Insurance sector

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       Submitted by:
  Siddhant Haralalka ( 17)
    Pooja Khemani (24)
      Hersh Lulla ( 26)
Functional Definition:
  Insurance is a co-operative device to spread the
  loss caused by a particular risk over a number of
  persons who are exposed to it and who agree to
  insure themselves against the risk.
General Definition:
  Insurance has been defined to be that in which a
  sum of money as a premium is paid in
  consideration of the insurer’s incurring the risk of
  paying a large sum upon a given contingency.
                A Brief History
• Insurance in modern form originated in the
  Mediterranean during the 13th century. (The
  earliest references to insurance- found in
  Babylonia, the Greeks and the Romans).
• Marine insurance is the oldest form of insurance
  followed by life insurance and fire insurance.
• The history of life insurance in India dates back to
  1818 when it was conceived as a means to
  provide for English Widows.
1818   Oriental life Insurance Company was incorporated at Calcutta

1823   Incorporation of Bombay Life Assurance Company

1850   Triton Insurance Company for General Insurance

1912   Insurance regulation formally began in India through the passing of two acts- The
       Life Insurance companies Act of 1912 and The Provident Fund Act of 1912.

1938   There were 176 insurance companies. The first comprehensive legislation was
       introduced with the Insurance Act of 1938 that provided strict state control over
       insurance business in the country.
1956   The decision of nationalization of life insurance business took place when 245
       Indian and foreign insurance provident societies were first merged and then
       nationalized. It paved the way towards the establishment of one nationalized
       monopoly corporation called Life Insurance Corporation (LIC)
1968   The Insurance Act was amended to allow for social control over the general
       insurance business
1973   Non-life insurance business was nationalized and the General Insurance Business
       (Nationalization) Act, 1972 was promulgated
1993       Insurance Sector Reform- Malhotra Committee- headed by former Finance
           Secretary and RBI Governor R.N. Malhotra- was formed to evaluate the Indian
           insurance industry and recommend its future direction.
Till end   Two state-run insurance companies- Life Insurance Corporation (LIC) and General
of FY      Insurance Corporation (GIC) were the monopoly insurance providers in India.
1999-      Under GIC there were four subsidiaries - National Insurance Company Ltd.,
2000       Oriental Insurance Company Ltd. , New India Assurance Company Ltd. , United
           India Assurance Company Ltd.

2000       The Indian federal government lifted all entry restrictions for private sector
           investors. Insurance Regulatory and Development Authority (IRDA) starts giving
           licenses to private insurers. ICICI prudential and HDFC Standard Life insurance
           first private insurers to sell a policy

2001       Royal Sundaram Alliance first non life insurer to sell a policy

2002       Banks allowed selling insurance plans. As TPAs enter the scene, insurers start
           setting non-life claims in the cashless mode

2007       First Online Insurance portal, https:/// set up by an Indian Insurance Broker,
           Bonsai Insurance Broking Pvt Ltd.
   Classification of Insurance


         LIFE       GENERAL

Motor                       Marine       Fire
Vehicle                   insurance   insurance
Working of Insurance
                Market Overview
Global Insurance Industry
    Total Gross Insurance       4.270 Tril. US$

    Global Premiums as % of     6.18 Percent
    Global GDP

    Global Life Insurance       2.490 Tril. US$

    Global Non-Life Insurance   1.779 Tril. US$
Market Overview
Customer Perception of Insurance
Industry structure
             Industry structure
• Short-term
  Domestic/Personal Lines: Home, car etc
  Commercial: Assets/Business Interruption/
  Liability/Insurances of the Person/Motor;
  Construction/Engineering; Marine/Aviation

• Healthcare (Individuals)
  Medical Aid – Open and restricted schemes
  Hospital Plans and the like – (Short-term
            Industry structure
• Long-term (Individuals and Companies)
  Life and Disability; Investment
  Permanent Health Insurance
  Retirement Annuity (Professionals & self empl.)
• Employee Benefits (Companies)
  Pension Fund
  Group Life and Disability
  Permanent Health Insurance
  Medical Aid
     Major Industry “Stakeholders”
•   Risk Managers (across all sectors)
•   Insurers
•   Re-insurers
•   Underwriting Managers
•   Regulators
•   Agents
•   Associations
•   Brokers/Intermediaries/Financial Planners
      world level top 10 companies
•   IFFCO TOKIO General Insurance
•   ING Belgium
•   KBC Bank & Verzekering
•   Genertel (Generali Group)
•   If Insurance
•   AXA
                    Industry structure
  2008) : Premium income of life insurers in Rs crore
                   2007       2008       Growth %   Total Share (%)

LIC                8580.84    7524.56    -12        52.55

ICICI Prudential   1056.45    1,590.27   51         11.11
Bajaj Allianz      731.85     829.24     13         5.79
SBI Life           426.39     1148.67    169        8.02
HDFC Standard      355.93     490.4      38         3.42
Max New York       289.74     501.16     73         3.50
Reliance Life      204.10     557.33     173        3.89
Birla Sun Life     174.63     501.53     187        3.50
Total Private      3930.95    6795.64    73         47.45
Total Market       12511.80   14320.20   14         100.00
Market Share of Private Sector
Life Insurance in India
        dominant economic features

•   Number of rivals: Dominated by major players
•   Buyers needs and requirements
•   Partial Vertical integration on the distributor side
•   Rapid product innovation, Product Lifecycle: 5yrs
•   Less degree of product differentiation
•   Characterized by high liquidity of currency, lower
    interest rate by government and lesser barriers to
                    Driving Forces
• Growing demand from semi-urban population
• Entry of private players following the deregulation
• Rising demand for retirement provision in the ageing population
• The opening of the pension sector and the establishment of the
  new pension regulator
• Rising per capita incomes among the strong middle class, and
  spreading affluence
• Growing consumer class and increase in spending & saving capacity
• Public private partnerships infrastructure development
• Dearth of innovative & buyer-friendly insurance products
• Success of Auto insurance sector
          Key Success Factors
• Technology Related: Use of internet and MIS
• Distribution Related: Strong Network
• Marketing Related: Large Breadth of Product
  Line, Well known Brand Names, large sales
• Skills Related: Design Expertise
• Internet: It is used to sell insurance policies. It is 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, ICICI 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):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.
• 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
             Porters 5 Forces
Competitive rivalry:
• There is cut thought competitions among
  rivals in life insurance industry
• Insurance companies deal in identical policies
  as service levels offered are similar
• The insurance sector is showing high market
  growth rate, which enables the insurance
  companies to achieve its own market growth
  through the growth in market place.
             Porters 5 Forces
Power of suppliers:
• Policy designer tend to have less leverage to
  Brgain over premium
• Insurance is tax exempted so that suppliers
  bargaining power increases
• Solvency of private players is not certain
            Porters 5 Forces
Threat of Substitutes :
• Customers deposits in their amount in to bank
  & post deposits & purchase gold & silver
• Investment in government securities
• Money market investment
• Capital market investment.
             Porters 5 Forces
Power of buyer :
• Market is highly segmented
• Insurance industry very return oriented and
  switches easily
• High switching cost creates buyers lock in and
  makes a buyers bargaining power
• Exercise bargaining leverage over premium
               Porters 5 Forces
Threat of new entrants:
• Life insurance industry entry barriers is moderate
• The Indian market is highly brand oriented .so it is
  difficult to introduce new brand
• The acceptability of new brand is also very low
• Economies of scale is difficult to find in the initial
  stage of entry in to market
• Special permission is required from the
  government to enter in the insurance sector
         Regulatory Standards
 For better regulation purpose of the insurance
 sector the government has established
 following bodies:
1. IRA: Insurance Regulatory Authority
2. IRDA: Insurance Regulatory and Development
3. TAC: Tariff Advisory Committee
                IRA Reguations
• IRA will be sole Authority, which will be responsible for
  awarding of, licenses i.e. little or no government or
  political interference in licensing process.
• No restriction on the number of licenses.
• No composite license for life insurance business.
• Licensing to be only on national basis (no city by city
• IRA allowed for up to 26% foreign equity participation
  in the life insurance sector.
• The current Indian monopolies companies are required
  to bring down their equity holding to 26% within a
  period of 10 years.
                  IRDA Regulations
• IRDA to protect the interest policyholders, to regulate, promote
  and ensure orderly growth of the life insurance industry
• A company will not be issued a license unless the IRDA is
  satisfied with the sound financial condition, the general
  character of management, the volume of business, the capital
  structure, earning prospects for the insurers and that the
  interests of the general public will be served if registration is
  granted to the insurer.
• Capital Requirement for Insurance Company - 100 crores
• Every life insurer shall deposit with the RBI- 1% of the total gross
  premium written in India in any financial year
               TAC Regulations

• The Tariff Advisory Committee is empowered to
  control and regulate the rates, terms, and etc.
  that may be offered by insurers in respect of any
  risk or of any category of risks

• Every insurer is required to make payment to the
  TAC of the prescribed annual fees
             Sector Strategy
1. Start with the Customer
2. Follow with the Network
3. Rethink Organizational Design and Leadership
4. Embrace Technology
5. Test and Learn with Cooperation Pilots
6. Monitor the Value of the Overall Business
7. Manage the Power of Information
               Key Challenges
•   Skill shortage
•   Competition
•   Regulation
•   Climate Change
•   Lack of Product Innovation
• Indian insurance sector is likely to register unprecedented
  growth of 200% and attain a size of Rs. 2000 billion by
• A private sector insurance business will achieve a growth
  rate of 140% as a result of aggressive marketing technique
  being adopted by them against 35-40% growth rate of state
  owned insurance companies.
• In rural markets, the share of private insurance players
  would increase substantially as these have been able to
  generate a faith among their rural consumers
• The insurance industry is likely to continue its growth
  streak, thanks to rising per capita incomes among the
  strong middle class, and spreading affluence
 Despite recent growth, there is still tremendous untapped potential in
  the Indian insurance sector.
 India accounts for 16% of the world population, but accounted for only
  1.68% of the world life insurance market.
 India is also far behind world averages in terms of insurance
  penetration, and insurance density.
     A mere 20% of the insurable population aged 20 to 60 years is
      currently covered by life insurance.
     The average number of policies (life and non-life) held by an Indian
      consumer is just 1.33, compared with the average of 5.2 polices per
      client for mature markets.
 Hence there should be a focus on increasing insurance penetration.
 Life products are seen in India primarily as a means of
  improving financial health. India lacks any system of social
  security, and life insurance products offer tax benefits, and
  income protection. This perception should be changed.
 Integrate existing distribution networks order to reach
  underserved markets, and potentially reduce costs.
 Insurance companies need to understand how to respond
  effectively to each segment’s needs, and deliver more
  than price and products. There is a need for tailoring their
  approach, and adopting distinct distribution strategies for
  each segment

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