life insurance industry in india - inflibnet
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LIFE INSURANCE INDUSTRY IN INDIA
INTRODUCTION
The insurance industry in India is under a phase of constant change
for the past few years, due to increasing private participation in the market.
At global level also insurance has established itself as a key field due to
increasing risk and hazards, which includes both, due to natural imbalances
and activities of mankind. As part of the study of the insurance mechanism
and the way in which it works, it will be helpful to examine some of the
unique facets of insurance company operations. The unique nature of the
insurance product requires certain specialized functions that do not exist in
other businesses. This chapter presents functions of insurers, marketing
mix for life insurance business, and a brief history of the evolution and
growth of insurance industry in India.
Kinds of Insurance
From commercial point of view insurance business is broadly divided
into: (i) Life Insurance, and (ii) General Insurance. In fact, insurance other
than life is included under the category of general insurance. General
insurance include: Property insurance, Liability insurance and other forms.
Marine and fire insurance are included under property insurance. Liability
insurance includes workmen compensation insurance, fidelity, and public
liability insurance, etc. The examples of other forms of insurance are
export credit insurance, deposit guarantee insurance, etc., whereby the
insurer guarantees to pay certain sum at certain events. This kind of
insurance is extending these days.
Life insurance is different from other insurances. Under life
insurance, the subject matter of insurance is life of human being. In life
insurance, unlike in general insurance, the promise has to be redeemed
sooner or later. In general insurance, amount is payable only if loss occurs
to the insured property. General insurance is a contract of indemnity. The
amount payable in general insurance depends on the extent of damage and
insurance coverage, and has to be determined through surveys and
assessment. If the property is not fully insured, the average clause is
applicable in general insurance. The amount payable on a claim arising in
life insurance is not in doubt. It is as mentioned in the policy. Life
insurance contracts are long period contracts. Most of the policies are for
term of 15 years or more. General insurance is a one year contract, unless
renewed. Long term nature of the life insurance policy results in a long
lasting relationship between the insurer and the customer (insured), and in
the meantime a number of policy services arise. The long lasting
relationship between the insurer and the customer calls for relationship
marketing in the case of life insurance services1. Life insurance enjoys
maximum scope because life is the most important property of the society
or an individual. Life insurance not only provides protection but is also a
sort of investment.
Benefits of a Strong Life Insurance Market to Economic
Development
An evolving insurance sector is of vital importance for economic
growth. While encouraging savings habit it also provides a safety net to
both enterprises and individuals. Development of the insurance sector is
necessary to support the structural changes in the economy. Social
security and pension reforms too benefit from a mature insurance industry.
A study by the UNCTAD noted that a strong and efficient life insurance
market can aid in overall economic development in the following ways: 2
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• Life insurance can contribute to social stability by permitting
individuals to minimize financial stress and worry.
• Life insurance can reduce the financial burden on the state of caring
for the aged and for those made financially destitute because of the
death of a family breadwinner.
• Through the accumulation from thousands of policyholders of small
amounts of private savings, life insurers can accumulate sums to be
invested in the public and private sectors. This can benefit an
economy by creating a source of financing for new business, for new
house owners, and for farmers and their equipment.
• The life insurance business generates employment.
• Life insurance can permit more favourable credit terms to borrowers
– both individuals and business – and can decrease the risk of
default.
• Life insurance can also minimize the financial disruption to business
caused by the death of key employees and owners.
• By making available a variety of employee benefit plans, life
insurance companies can promote better employee-employer
relations and can provide low-cost benefits to a broad spectrum of
persons who may otherwise have been unable to obtain such
protection.
Functions of Insurers
Although there are definite operational differences between life
insurance companies and property and liability insurers, the major activities
of all insurers may be classified as: (1) Ratemaking, (2) Production, (3)
Underwriting, (4) Claim settlement, and (5) Investment. In addition to
these, there are, of course, various other activities common to most
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business firms such as accounting, human resource management, market
research, and so on. Thus all the activities of a life insurance company may
be arranged into three major functional classifications – marketing,
investment, and administration. Of these three areas, marketing is the
largest in terms of both personnel requirements and costs and is critical to
success 3.
Rate Making Function
An insurance rate is the price charged for each unit of protection.
Like any other price, it is a function of the cost of production. However, in
insurance, unlike other industries, the cost of production is not known when
the policy is sold, and it will not be known until some time in future, when
the policy has expired. One fundamental difference between insurance
pricing and the pricing function in other industries is that the price for
insurance must be based on prediction. Rate should be distinguished from
a premium, which is determined by multiplying the rate by the number of
units of protection purchased. The rate making function in life insurance
company is performed by the actuarial department. The rates are subject
to government regulation. The rates must be adequate, not excessive, and
not unfairly discriminatory. To the extent possible, rates should be
relatively stable over time. At the same time, rates should be sufficiently
responsive to changing conditions to avoid inadequacies in the event of
deteriorating loss experience 4. Life insurance rates are influenced by three
major determinants: (1) Mortality rate, (2) Interest on investment, and (3)
commission and other expenses incurred in operating an insurance
enterprise (loading).
Production Function
The production department of an insurance company, sometimes
called the agency department, is its sales or marketing division. This
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department supervises the external portion of the sales effort, which is
conducted by the agents and development officers. It is the responsibility
of this department to select and appoint agents and assist in sales. In
general, it renders assistance to agents in technical matters.
Underwriting Function
Underwriting is an essential element in the operation of any
insurance program. The underwriting process determines which applicants
are eligible for insurance coverage. The purpose of underwriting is to
control adverse selection and assemble a group of insured whose loss
potential is homogeneous. In the life insurance field, applicants may be
classified as standard, preferred, substandard, and uninsurable.
Since the application for the insurance originates with the agent, this
person is often called a field underwriter. The agent plays a far more
important role in the underwriting process in life insurance. To perform
effectively, the underwriter must obtain as much information about the
subject of the insurance as possible within the limitations imposed by time
and the cost of obtaining additional data. The proposed is required to
provide all information regarding the subject matter of insurance, in the
proposal form. Failure to reveal important information can result in dispute
with the insurer or expensive litigation and may be grounds for the insurer
to deny claims. In life insurance, the primary focus is on the health of the
applicant 5. In case of policies other than ‘non-medical’, a medical report
from the physician selected by the insurance company is required.
Claim Settlement Function
One basic purpose of insurance is to provide for the indemnification
of those members of the group who suffer losses. In the case of life
insurance contract, the indemnity principle is not applicable. In life
insurance, when the insured event happens, i.e., maturity or death, the
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insurer is required to pay the sum assured along with vested bonus, if any,
to the policyholder in the case of maturity claims, and to the beneficiary in
the case of death claims. The payment of claim amount is the function of
the claims department. As per the Insurance Regulatory and Development
Authority (IRDA) guidelines, death claim should be paid within 30 days of
intimation of claim.
Investment Function
As a result of the business operations, insurance companies
accumulate large amounts of money for the payment of claims in the
future. It is the responsibility of the investment committee to see that they
are properly invested. The primary requisite of insurance company
investments is safety of principal. In addition, the return earned on
investment is an important variable in the rating process. The investment
of LIC is governed by Section 27A of the insurance Act, 1938 and the
(Investment) Regulations prescribed by the IRDA. The investment norm
applicable for life insurers as per IRDA Regulations is indicated in Table 3.1.
Table 3.1
Investment Norms for Life Insurers
Sl. No. Type of Investment IRDA Norm
1. Govt. Securities Not less than 25%
2. Govt. Securities or other Approved Securities
(including item no.1)
Not less than 50%
3. Approved Investments
(a) Infrastructure & Social Sector
(b) Others
Not less than 15%
Not exceeding 35%
Source: IRDA Regulations
LIFE INSURANCE MARKETING
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Marketing is concerned with identifying customer needs and
determining ways in which the organization is able to meet these needs in a
profitable manner. It is the process by which products (both goods and
services) are matched with market and through which the customer is able
to enjoy the product. Marketing is the delivery of customer satisfaction at a
profit. The twofold goal of marketing is to attract new customers by
promising superior value and to keep current customers by delivering
satisfaction 6.
The term insurance marketing refers to the marketing of insurance
services with the motto of customer-orientation and profit-generation. In
insurance business, the prime focus is on the policy-holders and therefore,
an individual or an institution taking the policies is known as the actual
policy-holder whereas the persons or organizations willing to do so but
waiting for the creative persuasive efforts of the agents are known as the
prospects or potential policy-holders. Insurance marketing is an effort to
transform the prospects into actual policy-holders. In marketing, the job is
not to find the right customers for the products, but the right products for
the customers 7.
The demand for insurance depends on various factors, sometimes
particular to an individual. However, the following factors are generally
common.
(1) Perception towards losses – If the individual feel that insurer’s
calculation of risk and expected losses is better than his own; he will opt
for insurance cover.
(2) Price for risk transformation – The cost of insurance vis-à-vis other
products.
(3) Income and wealth status – Demand for insurance logically is positively
correlated with the income and wealth of the potential insured.
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(4) Social Insurance Programs – If good social program by government or
other public agencies are available as per individual’s satisfaction,
demand for private insurance will be lower.
(5) Nature of loss – Insurance covers for non-monetary losses like mental
tension and pain, psychological sufferings are generally not very
common and also legal structure takes care of these partially.
At the life insurance market, an individual’s specific behaviour is
governed by internal factors like need, motives, perception and attitudes as
well as by external factors or environmental influences such as the family,
social groups, cultural, economic and business influences8. From the
above, it is clear that the purchase strategy of an individual is influenced by
a number of factors and an in-depth study of these influences is essential to
understand the behavioural profile of customers. The marketing personnel
are required to understand the needs and aspirations of the prospects,
family background, social and economic status, their perception and
attitude towards life insurance.
LIFE INSURANCE MARKETING MIX
The marketing concept dictates that marketing decisions should be
based upon customer needs and wants. Also, because services are
intangible customers will be looking for any tangible cue to help them
understand the nature of the service experience. The insurance marketing
focuses on the formulation of an ideal mix for the insurance business so
that the insurance organizations survive and thrive in a right perspective.
Identification of demand and supply involves various functions of life
insurance marketing to attain success in the insurance market and the
combination of these functions is known as Life Insurance Marketing Mix 9.
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Figure 3.1 Expanded Marketing Mix for Life Insurance Services
Figure 3.1 portrays expanded marketing mix for life insurance
services. The traditional marketing mix is composed of the four P’s:
Product, Price, Place, and Promotion. In addition to the traditional four P’s,
the insurance services marketing mix includes people, physical evidence,
and process10.
Product: Product is the sum total of physical, social and psychological
benefits. In life insurance, the products are policies/plans or schemes
developed and marketed for different market segments. Life insurance
product has to be developed keeping in view the needs of the people i.e., (i)
providing financial security to the family in case of early death of the
breadwinner of the family, and (ii) providing financial support to the insured
in case of he/she living too long. An insurance company may offer a single
product or a mix of several products to a person or family. Whole life,
Endowment, and Term assurance policies are suitable to the first category,
whereas Pension Plans, Annuities and the like are suitable to the second
category mentioned above. The conventional policies have the main
attributes of protection at early death or living too long; but majority of the
population is interested mainly in investment.
Price: Premium is the price which the person seeking insurance pays to
the insurance company for purchase of life insurance policy. It is fixed
taking into account three factors: (i) mortality rate, (ii) Interest on
investment, and (iii) commission and other administrative expenses
(loading). Price fixing is the function of actuarial department.
(i) Mortality: Since the insurance company assumes the risk of the
individual and since this risk is based on life contingencies, it is
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Process
People Promotion
Place
Price
Product
Marketing MixPhysical
evidence
important that the company knows within reasonable limits how
many people will die at each stage. For this purpose, insurers use
an instrument called mortality table which is a statistical
representation showing the rate of mortality at each age. Based
on past experience, applying the theory of probability, actuaries
are able to predict the number of deaths among a given number
of people at some given age.
(ii) Interest: The insurance company collects the premium in
advance and does not pay claims until a future date. Therefore, it
has the use of the insured’s money for some time. They can
invest this money and earn interest on it. Since they do earn
interest on the funds they collect, they do not need to collect the
full amount of future losses from the members of the group.
When interest is taken into the computation of premiums, there
will be a corresponding reduction in the net premium payable by
each individual insured.
(iii) Loading: Mortality and interest are used to compute the net
premium, which measures only the cost of claims and omits the
provision for operating expenses. The net premium plus expense
loading constitute the gross premium, which is the selling price of
the contract and the amount the insured pays.
Place: Since life insurance services are intangible, they cannot be
normally stored. Distribution channels like agents, brokers, bancassurance,
tie-ups with corporate agencies, etc. are used to market life insurance
products. Branch offices, policy servicing centres, home or office of the
customer, clubs, festival places, etc., are the places where life insurance
services can be offered and delivered.
Promotion: In the case of service, consumer would prefer more personal
information. He/she is unlikely to buy without adequate information on the
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services. The provider of service may be required to communicate the
intangible aspects of the service through advertising, publicity, sales
promotion campaigns, personal selling, public relations, exhibition and
demonstration. Potential policy-holders are reluctant to think about the
disaster and death. So they postpone planning for these possibilities unless
they are contacted and influenced by insurance agents. For promoting life
insurance business, sales promotion activities are to be carried out by the
agents, development officers and branch offices. Satisfied customers also
promote life insurance through word of mouth advertising11.
People: It refers to all human actors who play a part in service delivery
and thus influence the buyer’s perceptions. All of the human actors such as
the firm’s personnel, the customer, and other customers in the service
environment provide cues to the customer regarding the nature of the
service itself. Agents, brokers, development officers and other company
staff are the people element in the marketing mix for life insurance
services. How these people are dressed, their personal appearance, and
their attitudes and behaviours all influence the customer’s perception of the
service 12.
Physical evidence: The physical evidence of service includes all of the
tangible representations of the service. The physical evidence cues provide
excellent opportunities for the firm to send consistent and strong messages
regarding the organization’s purpose, the intended market segments, and
nature of the service. The policy document, premium receipt, billing
statements, brochures, letters, and website of the branch office are the
physical evidence in life insurance service 13.
Process: The actual procedures, mechanisms, and flow of activities by
which the service is delivered are called the process. According to
Shotstack, the issues in process management go from process planning and
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control, operations planning, facilities design, scheduling, inventory
planning and control, quality control, operation control to forecasting, and
long-term planning 14. The various process in life insurance service are
receiving applications, verification of the application, medical examination
of the proposed, sanction and acceptance of first premium, underwriting,
issue of policy document, claim intimation, and claim settlement and the
like.
HISTORICAL FRAMEWORK OF INSURANCE
The story of insurance is probably as old as the story of mankind. A
study of human history reveals a universal desire for security. The quest
for security has been one of the most potent and motivating forces in
material and cultural evolution. The same instinct that prompts the modern
businessman to secure himself against loss and disaster existed in primitive
man also15. The beginnings of the concept of insurance date back almost
6000 years. The ideas of insurance were being practiced in Babylonia and
India, centuries ago. The codes of Hammurabi and of Manu had recognized
the advisability of provision for sharing the future losses16. The Sanskrit
term ‘Yogakshema’ is found in the Rig Veda and that some kind of
commercial insurance was practiced by the Aryan tribes in India nearly
3000 years ago. ‘Yogakshema’ implies the idea of welfare, well-being,
including the idea of prosperity, happiness and so on 17.
Evidences are on record that marine insurance was the earliest form
of insurance. Marine insurance, in fact, started from Italy where some of its
famous commercial centres like Florence, Janeva, Venice and Lombard
Street started the use of marine insurance policies. Then this system
spread over to other countries like France, Holland, Spain, Germany and
England. The marine policies of the present form were sold in the
beginning of 14th century by the Brugians18. Lloyd’s Coffee-house in
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England gave an impetus to develop marine insurance. After the evolution
of marine insurance, fire insurance system came into existence. The fire
insurance was started in India with the establishment of Triton Insurance
Company at Calcutta in 1850 19.
Global Perspective of Life Insurance
The beginnings of personal insurance are generally attributed to the
Greeks. The Greek societies practiced elementary insurance. Life
insurance made its first appearance in England in 16th century. The first
recorded evidence in England being the policy on the life of William
Gybbons on June 18, 1653. Even before this date annuities had become
quite common in England 20. The first registered life office in England was
the ‘Hand-in-Hand’ society established in 1696. In France, the first life
insurance company was chartered by the King in 1787. The first life insurer
in Germany appears to have been the Deutsche Lebenversicherungs
Gesellschaft, founded in 1828.
English companies had established insurance agencies in Germany,
Netherlands and Scandinavian countries. French companies reached out
into Belgium, Spain, Italy and Switzerland. These countries, as well as
Austria and Hungary did not establish their own companies until the middle
of the 19th century. Life insurance did not prosper in the United States
during the 18th century because of serious fluctuations in death rate. The
growth of insurance in the American colonies was hampered due to the
monopoly on corporate insurers granted by the English Crown in 1720 21.
The first mutual life insurance corporation was established in the United
States in 1759 which is now known as the Presbyterian Ministers’ Fund. The
Girard Life Insurance, Annuity and Trust Company of Philadelphia,
established in1836, used a new principle of granting policy owners
participation in its profits.
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The first life insurance company to open business in Japan was Meiji Life
Assurance Company. Life insurance spread throughout Japan as a result of
World War II. Japanese and British insurers played a significant role in the
development of life insurance in other Asian countries22. In Korea, British
companies were most active in the insurance business until Japan gained
control of Korea in 1905. The modern Korean life industry really began in
the 1960s. British and other foreign companies played a major role in the
development of life insurance business in Singapore 23.
The global insurance industry has undergone a major change after
11th September attack on the World Trade Center in United States. An
estimated loss of $ 70 billion of this event has posed serious questions
before the players all around the world to rethink and devise their
strategies accordingly. A few insurers have disappeared from the global
picture. Also, the cover for terrorism has disappeared from the
international markets. Insurers have become cautious while underwriting
risk on a global basis. In terms of demand, Japan and the U.S.A. are still the
largest insurance markets, accounting over 70 percent of global premiums.
Insurance penetration (premium volume as a percent of GDP) for life
insurance is highest in Japan, South Africa, and the Republic of Korea where
it averages over 10 percent.
Worldwide insurance premium amounted to US $ 3723 billion in 2006
comprising of US $ 2209 billion in life and US $ 1514 billion in general
insurance business. At this level the premium has increased by 5.0 per
cent in real terms in 2006 as compared to 2.5 per cent in 2005. The growth
in life insurance premium was about 7.7 percent which is the highest since
2000. It is interesting to note that in most of the countries the growth in life
insurance premium was faster than growth in the economic activity. In
emerging markets, the growth in life insurance tripled to 21.1 percent from
7.5 percent in 2005.
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Indian Perspective
The insurance business in India has completed a full circle from being
an open competitive market to nationalization and to a liberalized market
again. The saga of life insurance business in India can be viewed in three
different phases, namely:
(1) Pre-nationalisation,
(2) Post–nationalisation and pre-liberalisation
(3) Post-liberalisation
1. Pre-nationalisation
The insurance business in India dates back to 1818 when the first
insurance company called Oriental Life Insurance Company established at
Calcutta. This was followed in quick succession with the establishment of
Bombay Life Insurance Company in 1823 and Madras Equitable in 1829.
About 285 companies were formed during the period from 1818 to 1868
and out of these, 174 had ceased to exist by 1870 24. The oldest known life
policy issued in India appears to be the one sold by the Royal insurance on
the life of one Cursetjee Furdoonjee on 6th January 1848 25. There were in
all nearly 15 companies working in India by 1870, out of which seven were
established in India and eight foreign companies with their head offices in
U.K. Prior to 1871, Indians were charged about 15 percent more premiums
as compared to Europeans26. Bombay Mutual Life Insurance Society
established in 1870 was the first company not to differentiate between
Indians and Europeans in the matter of fixation of premium 27. The period
of 20 years after the establishment of ‘Bombay Mutual’ was dominated by
small societies, promoted mainly for the benefit of specified communities.
Foreign companies had an upper hand in matters of insurance business and
they enjoyed near monopoly right up to the end of the 19th century.
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The Swadeshi movement (1905-1907) gave a great impetus to
formation of more number of insurance companies. Subsequently,
insurance regulations formally began in India through the passing of the
Life Insurance Companies Act, 1912. In 1914, there were only 44 insurance
companies in India and during the next 25 years it rose to 176 but many of
them failed 28. The Insurance Act, 1912 was later broad –based and the
Insurance Act 1928 came in to existence. The Insurance Act was
subsequently reviewed and a comprehensive legislation was enacted called
the Insurance Act, 1938. There was mushroom growth of insurance
companies in India after the passing of Insurance Act, 1938. But the per
capita insurance in India was minimum during that period with USA Rs.
2000, UK Rs. 600, and India Rs. 8 29.
After independence, the Indian Insurance business witnessed severe
competition as a result of which the known – Indian Insurance were
dislodged by Indian Life Insurance companies. From Rs.62.94 crores
business in 1943, it reached to rupees 122.78 crores in 1945; the first time
that Indian Insurance crossed the Rs. 100 cores mark 30. Even this limited
growth was marked by many malpractices, deficiencies, and frequent
liquidations of insurance companies shaking public confidence. During the
decade 1945-1955, as many a 25 insurers went into liquidation and equal
number had to transfer their business to other companies.
Since banking and insurance in those days were in the hands of big
industrial houses, there was interlocking of funds between them. Life
insurance business remained essentially an urban phenomenon during
these years. This led to the nationalization of life insurance. By 1956, 154
Indian insurers, 16 foreign insurers and 75 provident societies were carrying
on life insurance business in India. The bill to provide for the nationalization
of Life insurance business in India was introduced in the Lok Sabha on 18th
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February 1956 and it became an act on 01.07.1956 and Life Insurance
Corporation of India came in to being on 1st September 1956. At the time of
nationalization, LIC had 05 Zonal Offices 33 Divisional Offices 212 Branches
and Sub-Offices all over India at 97 Centres 31. Table 3.2 exhibits the life
insurance business in India from 1928 to 1956 (pre nationalization period).
Table 3.2 reveals that new business number of policies sold has
increased from 93,000 to 5,67,000 during the pre-nationalisation period
from 1928 to 1956 i.e., an increase of 509.68 percent over a period of 28
years. The sum assured of new business policies increased from Rs. 15.50
crore to Rs. 200.28 crore i.e., an increase of 1192.13 percent during the
same period. The number of policies in force increased from 5,64,000 to
49,99,000 during the period from 1928 to 1956. The increase in terms of
percentage was 786.35. The sum assured of business in force during the
pre-nationalisation period increased from Rs. 124 crore to Rs. 1,275 crore
i.e., an increase of 928.23 percent over a period of 28 years.
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Table 3.2
Life Insurance Business in India (Pre-nationalisation): 1928-1956
(No. of policies in thousands, sum assured in crores of rupees)
YearNew Business Business in Force
No. ofPolicies
Growth (%)
Sum Assured
Growth (%)
No. of Policies
Growth (%)
Sum Assured
Growth (%)
1928 93 - 15.50 - 564 - 124 -1929 143 53.76 28.75 85.49 656 16.31 142 14.521930 145 1.39 27.50 -4.35 717 9.30 154 8.451931 125 -13.79 26.66 -3.05 714 -0.42 168 9.091932 139 11.20 27.66 3.75 774 8.40 178 5.951933 183 31.65 33.00 19.31 867 12.02 193 8.431934 215 17.48 38.00 15.15 987 13.84 215 11.401935 239 11.16 43.50 14.47 1095 10.94 235 9.301936 273 14.22 46.75 7.47 1261 15.16 261 11.061937 294 7.69 48.66 4.08 1371 8.72 277 6.131938 322 9.52 51.70 6.25 1516 10.58 298 7.581939 300 -6.83 46.62 -9.83 1497 -1.25 272 -8.721940 206 -31.33 36.11 .22.54 1553 3.74 286 5.151941 200 -2.93 39.51 9.42 1592 2.51 292 2.101942 178 -11.00 42.83 8.40 1661 4.33 323 10.621943 296 66.29 72.12 68.38 1821 9.63 369 14.241944 451 53.36 108.90 51.00 2127 16.80 454 23.031945 599 32.81 136.30 25.16 2592 21.86 557 22.691946 617 3.00 153.80 12.84 27974 7.91 651 16.881947 544 -11.83 139.60 -9.23 2936 4.97 706 8.451948 486 -10.66 134.60 -3.58 3025 3.03 724 2.551949 544 11.93 142.20 5.65 3303 9.19 765 5.661950 498 -8.45 139.50 -1.90 3280 -0.70 780 1.961951 474 -4.82 147.90 6.02 3414 4.08 873 11.921952 534 12.66 146.70 -0.81 3925 14.97 922 5.611953 558 4.49 155.20 5.79 4079 3.92 966 4.771954 773 38.53 255.25 64.46 4782 17.23 1177 21.841955 831 7.50 260.84 2.19 4782 0.00 1220 3.651956 567 -31.76 200.28 -23.22 4999 4.54 1275 4.51
Source: Journal of Insurance & Risk Management Vol. 1, Issue 2, May 2003.
2. Post-Nationalisation and Pre-Liberalisation Period
Indian life insurance industry, since nationalisation, has registered a
significant growth and gradually increased its share in household financial
savings and premium income has done reasonably well32.
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Table 3.3 Life Insurance Business in India
(Post-Nationalisation & Pre-Liberalisation Period): 1957- 1999 (No. of policies in thousands and sum assured in
crores)
YearNew Business Business in Force
No. ofpolicies
Growth%
Sum Assured
Growth%
No. of Policies
Growth%
Sum Assured
Growth%
1957* 932 64.37 328.08 38.95 5417 8.36 1381.61 8.361958 930 0.21 337.45 2.85 5974 10.28 1523.67 10.281959 1115 19.89 417.69 23.78 6880 11.82 1703.74 11.821960 1226 9.95 486.02 16.36 7456 11.62 2000.66 17.431961 1462 19.25 598.79 23.20 8336 11.80 2512.68 25.59
1963** 1758 20.25 734.72 22.70 9261 11.09 2897.21 15.301964 1638 6.82 692.55 -5.74 10119 9.26 3263.33 12.641965 1436 12.33 690.03 -0.36 10670 5.44 3577.33 9.621966 1555 8.29 789.29 14.38 11410 6.93 3995.93 11.701967 1406 9.58 757.94 -3.97 11998 5.15 43338.94 8.581968 1423 1.21 835.40 10.22 12643 5.37 4745.77 9.381969 1450 1.89 920.65 10.20 13345 5.55 5236.63 10.341970 1397 3.65 1025.80 11.42 13919 4.55 5781.20 10.401971 1612 15.39 1215.63 18.50 14693 5.41 6521.47 12.801972 1896 17.62 1498.05 23.23 15711 6.93 7496.21 14.951973 2018 6.43 1726.01 15.21 16792 15.71 8638.10 15.231974 2047 1.14 1912.87 10.83 17943 6.85 9940.70 15.081975 1796 12.26 1760.89 -7.94 18745 4.47 10967.28 10.331976 2009 11.86 2104.00 19.48 19606 4.59 12217.43 11.391977 2053 2.19 2095.40 -0.41 20225 3.41 13382.19 9.531978 1854 9.96 2004.86 -4.32 20708 2.13 14342.29 7.171979 1755 5.53 2057.40 2.62 21173 2.24 15435.19 7.621980 2096 19.43 2733.11 32.84 22039 4.09 17234.24 15.651981 1954 6.67 2882.72 5.47 22758 3.26 19103.12 10.841982 2103 7.62 3778.92 20.68 23604 3.72 21382.97 11.931983 2231 6.09 3974.39 14.24 24378 3.28 23779.98 11.211984 2366 6.05 4386.98 10.38 25271 3.66 26572.89 11.741985 2700 14.11 5375.93 22.54 26477 4.77 30214.34 13.701986 3286 21.70 7056.07 31.25 27689 5.71 35039.34 15.971987 3868 17.71 9067.45 28.50 29802 6.48 41431.69 18.241988 4694 21.35 12434.51 37.13 32346 8.54 50656.30 22.261989 5979 27.37 17222.84 38.51 36079 11.54 63866.56 26.081990 7392 23.63 23219.53 34.82 40339 11.81 81413.95 27.471991 8645 16.95 28139.07 21.19 45508 12.81 102262.83 25.611992 9328 6.86 32064.44 13.95 50863 11.77 125037.88 22.271993 9958 7.79 35956.82 12.14 56612 11.30 150624.33 20.461994 10726 7.71 41813.83 16.29 60800 7.40 174233.16 15.671995 10875 1.39 55228.50 32.08 65452 7.65 211972.87 21.661996 11021 1.34 51815.54 -6.18 70878 8.29 243422.55 14.841997 12268 11.31 56740.50 9.50 77666 9.58 280979.84 15.431998 13311 8.50 63617.69 12.12 84915 9.33 323677.51 15.191999 14844 11.52 75316.28 18.39 91637 7.92 368496.08 13.85
* 15 months ending in December.** 15 months ending in March.Source: Journal of Insurance and Risk Management, Vol. 1, Issue2, May 2003.
81
Table 3.3 gives the growth of life insurance business in India during
the post nationalisation period i.e., from fiscal year 1957 to 1999. The
number of new policies sold increased from 9,32,000 to 1,48,44,000 at a
growth rate of 1,492.70 percent and sum assured of new policies sold
increased from Rs.328.08 crore to Rs.75,316.28 crore at a growth rate of
22,856.68 percent over a period of 42 years from 1957 to 1999. The
business in force in terms of number of policies increased from 54,17,000 to
9,16,37,000 at a rate of 1,591.65 percent and the sum assured of business
in force increased from Rs.1,381.61 crore to Rs.3,68,496.08 crore at a rate
of 26,571.50 percent during the same period.
During the post nationalised era, the industry introduced more than
fifty different products to cater to the needs of different segments of the
market. Statistics indicate the creditable performance of life insurance
industry in terms of covering of premium, the number of products sold, and
the variety of products introduced but also in the area of geographical
coverage. However, the monopoly and the growth of business over a
period of time have not met the requirements that normally one anticipates
when it comes to growth of business 33.
Despite the impressive growth indicated by the Table 3.3, there was
a general feeling of dissatisfaction with the performance of the insurance
sector when viewed against the relevant demographic data. In the mid
nineties when the economic reforms process was under way, the total
insurance premium as a proportion of Gross Domestic Product (GDP)
amounted to a paltry 1.80 percent of which life premium accounted for only
1.2 percent and non-life premium for only 0.6 percent, which was negligible
as compared to Malaysia (3.7 percent), Hong Kong (31percent), Thailand (2
percent), and Japan (8.7 percent). According to the World Development
Report 1999-2000 and World insurance in 1997, the life fund as percentage
of Gross Domestic Savings (GDS) in USA was 25.40 percent, UK 55.40
82
percent, Canada 15.70 percent, Japan 27.10 percent, South Korea 25.90
percent, Malaysia 9.2 percent, Brazil 22 percent, Philippines 4.10 percent,
and China 1.19 percent. Life fund as percentage of GDS in India was 6.02
percent in the year 1998-99, as per the report 34. Life fund as percentage
of GDS in the developed and developing countries shows the progress
made by insurance industry in these countries.
Insurance Sector Reforms in India
Reforms in the insurance sector in India started part of the
liberalization, privatization and globalization process initiated by the
Government. In 1993, Malhotra Committee, headed by former Finance
Secretary and RBI Governor, R.N. Malhotra, was formed to evaluate the
Indian insurance industry and recommend future direction. The committee
was set up with the objective of complementing the reforms initiated in the
financial sector. In 1994, the committee submitted the report and some of
the key recommendations included: 35
(i) 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.
(ii) Competition
Private companies with a minimum paid up capital of Rs.1 billion
should be allowed to enter the industry.
83
No company should deal in both Life and General Insurance through
a single entity.
Foreign companies may be allowed to enter the industry in
collaboration with 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.
(iii) 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.
(iv) Investments
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).
(v) Customer Service
LIC should pay interest on delays in payments beyond 30 days.
Insurance companies must be encouraged to set up unit linked
pension plans.
Computerisation of operations and updating of technology to be
carried out in insurance industry.
84
The committee emphasized that in order to improve the customer
services and increase the coverage of the insurance, the industry should be
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.
The Insurance Regulatory and Development Authority (IRDA)
The insurance sector began its reform process with the passage of
the insurance Regulatory and Development Authority (IRDA) bill in
Parliament in December 1999. With the setting up of IRDA, the government
has once again de-regulated the sector opening it for private players. One
of the primary objectives of the Indian insurance regulation is the protection
of policyholders against insolvency of insurance companies. To achieve this
objective, the Regulator is endowed with a host of regulatory and
supervisory powers, delegated to him by the government to ensure the
financial and managerial soundness of insurers’ licensed36. 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. As per the Act, new entrants, who must be Indian,
will be granted license to transact insurance business only if they introduce
a minimum capital of Rs. 100 crore for life and general insurance business
and Rs. 200 crore for re-insurance business. Foreign collaboration will be
allowed but foreign investment is capped at 26% of the total capital. The
minimum solvency margin for private insurers is Rs. 50 crore for life
insurance companies, Rs. 50 crore or a sum equivalent to 20 percent of net
premium income for general insurance and Rs. 100 crore for re-insurance
companies.
Some of the very important functions of the Regulator include inter
alia the following:
85
Licensing to transact insurance business.
Ensuring security to policyholders.
Control over products and illustrations/sales literatures.
Monitoring mechanism.
There are also other functions like provisions in regard to
management expenses and agency commissions, re-insurance, standards
of accounting, consumer grievance reddressals, control over company
operations etc.
According to the Act, a person desiring to obtain or renew a licence
to act as an insurance agent or a composite insurance agent shall make an
application to the regulator in prescribed form. The applicant shall possess
the minimum qualification of a pass in 12th standard or equivalent
examination, where the applicant resides in urban area, and a pass in 10th
standard or equivalent examination if the applicant resides in rural area.
The applicant shall have completed from an approved institution, at least,
one hundred hours practical training in life or general insurance business as
the case may be, where such applicant is seeking license for the first time
to act as insurance agent. The period of training shall be 150 hours, if the
person is seeking license for the first time to act as a composite insurance
agent. The applicant shall have passed the pre-recruitment examination in
life or general insurance business, or both, as the case may be, conducted
by the Insurance Institute of India, Mumbai, or any other examination body.
The proposed insurance company, when applying for licence, has to
submit complete details about the promoters and their financial standing;
also it’s paid up capital and other financial data. It has also to submit its
strategic plans and financial projections for initial stipulated number of
years.
Rural and Social Sector Obligations
86
Every insurer, who carries on insurance business after the
commencement of the IRDA Act, 1999 is required to ensure that the
following obligations are undertaken, during the first financial years, in
respect of the following:
(a) Rural Sector (where the population is not more than 5000; population
density not more than 400 per Sq. Km; and at least 75 percent of male
working population is engaged in agriculture) in respect of life insurer.
5 % in the first financial year;
7 % in the second financial year;
10 % in the third financial year;
12 % in the fourth financial year;
15 % in the fifth year; of total policies written directly in that year.
(b) Social Sector (includes unorganized sector, informal sector,
economically vulnerable or backward classes and other categories of
persons, both rural and urban areas) in respect of all insurers.
5,000 lives in the first financial year;
7,500 lives in the second financial year;
10,000 lives in the third financial year;
15,000 lives in the fourth financial year;
20,000 lives in the fifth year.
In case of government insurers the quantum of insurance business to
be done shall not be less than what has been recorded by them for the
accounting year ended 31st March, 2000.
3. Life Insurance in the Post-Liberalised Era
87
With foreign direct investment in the insurance sector permitted up
to 26 percent of equity, global insurers have rushed into the Indian market
to capitalize on the sizeable middle class. Indian private companies have
also entered into the field. The first of the licenses for the companies in the
private sector was issued in October, 2000 to HDFC Standard. Insurance
industry as on 1-4-2000 comprised mainly two players: (1) Life Insurance
Corporation of India (LIC) in the life sector and (2) General insurance
Corporation of India (GIC) in the non-life sector. GIC had four subsidiary
companies, namely: i) The Oriental Insurance Company Limited, ii) The New
India Assurance Company Limited, iii) National Insurance Company Limited,
and iv) United India Insurance Company Limited. With effect from
December 2000, these subsidiaries have been de-linked from the parent
company and made as independent insurance companies. With effect from
December 2000, the GIC functions as a National Re-insurer.
Insurance industry in the year 2000-2001 alone had 16 new entrants;
ten in the life sector and six in the non-life sector. Since opening up of the
insurance sector in 1999, 27 private companies have been granted licenses
by 31st March, 2007 to conduct business in life and general insurance. Of
the 27, 16 were in the life insurance and eleven (including a standalone
health insurance company) in general insurance (see Table 3.4). During the
last several years capital amounting to Rs. 8,119.41 crore was brought in
by the private players, of which the contribution of foreign partners has
been Rs.1,809.75 crore 37. There has been no infusion of capital in the case
of LIC which stood at Rs. 5 crore (See appendix 1).
Table 3.4
Number of Registered Insurers in India
Type of Business Public Sector Private Sector
Total
Life Insurance 1 16* 17
88
General insurance 6 11# 17
Re-insurance 1 0 01
Total 8 27 35
* One has been granted registration in 2007-08. # Two have been granted registration in 2007-08. Source: IRDA Annual report 2006-07.
Indian insurance sector recorded an impressive growth after the
sector was opened for private players. According to the IRDA Annual
Report, the life and non-life market touched Rs.1,00,000 crore mark. Indian
insurance business, which remained underdeveloped with low levels of
insurance penetration and insurance density, has shown signs of
improvement after opening of the market in 2000. The premium
underwritten in India and abroad by life insurers in 2006-07 has grown by
47.38 percent as against 27.78 percent in 2005-06. First year premium
including single premium accounted for 48.45 percent and renewal
premium accounted for 51.55 percent of the total life premium. The
industry services the largest number of life insurance policies in the world.
Competition among the companies has impacted their efficiency in
production, innovation and claim management. Further, new untapped
market is being exploited by the private insurers forcing the public insurer
to come out with innovative schemes.
Life insurance penetration and density throw light on the business
performance of life insurance providers at global level. The insurance
penetration in a country depends on its level of economic activity, risk
awareness among the people and the deepening of the financial system.
Insurance penetration is measured in terms of premium (in US$) as a
percentage of GDP of the country and insurance density is measured as
ratio (in percent) of premium to total population. Even though there has
been growth in the life insurance business after the entry of private players,
89
the fact remains that the insurance penetration and insurance density in
India, compared to some of the developed and developing countries of the
world is very low in the post liberalized era 38. Table 3.5 shows the life
insurance penetration in some of the developed and developing countries of
the world.
90
Table 3.5
International Comparison of Life Insurance penetration (premium as % of
GDP)
Countries 2000 2001 2002 2003 2004 2005 2006 2007
United States 4.48 4.40 4.60 4.38 4.22 4.14 4.00 4.20
Canada 3.27 2.97 2.81 2.63 2.97 3.05 3.10 3.20
Brazil 0.36 0.36 1.05 1.28 1.36 1.33 1.30 1.40
Mexico 0.86 0.86 0.94 0.78 0.79 0.68 0.80 0.90
Chile 2.92 2.93 2.53 2.61 2.55 2.24 2.00 2.20
United Kingdom 12.71 10.73 10.19 8.62 8.92 8.90 13.10 12.60
Germany 3.00 3.00 3.06 3.17 3.11 3.06 3.10 3.10
France 6.59 5.73 5.61 5.99 6.38 7.08 7.90 7.30
Russia 1.13 1.55 0.96 1.12 0.61 0.12 0.10 0.10
Japan 8.70 8.85 8.64 8.61 8.26 8.32 8.30 7.50
South Korea 9.89 8.69 8.23 6.77 6.75 7.27 7.90 8.20
PR China 1.12 1.34 2.03 2.30 2.21 1.78 1.70 1.80
India 1.77 2.15 2.59 2.26 2.53 2.53 4.10 4.00
Malaysia 2.13 3.38 2.94 3.29 3.52 3.60 3.20 3.10
Indonesia 0.54 0.53 0.66 0.66 0.63 0.82 0.80 1.10
South Africa 14.04 15.19 15.92 12.96 11.43 10.84 13.00 12.50
Nigeria 0.13 0.14 0.11 0.14 0.17 0.09 0.10 0.10
Kenya 0.72 0.82 0.81 0.78 0.82 0.78 0.80 0.80
Australia 6.04 5.70 5.02 4.42 4.17 3.51 3.80 3.80
Asia 5.96 5.84 5.81 5.74 5.58 5.16 5.00 4.60
World 4.88 4.68 4.76 4.58 4.55 4.34 4.50 4.40Source: Swiss Re Sigma Vol., 2001, 2002, 2003, 2004, 2005, 2006, 2007, and 2008.Note: Data relates to calendar years.
It is evident from Table 3.5 that life insurance penetration in India
which was 1.77 percent in 2000 increased to 4 percent in 2007 at a growth
rate of 125.99 percent. However, in respect of life insurance, India presents
a clear case of under insured country (4 percent of GDP) compared to the
world average (4.40 percent), Asian average (4.60 percent) and developed
countries like U.K. (12.60 percent), France (7.30 percent), and developing
countries in Asia like Japan (7.50 percent), South Korea (8.20 percent) in
2007.
91
Table 3.6
International Comparison of Life Insurance Density (premium per capita in US
$)
Countries 1999 2000 2001 2002 2003 2004 2005 2006
USA 1446.6 1611.4 1602.0 1662.6 1657.5 1692.5 1753.2 1789.5
Canada 674.6 757.2 675.9 657.3 722.9 926.1 1071.9 1204.1
Brazil 11.8 12.9 10.8 27.2 35.8 45.9 56.8 72.5
Mexico 41.3 50.8 53.2 59.2 41.3 50.2 49.9 62.9
Chile 114.3 126.0 122.1 103.5 138.3 164.5 174.9 176.0
UK 2502.8 3028.5 2567.9 2679.4 2417.1 3190.4 3287.1 5139.6
Germany 762.2 683.0 674.3 736.7 930.4 1021.3 1042.1 1136.1
France 1392.3 1437.4 1268.2 1349.5 1767.9 2150.2 2474.6 2922.5
Russia 9.9 19.5 33.2 23.1 33.9 24.8 6.3 4.0
Japan 3103.4 3165.1 2806.4 2783.9 3002.9 3044.0 2956.3 2829.3
South Korea 760.5 935.6 763.4 821.9 873.6 1006.8 1210.6 1480.0
PR China 8.3 9.5 12.2 19.5 25.1 27.3 30.5 34.1
India 6.1 7.6 9.1 11.7 12.9 15.7 18.3 33.2
Malaysia 78.1 86.4 129.5 118.7 139.8 167.3 188.0 189.2
Indonesia 4.4 4.0 3.6 5.2 6.4 7.5 10.5 12.5
South Africa 413.0 392.9 377.2 360.5 476.5 545.5 558.3 695.6
Nigeria 0.2 0.4 0.5 0.5 0.6 0.7 0.5 0.8
Kenya 2.4 2.4 2.9 3.0 3.4 3.7 4.5 5.3
Australia 1333.6 1193.5 1040.3 1010.4 1129.3 1285.1 1366.7 1389.0
Asia 133.3 138.8 125.0 128.1 140.1 147.2 149.6 154.6
World 235.4 239.9 235.0 247.3 267.1 291.5 299.5 330.6
Source: Swiss Re Sigma 2000, 2001,2002,2003,2004, 2005, 2006 and 2007.Note: Data relates to calendar years.
Table 3.6 represents the insurance density in terms of premium per
capita (in USD) at global level. Life insurance density in India which was 6.1
USD in 1999 increased to 33.2 USD in the year 2006 i.e., at a growth rate of
444.26 percent. However, while considering the significance of insurance in
the life of an individual and the performance of the industry at the global
level, the performance of India looks very gloomy during the period from
92
1999 to 2006. Life insurance density in India was just 33.2 USD compared
to the world average (330.6 USD), Asian average (154.6 USD) and
developed countries like USA (1789.5 USD), UK (5139.6 USD), Germany
(1136.1USD), France (2922.5 USD), Japan (2829.3 USD), developing
countries in Asia like South Korea (1480 USD), Malaysia (189.2 USD) in
2006. Analysis of table 3.5 and 3.6 reveals that there is a gap between
what is offered and what is demanded, with regard to life insurance in India.
Growth of life insurance industry is measured in terms of first year
premium income. Since the first private insurer entered in the market in
October 2000, the year 2001-02 is taken as the first full year of operations
in the post IRDA era. Table 3.7 reveals the growth of Indian life insurance
industry in the post-liberalised period from 2001-02 to 2006-07.
Table 3.7
Growth of Life Insurance Industry in the Post-Liberalised era
YearFYPI - LIC
(Rs. in cr.)
Growth(in %)
Private insurers
FYPI (Rs.in cr.)
Growth(in %)
Total FYPI(Rs. in
cr.)
Growth (in %)
2001-02 16,403.1
2
- 268.51 - 16,671.6
3
-
2002-03 12,775.9
7
-22.11 958.13 256.83 13,734.1
0
-17.62
2003-04 12,936.9
0
1.26 2,048.62 113.81 14,985.5
2
9.11
2004-05 17,342.1
8
34.05 4,880.91 138.25 22,223.0
9
48.30
2005-06 21,698.9
1
25.12 9,189.12 88.27 30,888.0
3
38.99
2006-07 44,540.4
1
105.26 16,928.09 84.22 61,468.5
0
99.00
Note: Figures do not include Group & Superannuation business. Source: Asia Insurance Post, Vol.6, Issue 11, June 2006.
93
It can be visualised from Table 3.7 that the First Year Premium
Income (FYPI) for the industry in the year 2001-02 (i.e., the first full year of
operations in the Post- IRDA era) was Rs.16,671.63 crore, out of which
Rs.268.51crore was the contribution of the private sector companies. The
FYPI for the industry in 2006-07 was Rs.61,468.50 crore, out of which
Rs.16,928.09 crore was the contribution of the private insurers. The FYPI
recorded a negative growth of 17.62 percent in 2002-03 which can be
attributed to the decline in the premium income of LIC, which again was
due to the fall in the number of its agents in the same year 39. The industry
picked up and recorded the highest growth of 99 percent in the year 2006-
07. The growth in premium income for the period from 2001-02 to 2006-07
was 6204.45 percent for the private insurers whereas it was 171.54 percent
in the case of LIC. The growth rate for the industry as a whole was 268.70
during the same period. Figure 3.2 depicts the growth of life insurance
industry in India in the post-liberalised era.
94
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Am
ou
nt
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Year
Figure 3.2Growth of Life Insurance Industry in the Post-Liberalised era
LIC
Private insurers
Table 3.7 depicts that FYPI of LIC fell down to 22.11 percent whereas
it increased to 256.83 percent in the case of private insurers in 2002-03 i.e.,
the very next year of commencement of business by private players. But
by the end of 2006-07, LIC picked up and was able to grow at a rate of
105.26 percent, whereas growth rate of private players fell down from
256.83 percent in 2002-03 to 84.22 percent in 2006-07.
Life insurance business is significantly influenced by the state of
economy of a country and major impacting factors are rate of growth of
GDP, domestic savings, household financial savings, disposable income,
etc. The share of life insurance funds in Gross Domestic Savings (GDS) has
increased considerably after the liberalization process initiated in the
country 40. Table 3.8 portrays the growth of life insurance funds in Gross
95
Domestic Savings (GDS), Financial Savings (FS), and Household Savings
(HS) for the period from 1993-94 to 2002-03.
Table 3.8
Gross Domestic Saving: Life Insurance Funds
YearLife Insurance Funds
% Share in Gross Domestic Savings
% Share in Financial Savings
% Share in Household
Savings1993-94 4.75 9.71 5.811994-95 4.38 9.12 5.531995-96 4.53 12.79 6.261996-97 4.91 10.99 6.681997-98 5.32 12.77 6.981998-99 6.02 12.52 6.911999-00 5.91 13.46 6.852000-01 6.59 14.67 7.132001-02 8.25 17.36 8.512002-03 6.86 16.13 7.34Source: National Income Statistics, Centre for Monitoring Indian Economy.
The share of life insurance funds in GDS have increased from 4.75
percent in 1993-94 to 6.86 percent in 2002-03. At the same time, life
insurance funds in Financial Savings (FS) have increased from 9.71 percent
to 16.13 percent, and in Household Savings (HS) the share increased from
5.81 percent to 7.34 percent during the same period. Though the share of
life fund in household financial assets has gone up during the last decade
and Indian life insurance industry registered better growth rate compared
with global growth rate, life insurance premium volume and global market
share remained quite low. Table 3.9 throws light on the premium volume of
some of the developed and developing countries of the world in 2006 and
2007, and global share of life premium in USD in 2007, reported by Swiss
Re Sigma.
Table 3.9
Global Share of Life Premium
(in US $ in 2007)Premium Volume Change Share of World
96
Country (in millions of USD) in 2007 (in %)
Market in 2007(in %)
Ranking
2006 2007
United States 533223 578357 8.5 24.17 1
United Kingdom 256890 349740 36.1 14.61 2
France 176578 186993 5.9 7.81 4
Italy 91878 88215 -4.0 3.69 6
Germany 92974 102419 10.2 4.28 5
Japan 343490 330651 -3.7 13.82 3
PR China 45029 58677 30.3 2.45 8
Taiwan 41253 49813 20.7 2.08 10
India 34587 47132 36.3 1.97 11
South Africa 33106 34927 5.5 1.46 14
Australia 28287 34725 22.8 1.45 15
World 2125791 2393089 12.6 100.00 Source: Swiss Re Sigma No.3/2008
The share of India in World market was only 1.97 percent in respect
of premium volume during the year 2007. USA was in the first place
followed by Japan and U K in the second and third position respectively, in
the year 2007. At the same time, life premium volume in respect of India
has increased from US $ 34587 in 2006 to US $ 47132 in 2007 at a growth
rate of 36.27 percent. However, the world ranking in terms of life
insurance premium volume has improved from 17th in 2005 to 11th in 2007
and the share in world market has increased from 1.02 percent to 1.97
percent during the same period 41.
Conclusion
With the starting of the first life insurance company in 1818, the
organized Indian insurance industry in its life spanning nearly two centuries
has witnessed several phases of boom and bust, growth and decline,
confidence and distrust, yet has moved forward. The industry received
sharper focus after Independence. Consequent on the recommendations of
the Malhotra Committee, insurance sector was opened to private players
97
and the first private insurer commenced operations in 2000. After
liberalization, the insurance industry has been growing between 30 and 40
per cent, but it lags far behind its global counterparts when it comes to
insurance penetration and density. Insurance, together with banking
services adds about 7 per cent to India’s Gross Domestic Product. India has
the highest number of life insurance policies in force in the world. Yet more
than three fourth of India’s insurable population has no life insurance cover.
The next chapter portrays the profile of Life Insurance Corporation
and reveals the growth in marketing of life insurance products in Kannur
and Kasargod districts.
98
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99
15. Dharmendra Kumar, Tryst With Trust, LIC of India, 1991, p.2.
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19. Ibid.
20. M.N. Mishra, op. cit., 113.
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27. Gupta, P.K., op.cit. , 83.
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31. Gupta P.K., op. cit., 87.
100
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39. Ibid.
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41. The Hindu Survey of Indian Industry 2007, pp. 91-93.
101