banking, is a volume game. A very
exclusive approach is unlikely to provide meaningful numbers. Therefore,
private insurers would be best served by a middle-market approach,
targeting customer segments that are currently untapped.

 Repositioning by Nationalized Sector:

Floodgates of competition opened up by the privatization of insurance
industry did throw a challenge to the well-protected nationalized sector and
it seems they have picked up the gauntlet. LIC and GIC, both are trying to
reposition themselves by having re-engineering done on the structure and
operations of their respective organizations.

Life Insurance Corporation is at present going through presentations

from top management consultants. These consultants have been asked to
narrate their experiences in countries where the insurance sector has been
opened up for private competition so that the public sector player can draw
lessons. Based on these, LIC will appoint a consultant which can provide
them broad terms of reference on what changes are required to tackle the
impending competition.

GIC has already identified the areas that need to be activated and
given a shape through the four subsidiary companies. Foremost is the area of
providing health insurance services. A change in the GIC Act will enable the
corporation to float a joint venture company for health insurance. Other
areas that the GIC is looking at are savings-linked insurance products and
use of alternate distribution channels including banc assurance. Also in
progress is the co-ordination of all foreign operations of the group.

Today hardly 20 per cent of the population in India is insured and

insurance Premium (life as well as non-life) account for just 2 per cent of
GDP as against the G-7 average of 9.2 per cent. Consequently, the fear that
new companies will displace public companies is misplaced. There is room
for more for not only the existing companies but also for any number of
competitors.
 CHAPTER 7

GROWTH OF INSURANCE SECTOR IN

INDIA

Notwithstanding the rapid growth of the sector over the last decade,
insurance in India remains at an early stage of development. At the end of
2003, the Indian insurance market (in terms of premium volume) was the
19th largest in the world, only slightly bigger than that of Denmark and
comparable to that of Ireland. This was despite India being the second most
populous country in the world as well as the 12th largest economy. Yet,
there are strong arguments in favour of sustained rapid insurance business
growth in the coming years, including India’s robust economic growth
prospects and the nation’s high savings rates. The dynamic growth of
insurance buying is partly affected by the (changing) income elasticity of
insurance demand. It has been shown that insurance penetration and per
capita income have a strong non-linear relationship.Based on this relation
and other considerations, it can be postulated that by 2014 the penetration of
life insurance in India will increase to 4.4% and that of non-life insurance to
0.9%.
7.1 INDIA’S INSURANCE INDUSTRY LIKELY TO JUMP BY
500% IN 2010: ASSOCHAM :

The Associated Chambers of Commerce and Industry of India

(ASSOCHAM) has projected about 500% hike in the size of domestic
insurance business which will grow to US$ 60 billion by 2010 from the
current size of around US$ 10 billion as the growing competitive age is
developing a larger appetite among people for wider insurance coverage.
The projections of the Chamber are based on feedback that it received from
its various constituents, engaged in the insurance business, highlighting that
India’s life insurance premium as a percentage of GDP is currently estimated
at 1.8% against 5.2% in US, 6.5% in UK and about 8% in South Korea.

Releasing the analysis, ASSOCHAM President, Mr. Venugopal N.

Dhoot said that rural and semi-urban India will contribute US $35 billion to
the Indian insurance industry by 2010, including US $20 billion by way of
life insurance and the rest US $15 billion through non-life insurance
schemes. A large part of rural India is still untapped due to poor distribution,
large distances and high costs relative to returns. Urban sector insurance is
estimated to reach US $25 billion by 2010, life insurance US $15 billion and
non-life insurance US $10 billion, added Mr. Dhoot. ASSOCHAM findings
reveals that in the coming years the corporate segment, as a whole will not
be a big growth area for insurance companies. This is because penetration is
already good and companies receive good services. In both volumes and
profitability therefore, the scope for expansion is modest.

ASSOCHAM has suggested that insurer’s strategy should be to

stimulate demand in areas that are currently not served at all. Insurance
companies mostly focus on manufacturing sector; however, the services
sector is taking a large and growing share of India GDP. This offers
immense opportunities for expansion opportunities. To understand the
prospects for insurance companies in rural India, it is very important to
understand the requirements of India's villagers, their daily lives, their
peculiar needs and their occupational structures. There are farmers,
craftsmen, milkmen, weavers, casual labours, construction workers and
shopkeepers and so on. More often than not, they are into more than one
profession. The rural market offers tremendous growth opportunities for
insurance companies and insurers should develop viable and cost-effective
distribution channels; build consumer awareness and confidence. The Paper
found that there are a total 124 million rural households. Nearly 20% of all
farmers in rural India own a Kissan Credit cards. The 25 million credit cards
used till date offer a huge data base and opportunity for insurance
companies. An extensive rural agent network for sale of insurance products
could be established. The agent can play a major role in creating awareness,
motivating purchase and rendering insurance services. There should be
nothing to stop insurance companies from trying to pursue their own unique
policies and target whatever needs that they want to target in rural India.

ASSOCHAM suggests that insurance needs to be packaged in such a

form that it appears as an acceptable investment to the rural people. In the
near future, when well see more innovations in agriculture in the form of
corporatization or a more professional approach from the farmers� side,
insurance will definitely be one option that the rural Indian is going to
accept. ASSOCHAM believes that insurers should enter into tie-ups or
understandings with government agencies to ensure the success of the
insurance schemes. The need of the hour is to have innovative policies that
have explicit benefits for the people to observe, understand and measure.
 CHAPTER 8

ISSUES AND CHALLENGES OF INSURANCE

INDUSTRY IN INDIA

The increased growth in the Indian middle income group has posed
incremental growth in the insurance sector in India which has proved to be a
major issues and challenges in terms of Gross Domestic Product (GDP)
which is discussed below:

8.1 ISSUES AND CHALLENGES OF INSURANCE INDUSTRY

IN TERMS OF GROSS DOMESTIC PRODUCT
. The Indian insurance sector is on a bull run. The average Indian now
spends 5.4 times as much on life insurance as what s/he did seven years ago
when the industry was yet to be opened up for private participation. With the
largest number of life insurance policies in force in the world, India's
insurance sector accounted for 4.1 per cent of GDP in 2006-07, up from 1.2
per cent in 1999-2000, far ahead of China where insurance accounts for just
1.7 per cent of the GDP and even the US where insurance penetration stands
at 4 per cent of the GDP.
 Indians are now setting aside a larger chunk of their income on life
insurance when measured as a percentage of GDP. They are allocating a
small amount of their take-home to buy insurance products given their rising
equated monthly installment (EMI) payments for home mortgage and other
loans. The growth in insurance premium collections has spelt an opportunity
for the equity market too. The industry's investment in the equity market
stood at US$ 38.1 billion and the assets under management were at US$
152.6 billion as on March 31, 2007. Indian insurance companies recorded a
19.9 per cent growth in premium in dollar terms (adjusted for inflation) in
2006-07, compared to the world market growth rate of 2.9 per cent. This rate
of growth of the industry looks particularly impressive when seen against
the fact that the combined penetration of both life and non-life is less than 2
per cent of the GDP compared to world average of 7.52 per cent. Clearly, the
scope for growth is enormous. Nonetheless, the minimal foreign investment
allowed within the country increase the need for partnerships to operate in
the Indian environment. This poses challenges of governance, risk and
compliance mechanisms that will allow the partnerships to act in the best
interest of the policyholder. As India is in the cusp of grasping potential
opportunities in the insurance industry, one needs to understand that
investing for the long term is key. The sector wise growth and potential is
underscored below to enhance the understanding of the Indian insurance
segment.

8.1 LIFE INSURANCE AND GENERAL INSURANCEGROWTH

 Life Insurance
Life insurance led by the Life Insurance Corporation (LIC), the life
insurance industry registered a growth of 110 per cent in fiscal 2006-07,
taking the total business to US$ 19.2 billion from the previous year's US$
9.1 billion. The life insurance market has grown rapidly over the past six
years, with new business premiums growing at over 40 per cent per year
owing to the entry of a host of new players with significant growth
aspirations and capital commitments. Life insurance penetration in India -
which was less than 1 per cent till 1990-91 - increased to 2.53 per cent in
2005, and to 3 per cent in 2006-07. The impetus for growth has come from
both public and private insurers. Also, the number of players in this segment
has also increased to 17 (16 in private sector), with Life Insurance
 Corporation (LIC) being the dominant player (market share of about 74 per
cent).

 General Insurance
The general insurance industry grew 12.63 per cent during 2007-08
driven a robust performances by private players. The 13 non-life insurers
collected US$ 2.63 billion in premium during 2007-08, against US$ 2.04
billion in 2006-07. Consequently, total non-life premium collections totaled
US$ 6.59 billion in 2007-08, against US$ 5.85 billion collected in 2006-07.
While the public sector could increase its premiums by just 3.94 per cent, 13
private sector players clocked premium growth of 28.85 per cent. Private
sector players' market share has grown to about 40 per cent in FY 2008 as
compared to the public sector's 60 per cent.

 Government Initiatives
The Government has taken many proactive steps to give a boost to this
sector:
a) Foreign direct investment up to 26 per cent is permitted under the
automatic route subject to obtaining a license from the IRDA.
b) IRDA has removed administered pricing mechanism, i.e. de-tariffing
in respect of fire and engineering along with motor insurance of
general insurance for premium, effective from 1 January, 2007.
c) The control rate on fire, engineering and workmen’s compensation
insurance classes has been removed from 1 September, 2007.

d) Some state governments have also taken a dynamic role in this sector.
The Government of Andhra Pradesh after piloting the 'Arogya Sri'
health insurance scheme in three districts plans to issue health cards to
18 million BPL (below the poverty line) families. As a result, about
60 million of the State's 80 million people will have insurance cover.
The Karnataka Government has partnered with the private sector to
provide coverage at a low cost in the Yeshaswini Insurance scheme.
Launched in 2002, the scheme provides coverage for major surgical
operations, including those pertaining to pre-existing conditions, to
Indian farmers who previously had no access to insurance.

Innovative Trends in insurance sector in India has been spurred by

product innovation, streamlining of sales and distribution channels along
with targeted advertising and marketing campaigns. The kid's insurance
segment in the insurance sector is witnessing increased activity. According
 to industry estimates, currently, 20-30 per cent of business of many
companies comes from children-specific insurance policies alone. Emerging
lifestyle trends amid a changing fabric of the Indian society have also
modified social and financial behavior. For instance, an increase in the
number of working women has led to a demand for life insurance policies,
which in turn has helped women through a micro-entrepreneurship initiative
(women have flexibility - managing home and being financially independent
as distributors of insurance).

Thus, market penetration tends to rise as incomes increase,

particularly in life insurance. India, with its huge middle-class households
and growing economy has exhibited huge potential for this sector. Current
estimates say that, for every one per cent increase in the GDP, insurance
premiums increase by at least 4 per cent. The domestic insurance industry in
India is estimated to be around US$ 60.5 billion by 2010, of which US$ 35
billion will come from rural and semi-urban areas. While the life insurance
market is expected to grow to US$ 35 billion, non-life insurance market will
touch an estimated US$ 25 billion.

8.2 CHALLENGES BEFORE THE INDUSTRY

The new as well as the old insurers will have to face a number of
challenges in the liberalized market.

 New Insurers
The new insurers will have to invest a minimum capital of Rs. 100
crores. The normal gestation period is of five years. The generation of profit
normally starts in the sixth year. Hence the new insurers will have to be
ready for locking up their capital for at least 5 years before earning any
profits. Besides they will face problems of shortage of trained manpower for
the insurance industry. The setting up of various offices and distribution
network is a time consuming process. Further the new insurers will have to
compete with the established insurance companies like LIC and GIC which
have a corporate image and market presence for several years.

 Expectation Of The Consumers

Today LIC has more than 60 products and GIC has more than 180
products to offer in the market. But most of them are outdated, as they are
not suitable to the needs of the consumers. Hence old as well as new insurers
will have to offer innovative products to the consumers. The consumers are
particularly expecting good pension plans, health insurance, term insurance
 and investment products like unit-linked insurance, from the life insurers.
Similarly the consumers expect innovative products from the general
insurers for managing healthcare, property insurance, accident insurance and
other products related to the personal line of insurance. The consumers also
expect reduction in the premium of the insurance products as the mortality
rate in India has come down by three times in the last 50 years.

 Distribution Channel
In the liberalized insurance market, there will be multiple distribution
channels, which will include agents, brokers, corporate intermediaries, bank
branches, affinity groups and direct marketing through telesales and Internet.
Some channels will be cheaper than others. Hence there will be competition
among the channels. The new insurers will operate with the help of multiple
distribution channels but the existing insurers may be forced to operate only
with the help of agents. Hence, intense competition will grow among the old
and new insurers in the market to win the consumers. This will pose a great
challenge to the insurers in the liberalized insurance market.

 Consumer Education
Very soon the market will be flooded by a large number of products
by a fairly large number of insurers operating in the Indian market. Even
with limited range of products offered by LIC and GIC, the consumers are
confused in the market. Their confusion will further increase in the face of a
large number of products in the market. The existing level of awareness of
the consumers for insurance products is very low, it is so because only 62%
of the population of India is literate and less than 10% well educated. Even
the educated consumers are ignorant about the various products of insurance.
Hence it is necessary that all the insurers should undertake the extensive
plan for education of consumers. The consumer organizations and the media
also can play very important role in education of the consumers. This will
result in expansion of the insurance market and will also enable the needy
consumer to purchase appropriate products.

 Consumer Grievance Redressal

The insurers will have to face an acute problem of the redressal of the
consumers, grievances for deficiency in products and services. The
Insurance Regulatory Development Authority (IRDA), the regulatory body
has already appointed Ombudsman for looking into the grievances of the
policyholders, his judgement will be binding on insurers. Further, under
Consumer Protection Act 1986, the consumer courts are operating at district,
 state and the national level. In the competitive market, awareness level of the
consumers will increase and it will help consumers to fight for their legal
right for deficiency in services. Hence the number of legal cases filed by the
consumers against insurers is likely to increase substantially in future. This
will be a challenge to the insurers.

8.3 PRIVATE V/S PUBLIC INSURANCE SECTOR-ONE OF

THE MAJOR CHALLENGE

Private players in the life insurance business are growing at a

scorching pace. Within three years of their inception, they have seized about
14 per cent of the market. Compare this to new generation private-sector
banks, which took nine years for 20 per cent share in the Indian banking
industry. And after seven years in the industry, in 2000, private mutual funds
accounted for just 9 per cent of a market that had been dominated by the
Unit Trust of India. There’s another dimension to the insurance numbers
game. While the private insurance companies have attained 13 to 14 per cent
share of the overall insurance market, their share in the key metros (Mumbai
and Delhi) is as high as 30 to 40 per cent."We have to struggle to complete a
deal in the metros now, because policyholders are comparing products and
asking for better deals," says S B Mathur, chairman of the Life Insurance
Corporation of India.

Private insurance companies are essentially joint ventures with global

insurance companies holding a maximum of 26 per cent stake. The foreign
partners are investing heavily in the Indian market and, thereby, driving
sales, because they see India emerging as one of the biggest markets in the
Asian region. “India will become the biggest market for us in the next three
to four years," predicts Dan Bardin, Prudential Corporation Asia managing
director South Asia and greater China.

Private players have certainly done their bit to increase the

penetration levels of insurance, mainly by creating alternative distribution
channels--such as associations with banks, brokers and corporate agents.
“Our bancassurance channel--with tie-ups with four banks-- contributes
almost 70 per cent of our total sales," says Aviva CEO Stuart Purdy.
 OM Kotak Mahindra Life, which is ranked eighth among private
players, is also leaning towards alternative distribution channels that will
contribute to 45 per cent of total sales, in line with the contribution from its
tied agency force. In sharp contrast, most of the LIC's policies continue to be
sold through its tied-agency network. The state life corporation
acknowledges that it is unable to maintain its lead in some metros:
penetration by the private-sector insurers has come of age and they are
giving the LIC a run for its money.

The multi-channel approach adopted by private insurance companies

has proved to be a boon in terms of costing and their ability to capture
business. Earlier, most private insurance companies focused their energies
on the top 20 cities. Today they are moving to smaller cities."The potential
in smaller cities is increasing and companies are moving to smaller cities
and towns because these are increasingly becoming more prosperous with a
rise in agricultural income. With the increase in buying power, this has
fuelled growth opportunities for us," says Max New York Life CEO
Anuroop Tony Singh.

AMP Sanmar, another private player, has tied up with various chit
funds and transport finance companies in the country, where it is selling life
policies on the back of fixed deposits and bonds. A senior company official
cites the example of Vijaywada where a significant portion of the income is
derived from farming activities. "The rural populace is managing their
money well and no longer keeping it under their beds. They have mobile
phones and have opened bank accounts. They are not very different from
their urban counterparts when it comes to purchasing life insurance covers,"
he points out.

And that's making the private sector optimistic about its future in the
Indian insurance market. "We [private insurers] are becoming an alternative
to LIC. If a customer has already bought an LIC plan, his second policy is
likely to be bought by the private insurance sector on account of various
reasons--more specifically flexibility and transparency," says OM Kotak
Mahindra Life CEO Shivaji Dam.

Perhaps this partly explains why the LIC has increased its advertising
spend multifold since the insurance sector was privatized. Its ad spend more
than doubled to Rs 81 crore (Rs 810 million) in fiscal 2003, against Rs 37
crore (Rs 370 million) in 1999-2000, prior to the industry being
privatized.Of course, the private insurance sector has also been steadily
increasing its ad spend, from Rs 29 crore (Rs 290 million) in fiscal 2001
when the industry opened up, to Rs 92 crore (Rs 920 million) the following
year. In fiscal 2003, private insurers spent Rs 143 crore (Rs 1.43 billion) on
advertising.But it's not the increased spend on advertising alone that has
helped private players in grabbing market share. One of the key differential
factors responsible for their growing market is the 150,000-odd life
insurance advisors of the private insurance companies."The private
insurance agents sell better than their counterparts at the LIC. Life insurance
advisors of private sector insurance companies adopt the need-based selling
approach, unlike the LIC's agency force that pushes the number of policies,"
says Dam.

This also gets reflected in the average sum assured by private

insurance companies being higher than that of the LIC. Policies sold by the
private players tend to be of a higher value.For instance, Birla Sun Life's
average premium stands at Rs 24,500, while that of OM Kotak Mahindra
Life is equally high at Rs 20,400. Against this is the LIC's average premium
of Rs 3,200.Of course, there's also a difference in the target client of the
privateand the state-run insurance companies. While the private players are
targeting the upper middle-class and high net-worth individuals, the LIC
aims for the masses through its 2,048 branches spread across semi-rural and
rural towns.Meanwhile, private insurance companies are capitalizing on
global relationships. "Business deals are often a call away since we
capitalize on AIG's global relationship with multinational companies such as
GE and Kodak," says Tata AIG Life Ian Watts.

OM Kotak has gone a step further and tied up with Swiss Life
International so that it can capitalize on the latter's relationship with 300
multinational subsidiaries and affiliates. But it's not as if LIC has lost out on
group insurance. The insurance major's group business reached new heights
in fiscal 2004, recording a 119 per cent growth in new premium income and
50 per cent increase in the number of lives covered.Still, new business
income for private companies has grown at 146 per cent in fiscal 2004,
compared to the 18 per cent average industry growth in new premium
income for the same period."The key in product sales lies in offering
unbundled and transparent products that give customer value," points out
Dam.
The biggest draw in insurance in fiscal 2004 was unit-linked plans. Ninety-
five per cent of the policies sold by Birla Sun Life and over 80 per cent of
the 436,000 policies sold by ICICI Prudential were unitlinked plans.And
even though the LIC was late (January 2004) in pushing its unitlinked
product "Bima Plus", it managed to mop up a premium income of Rs 373
crore (Rs billion) with the sale of just under 1.7-lakh unitlinked policies, the
highest sales figure in the industry.The advantage with unit-linked plans is
that they offer policyholders transparency in terms of costs, annual returns
and bonus calculations. With many companies guaranteeing the capital
investment (some like Birla Sun Life even guarantee 3 per cent assured
returns on its unit-linked plans), the interest in unit-linked plans only
increased.And the switch from traditional products to unit-linked plans
gained momentum as the Sensex climbed higher: the returns on such
policies are linked to the equity market.

"The stock market has helped to a certain extent and has contributed
to our growth and performance," agrees Birla Sun Life CEO Nani
Javeri.Aviva has shown a compounded aggregate growth rate of 36 per cent
since the inception of its fund. Returns on OM Kotak's balanced and growth
funds stand at 31.79 to 43.25 per cent respectively.Dam claims that OM
Kotak has sold several policies of Rs 25-50 lakh (Rs 2.5-5 million) since the
"savvy investor thinks it best to invest in unit-linked products." He adds:
"Growth is coming faster in insurance companies with unit-linked plans."
 CHAPTER 9

EMERGING TREND IN INDIAN INSURANCE

SECTOR

Market by 2015, particularly in countries like India and China. The

IRDA is the major body, which is providing better opportunities for private
player in India.GIC & LIC's monopoly market approach is no more
prevalent in India. The new market scenario for insurance is growing; no
doubt it is a flying bird.

Change is the eternal law of nature. Everything is changing according

to the need of the time. Economic growth and social development in present
scenario is due to sudden change in industrial policy and economic planning.
Globalization has been the basic mantra after 1991, so every one thinks of
being global. Liberalization, privatization and globalization is the basic
concept of success in all aspect of development. Competition is tough now
due to globalization. Business has positioned the entire economy, and
industrialists think about making things global. There are no stringent rules
or regulations for making any business house or industry. Government gives
more emphasis on export and entrepreneurship. This is a changing world.
Everyone has to compete for better success. Marketing is the major concept
for developing any type of business. After globalization, marketing has
taken a new dimension and it is them most challenging task now. The new
horizon of marketing in the field of finance and insurance in present scenario
is a good sign of development.

9.1 GLOBALIZATION - "THE DYNAMIC FORCE"

Many people consider globalization nothing new - societies have been
interconnected for years. The world has never experienced globalization at
this level of intensity before, or the speed at which it is transforming and
integrating societies.

Herman E. Daly, an analyst of Global Policy Forum, characterizes

globalization as, "Global integration of many former nationaleconomies into
global economy, mainly by free trade and free mobility, but also by easy or
uncontrolled economic purposes."
 He further clarifies that globalization is not internationalization
-globalization brings about a single, integrated, global economy, while
internationalization is a federation of nations cooperating as sovereign units
to advance the national interest of all members. Though globalization has
become a broad heading for a multitude of global interactions, ranging from
the expansion of cultural influences across borders to the enlargement of
economic and business relations throughout the world, it has different
dynamic force for different person. For the economist, globalization is
essentiallytheemergence of a global market. For a historian, it is an epoch
dominated by global capitalism. Sociologists see globalization as the
celebration of diversity and the convergence of social preferences in matters
of life style and social values. To the political scientist, it represents the
gradual erosion of state sovereignty. But discipline specific studies explain
only a part of the phenomenon.

From a multi-disciplinary angle, globalization may be treated as

phenomenon, a philosophy and a process, which affects human beings as
profoundly as any previous event. Several factors have been responsible for
this phenomenon. This study confines its attention to four growth-enhancing
facets of globalization that have been among its key drivers, namely trade,
finance, communication and transport.

 MNCs - "The New Path Maker"

After globalization, so many MNCs are the major path maker for
economic growth. The world-class MNCs constantly pursued their strategy
of gaining access to every promising market world over, which had sound
growth potentialities, in order to expand their network and control over the
respective local economies. The consequence was that some of the markets,
particularly in developing countries like China and India, adopted some sort
of selfprotectionistmechanisms by imposing certain deliberate politico-legal
restrictions in order to restrict the entry of capital goods of these.MNCs into
their markets. Insurance being an integral part of financial service could not
claim immunity to the impact of the globalization process and opened up to
private and global players world over, including India. So many MNCsare
now entering into the insurance sector which is now a booming sector.

 New Horizons Of Insurance Market After Globalization

After 1970, insurance sector has become more prosperous. For along
time, the two most important insurance players were LIC &GIC.Now so
many MNCs have entered into the same sector like BajajAllianz, Aviva,
 Birla Sunlife, ICICI Prudential, etc. Insurance is nowacting on two
dimensions, i.e., the element of investment and the element of protection.
The Economic Value Addition (EVA) has taken the major concern of the
same business.

 New Market Scenario & Insurance

Insurance market in present scenario though is a booming sector, but
the market has changed from simpler to complex, less challenging to more
challenging. Going domestic to international is a very difficult task.
Understanding market synergy and cognisation of perception of customer in
the insurance field is very difficult. The Regulatory Boardlike 'IRDA' is
playing a very crucial role for the benefit of the insurance holder. The
premium and interest rate can't be violated for better profit and development.
The market is becoming tougher gradually.

 Globalization Of Insurance Market

Insurance not plays an important role in national economy but also in
international economy. Marine cargo insurance provides risk coverage for
shippers and the banks, which finance international trades. This role
becomes all the more important in the context of an active government
policy to encourage exports. Indian life insurer operates in more than 30
countries through agencies, branches, associates companies. These
operations earn foreign exchange. The insurance business is concerned with
North America, Western Europe, Japan and Oceania. Together these
region’s accounts for about 91 % of the world annul premium.

By region’s North America and western Europe are growing

moderately while oceanic, Latin America, eastern Europe and Africa display
growth above lone –term trends to a global context globalization of life
insurance helps companies practices underwriting discipline in one regions
globalization of the insurance industry received a big boost.
GROWTH OF LIFE INSURANCE SOME FACTS
(MAY
2008):
Share (%)
 MARKET SHARES OF PRIVATE PLAYER
OF LIFE INSURANCE IN 2009

9.2 TECHNOLOGY TREND IN INSURANCE MARKET

 Computerization
Initially, in the late 1950’s the insurance companies used Unit Record
Machines (Electro Magnetic Machines) to process data punched into cards.
Computers were introduces in the mid 1960’s and by the 1980’s the Unit
Phased Machines were phased out and the entire process was computerized.
This brought about greater efficiency and quick service delivery.

 Internet
Today, the internet has completely changed the service delivery process.
Internet is today used to even sell insurance policies. Internet is, in fact,
proving to be one of the widely used distribution networks for selling
insurance policies. Also internet is used for sending premium notices to
policy holders through e-mails Companies like LIC (www.licindia.com),
ICICI (www.iciciprudential.com) all have websites from which people can
 get the information about their products, prices, various schemes, and lots of
other information. People can also purchase the product through this
website.

 Electronic Clearance Service (ECS)

Almost all the big organizations today provide the ECS facility to its
customers. A policy holder having an account in any bank which is a
member of the local clearing house can opt for ECS debit to pay premiums.
The advantage here is that once the option is exercised, the policy holder
need not visit a branch for paying the premium or collecting the receipts. On
the day indicated by the policy holder, the premium amount will be directly
debited to the bank account of the policyholder and the receipt will be issued
by the designated branch office.

 Call Centres and SMS services

Almost all the insurance companies have their own call centres which
cater to the phone based queries of the policyholders. This service is 24x7
and they have the Interactive Voice Response (IVR) systems at all the
branches.
 CHAPTER 10

FUTURE SCENARIO OF INSURANCE INDUSTRY

Presently India is building an upsurge in consumer awareness, putting
immense and unavoidable pressure on the insurance industry. A lifting of the
bar on composite insurance, where companies are allowed to do only life or
non-life business today, can also be expected. Instead of categorizing
insurance by class, the focus may shift more to the period for which the
cover was offered and the risk underwritten. Already there is demand for
permitting the industry to underwrite pure risk and leaving investment
decisions to policyholders. With the entry of competition, the rules of the
game are set to change. The market is already beginning to witness a wide
array of products from players whose number is set to grow. In such a
scenario, the differentiators among the different players are the products,
pricing, and service. Meanwhile, the profile of the Indian consumer is also
evolving. Consumers are increasingly more aware and are actively managing
their financial affairs.

Today, while boundaries between various financial products are

blurring, people are increasingly looking not just at products, but also at
integrated financial solutions that can offer stability of returns along with
total protection. To satisfy these myriad needs of customers, insurance
products will need to be customized. Insurance today has emerged as an
attractive and stable investment alternative that offers total protection —
Life, Health and Wealth. In terms of returns, insurance products today offer
competitive returns, what really increases the appeal of insurance is the
benefit of life protection from insurance products along with health cover
benefits. Consumers today also seek products that offering flexible options,
preferring products with benefits unbundled and customizable to suit their
diverse needs. The trend in developed economies where people not only live
longer and retire earlier are now emerging in India. Where once the fear was
one of dying too early, now, with increasing longevity, the fear also is one of
living too long and outliving one's assets. With the breakdown of traditional
forms of social security like the joint family system, consumers are now
concerning themselves with the need to provide for a comfortable
retirement. This trend has been further driven by the long-term decline in
interest rates, which makes it all the more necessary to start saving early to
ensure long term wealth creation. Today's consumers are increasingly
interested in products to help build wealth and provide for retirement
income. This all adds up to major change in demand for insurance products.
While sales of traditional life insurance products like individual, whole life
and term will remain popular, sales of new products like single premium,
investment linked, retirement products, variable life and annuity products are
also set to rise.

The size of the existing insurance market is very large and is growing
at the rate of 10% per year. The estimated potential of the Indian insurance
market in terms of premium was around Rs. 3, 44,000 crores in the year
1999. Only 10% of the market share has been tapped by LIC and GIC and
the balance 90% of the market still remains untapped. This vast potential can
be tapped only by a large number of insurers. To serve 100 crores of
population, Indian insurance market offers tremendous opportunities to
prospective insurers. Hence, the regulator should issue licenses to a large
number of insurers if the insurance market has to grow at a fast rate.

With the increase in the life span of individuals and disintegration of

the joint family system, each Individual now has arranged insurance cover
for himself and for his family. Hence, coverage of insurers, which was
around 7% of the population in 1999, has to grow very fast. In fact all the
citizens in the middle class, estimated around 314 million can afford
insurance from their own financial resources. The remaining population has
to be given subsidized insurance with the help of the government as well as
the insurers. The huge fund from insurance investments can be utilized for
financing the infrastructure industry as well as a support to other industries
in the country. Hence insurance industry is likely to play a key role in
changing the economic landscape of the country. However the success of the
insurance industry will primarily depend upon meeting the rising
expectations of the consumers who will be the real king in the liberalized
insurance market in future.
 CASE STUDY 11

COMPARISON BETWEEN LIC AND ICICI

PRUDENTIAL
11.1 COMPANY PROFILE OF LIC AND ICICI PRUDENTIAL

 Company Profile Of Life Insurance Corporation Of India

Life Insurance Corporation of India was created on 1st 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.
LIC 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 need was felt in the later years to expand the operations and place
a branch office at each district headquarter. Re- organization of LIC took
place and large numbers of new branch offices were opened. As a result of
reorganization servicing functions were transferred to the branches, and
branches were made accounting units. It worked wonders with the
performance of the corporation. It may be seen that from about 200.00
crores of New Business in 1957 the corporation crossed 1000.00 crores only
in the year 1969-70, and it took another 10 years for LIC to cross 2000.00
crore mark of new business. But with reorganization happening in the early
eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on
new policies.
 Today LIC functions with 2048 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 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 has launched its
SATELLITE SAMPARK offices. The satellite offices are smaller, leaner
and closer to the customer. The digitalized records of the satellite offices
will facilitate anywhere servicing and many other conveniences in the future.
LIC continues to be the dominant life insurer even in the liberalized scenario
of Indian insurance and is moving fast on a new growth trajectory surpassing
its own past records.

Life Insurance Corporation of India is a wholly owned undertaking of

the Government of India. Life Insurance Corporation of India was
established by an Act of Parliament on 1st September, 1956. Its Central
Office is located in Mumbai. It also has seven zonal offices each located in
Mumbai(Western Zone), New Delhi (Northern Zone), Kanpur (North-
Central Zone), Bhopal (Central Zone), Chennai (Southern Zone),
Hyderabad(South-Central Zone), and Kolkotta (Eastern Zone). It has a
network of over 2000(2048) branches and more than nine lakh agents. Over
47 years, LIC has become a household name for providing security for a
lifetime and is synonymous to life insurance in India. LIC ranks No.1 in the
list of top 500 companies on the basis of Net Worth(Rs. 15, 47, 951 million)
as well as Net Profit(2,66,277 million)- Dun & Bradstreet (India 500).
 Company Profile Of Icici Prudential Life Insurance

ICICI Prudential Life Insurance Company is in to selling life

insurance products. 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. ICICI Prudential was amongst the
first private sector insurance companies to begin operations in December
2000 after receiving approval from Insurance Regulatory Development
Authority (IRDA). At present it is growing at a tremendous pace. Now we
can say there is no close competitor to ICICI Prudential. ICICI Prudential’s
equity base stands at Rs. 9.25 billion with ICICI Bank and Prudential PLC
holding 74% and 26% stake respectively. For the past five years, ICICI
Prudential has retained its position as No. 1 private life insurance in the
country, with a wide range of flexible products that meet the needs of Indian
customer at every step in life. The company mainly depends on advisors.
The advisors are considered as the brand ambassadors of the company or the
working partner who doesn’t have to invest to get returns but just work with
the company to make money. Advisors main job is to sell policy and in
return the advisors get huge return like high commission, rewards,
recognition etc. He is, for all purposes, an authorized salesman for insurance.
Advisors can become the Unit Manager of the company if they pass the
pinnacle program. ICICI Prudential has recruited and trained about 56,000
insurance advisors to interface with and advise customers. Further, it
leverages its state-of-the-art IT infrastructure to provide superior quality of
service to customers. Manager will get a fixed salary and the commission on
the policies sold by his advisor and the commission of the policies which he
has already sold. Tiger team manager is one who gets to sell the policy an
get commission, train the advisors about the product and he is also a paid up
employee of the company.
11.2 LIC NEW JEEVAN SURAKSHA VS ICICI PRUDENTIAL
FOREVER LIFE

LIC’s New Jeevan Suraksha offers cool comfort to serve the young,
the middle aged and the old which has also the security and safety backing
of Government of India. It is an ideal solution for people as it not only offers
retirement benefits but also takes care of our protection needs (with term
rider option). To combat the increase in longevity, this plan provides regular
guaranteed income at old age and helps in planning to meet requirements for
current and future needs. This plan provides a lot of flexibility in terms of
various pension options for you to choose from. Additionally you can also
opt for an insurance cover during the deferment period by taking the Term
Rider add on. At the end of the deferment period when the premium ceases,
this policy can, at your option, pay you a lump sum amount and a suitable
pension for your lifetime.

The similar product marketed by ICICI Prudential Life Insurance

Company is Forever Life, a comprehensive retirement solution that is
developed keeping in mind your capabilities and needs with respect to your
retirement planning. The salient features of this plan are as under:
 It provides regular income for life, after a stipulated date.
 The amount you receive depends on the premium you pay till the
stipulated date and the option you choose.
 It also offers life cover during the deferment period.
 Postponement of retirement age.

The table below shows the summarised comparison of LIC’s

New Jeevan Suraksha-I vs. ICICI’s Forever Life.
 11.3 INNOVATION STRATEGY IN LIC& ICICI PRUDENTIAL

 Innovation Strategy In Lic

LIC has realised the importance of personal involvement and has
included it in the training program itself. Once the Agent is recruited he
needs to undergo a compulsory training program designed by LIC. The
Training Program also explains them the importance of the smallest of the
customer .i.e. customer who is just seeking general information. The Agents
and Employees are trained to Apologise to its customers even if they are
not at fault.

“SO IT DOSENT TAKE MUCH OF TIME FOR THE HANDS OF THE

LIC LOGO TO COME CLOSER FOR APOLOGY”

LIC has established elaborate Grievance Redressal Machinery at

different level as per the customer requirement. There are Complaint cells
which are specially set up to listen up to each and every customer’s
problems. LIC gas also set up Policyholder Councils and Zonal Advisory
Boards to understand the problems of their customer situated in any part of
the city.

A. Offers a Fair Fix to Problem

Customers want wrong to be set right and expects service contact
employee to be skilled, empowered and interested in setting things right.
This is the main reason why LIC conducts training programs for the
newly recruited Agents as well as the other Employees. In any kind of
breakdown situations LIC try to offer a rational explanation and demonstrate
sensitivity and concern to the customer rather than defending themselves.

B. Offers Some Compensation for the Inconvenience

Compensation here wouldn’t mean of just monetary compensation or
some extreme measures like firing the Branch Manager Etc; but it is just to
make-up for the loss of customer satisfaction. It could be like “it’s on us”;
“free service” etc. The service provider should plan certain compensation
 policies in advance for various types of situations and deliver it as and when
the situation is faced.

C. Keep the Promises

It basically means that the Company should keep the promises made to
the Customer before or at the time of service provision i.e. the Company
should fulfill its commitments. LIC makes sure that none of the Agents
provide any kind of wrong information or false promises to its customers
which mislead them. LIC ask their Agents to give reasonable commitments
so that they could be fulfilled by the Company or the Agent on behalf of the
Company.

D. Follow Up
This is the most important step in Service Recovery as it ensures that
whether the implemented Service Recovery was Satisfactory or not. It would
include Internal and External Follow-up. Internal Follow-up would be to
ensure that the solutions they put in motion are actually executed and the
External part would be to get feedback from the customer whether he is
satisfy.

E. Complaint Handling
In a vast Organization like LIC, catering to the various needs and
aspirations of millions of policyholders, grievances of customers do arise
occasionally. In order to redress these grievances LIC has established
elaborate Grievance Redressal Machinery.

 Innovation Strategy In Icici Prudential

An innovation refers to any good, service, or idea. That is perceived
by someone as new. The idea may have long history, but it is an innovation
to the person who sees it as new. Innovation takes time to spread through the
special system. The consumer adoption process focuses on the mental
process through which an individual passes from first hearing about an
innovation to final adoption. Adopters of new products have moved through
the following five stages.

a) Awareness: The consumer becomes aware of the innovation but lacks

information about it.
b) Interest: The consumer is stimulated to see the information about the
innovation.
 c) Evaluation: The Consumer considers whether to try the innovation or
not.
d) Trial: The consumer tries the innovation to improve his estimate of its
value
e) Adoption: The consumer decides to make full and regular use of the
innovation

11.4 EMERGING TREND IN LIC & ICICI PRUDENTIAL

 Emerging Trend In Life Insurance Corporation

With the emergence of competition, LIC has implemented strategic
moves for business growth, as well as ensured quality improvement in
service standards. As on today, they have been providing service to around
12 crore policy holders and their track has been well acknowledged as
reflected through continual upgradation of service standards culminating
into a world class performance in the area of claim settlement operations. It
is well acknowledged that LIC has been able to provide appropriate IT
support in furtherance of prompt service to their valued policy holders. The
complex task of conversion of computerization of all the branches with their
conversion as Front Line offices has been completed in a phase manner. In
addition to this, the launching of the IVRS facility, MAN and Wide Area
Network operations has helped the co-operation improve its servicing.

LIC’s strength lies in :

a. Wide network of branches covering rural areas.
b. A large and well- spread agency organization.
c. An acknowledged record of performance.
d. Adequate yield with high risk cover being offered keeping the policy
holders satisfied in the existing in the economic scenario
e. Well accepted brand equity throughout the country.
In addition to this, LIC has an established and well administered
Grievance Redressal Mechanism and with Ombudsman intervention, the
customers appear to be well attended. However, this mechanism has to be
restructured keeping in view the additional legal provisions laid down by the
regulator as expounded in the IRDA act.

A. Futuristic Approach
Till today, LIC enjoyed a monopoly. It is now that reality exists in the
are of marketing (i.e. sales and after sales service operations). It will now
 have to follow a multi-faceted strategy towards customer retention and also
expanding to a new clientele. With the new face of the market, relationship
management seems to be the new mantra. At the nucleus of this approach is
the concept of Customer Relationship management. The need is to have a
comprehensive review of the business keeping in view customer
expectations

B. Customer Orientation
LIC, to be in the reckoning, has to have an efficient feed-back system, so
as to understand what the customer desires in terms of product design,
service procedures, relationship convinience, accessibility, responses in
terms of personalized service, attendance, core and complimentary on an
individual basis. The new players in the market like ICICI, HDFC etc. will
definitely be very aggressive in the open market. LIC has to go ahead with
their former customers, existing customer, in a very gentle and courteous
manner, reassuring them of their better services with persona, attention.

C. Advertising Trend In Lic

1) News Papers and Magazines: LIC give ads in the news papers and
magazines round the year to continue its brand image and also when
new products are introduced. Normally its ads are published in Times
of India.
2) Television: Companies like LIC, advertise on television to make people
aware of their products and services
3) Gifts: LIC provides diaries, pens, booklets, etc to its customers
4) Hoardings: LIC put its hoardings where there is a mass flow of people,
especially outside the railway station or at the backside of the bus.
5) Advertisement On Radio satellite channel: Advertisement about LIC are
frequently been telecast on radio and satellite channel.

 Emerging Trend In Icici Prudential

In a significant move, ICICI Prudential Life Insurance — a joint venture
between the ICICI group and Prudential Plc of the UK — has expanded its
marketing platform for promoting life insurance products to 1,500 banks
branches from 642 branches through its existing bancassurance tie-up with
seven banks. With this, ICICI Prudential has increased the number of bank
branches (under banc assurance tie-ups) by about 130 per cent. In fiscal
2002-2003, the number of bank branches networked by the company grew
by 270 per cent to 642 branches. Of these, 338 branches were from four new
banc assurance relationships which it had forged with Allahabad Bank,
 South Indian Bank (SIB), Federal Bank and Lord Krishna Bank. The
remaining expansion is from earlier relationships, notably ICICI Bank and
Bank of India (BoI), ICICI Prudential chief-marketing Saugata Gupta told
FE. On the company’s new plans, Mr. Gupta said: “The greatest expansion
has come from BoI and Allahabad Bank. In addition, ICICI Bank, SIB and
Federal Bank have also increased the number of branches.” Further, Mr
Gupta informed that after having released advertising campaign through
print, outdoor and radio, the company has also recently released a new
advertising campaign through the electronic media on ‘Smart Kid’ Insurance
Policy. This policy is positioned as — Child’s plan that leaves nothing to
chance. According to Mr. Gupta: “Last fiscal, Rs 102 crore of premiums
came through alternate distribution channels which comprises of
bancassurance channel. This channel is serviced by 430 financial service
consultants. There are 80 active corporate agents, and 22,000 life insurance
advisors, at present.” ICICI Prudential has garnered Rs 364 crore as the new
business premium income in fiscal 2002-03. In fact, in the first
quarter of this fiscal, the company has issued around 51,000 policies, Rs 70
crore in new business premium income which accounts for a growth of 132
per cent over last year’s first quarter. It has also crossed Rs 10,000 crore sum
assured mark. As for emerging trends, Mr. Gupta explained that private
participation in insurance as a tax saving tool for comprehensive financial
solution, and, product pushing for need-based solutions required for personal
financial review is fast emerging. The Company recently tied up with the
Forbes Six Sigma rated Dabbawalla organization in Mumbai for a direct
marketing exercise. In a Unique effort to create awareness about a tax saving
product, the company attached a creative of a bitten apple to Mumbai’s
ubiquitous lunchboxes. It worked wonderfully with Mumbai’s officegoers
and one that translated into substantial business for the company.

A. Advertising Trend In Icici

1) Radio: ICICI Prudential advertises on 92.5 red Fm
2) Television: ICICI Prudential has been advertising in outdoor, TV
and press. The company launched a corporate television campaign –
Saat Phere – which took the emotions and thoughts of initial Sindoor
corporate film a few steps further.
3) Tie- UP with DABBAW ALA: ICICI Prudential tie-up with the
Dabbawalla Organization in Mumbai for a direct marketing exercise,
to talk to the customer through a non-cluttered route, and thereby
have a higher impact.
 4) Seminars; ICICI Prudential regularly holds consumer awareness
meets on ‘the need for retirement planning’ in different cities such as
Pune, Aurangabad, Coimbatore, Nagpur, Bangalore and Mangalore.

CHAPTER 12

CONCULSION

Insurance sector in India is one of the booming sectors of the

economy and is growing at the rate of 15-20 per cent annum. One of the key
service industry in India would be health and education 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
insurance sector in India has come to a position of very high potential and
competitiveness in the market. Indians, have always seen life insurance as a
tax saving device.

The Indian insurance industry has traveled a long way ever since
businesses were regulated tightly & concentrated by few insurers of the
public sector. The insurance industry is a key component of the financial
infrastructure of an economy, and its viability and strengths have far
reaching consequences for not only its money and capital markets,' but also
for its real sector. The launch of new developments in the insurance industry
saw many new international insurers entering the market. It also gave way to
propagation of innovative goods & channels for distribution & the
supervisory values rising. Indian per capita revenue is likely to grow up to
more than 6% in coming 10 years & with developing awareness, the Indian
insurance rate is estimated to rise at a striking rate in India.

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 time, public and private sector companies will be working together to
ensure healthy growth and development of the sector. Challenges such as
developing a common industry code of conduct, contributing to a common
catastrophe reserve fund, and chalking out agreements between insurers to
settle claims to the benefit of the consumer will require concerted effort
from both sectors. The market is now in an evolving phase where one can
expect a lot of actions in coming days. The current impediments for foreign
participation – like 26% equity cap on foreign partner, ill defined regulatory
role of IRDA (Insurance Regulatory development Authority- the watchdog
of the industry) in pension business etc.—are expected to be removed in near
future. The early-adopters will then have a clear advantage compared to
laggards in gaining the market share and market leadership. The will need to
make sure right now that their entire infrastructure is in place so that they
can reap the benefit of an "unlimited potential."