4996143 overview of insurance sector india[1]

8/9/2019 4996143 Overview of Insurance Sector India[1]

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Introduction:

Insurance = Collective bearing of Risk.Basic Human trait is to be averse to

the idea of risk taking.Insurance, whether life or non-life,provides people with a reasonabledegree of security and assurancethat they will be protected in theevent of a calamity or failure of any sort.


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Factorsaffectingservicesector Five environmental variables that

affect all industries-CustomersCompetitorsGovernment

Technology and

Globalization -are forcing rapidchanges in the service sector.In addition, there are four factors of

particular importance to service

providers-change in how quality is perceivedcost controlcustomer services and

the new definitions of the customer.


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Origin and growth of insurance sector:

Insurance in modern form originated in theMediterranean during the 13th century. (Theearliest references to insurance- found inBabylonia, the Greeks and the Romans).

Marine insurance is the oldest form of insurancefollowed by life insurance and fire insurance. The history of life insurance in India dates back

to 1818 when it was conceived as a means toprovide for English Widows.

A higher premium was charged for Indian livesthan the non-Indian lives (considering to bemore riskier for coverage).


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Origin and growth of insurance sector:

Oriental life Insurance Company wasincorporated at Calcutta in 1818 , followed byBombay Life Assurance Company in 1823 and Triton Insurance Company for GeneralInsurance in 1850 . By 1938 there were 176insurance companies.

Insurance regulation formally began in Indiathrough the passing of two acts

the Life Insurance companies Act of 1912 andthe Provident Fund Act of 1912.

However the first comprehensive legislationwas introduced with the Insurance Act of 1938 that provided strict state control over

insurance business in the country.


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The business of India Insurance grew ata faster place as competition amongstthe Indian companies intensified.

The decision of nationalization of lifeinsurance business took place in 1956when 245 Indian and foreign insuranceprovident societies were first merged

and then nationalized.It paved the way towards theestablishment of one nationalizedmonopoly corporation called Life

Insurance Corporation (LIC)

ORIGIN AND GROWTH OF INSURANCESECTOR:


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Nationalization was justified on the groundsthat it would create the much neededfunds for rapid industrialization and self-reliance in heavy industries.

General Insurance followed suit and 1968; The Insurance Act was amended to allow for

social control over the general insurancebusiness.

Subsequently in 1973, non-life insurancebusiness was nationalized and the GeneralInsurance Business (Nationalization) Act,1972 was promulgated.



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Till end of FY 1999-2000, two state-runinsurance companies, namely, LifeInsurance Corporation (LIC) and

General Insurance Corporation (GIC)were the monopoly insuranceproviders in India.

Under GIC there were four subsidiariesNational Insurance Company Ltd.Oriental Insurance Company Ltd.New India Assurance Company Ltd.United India Assurance Company Ltd.



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In fiscal 2000-01, the Indian federalgovernment lifted all entryrestrictions for private sectorinvestors.

Foreign investment insurance marketwas also allowed with 26 percentcap.

GIC was converted into India's nationalreinsure from December, 2000

All the subsidiaries working under theGIC umbrella were restructured as

independent insurance companies.



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Insurance Sector Reforms

In 1993, Malhotra Committee-headed by former FinanceSecretary and RBI Governor R.N.

Malhotra- was formed To evaluate the Indian insuranceindustry and recommend its futuredirection.

The Malhotra committee was set upwith the objective of complementing the reformsinitiated in the financial sector.


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The reforms were aimed at:Creating a more efficient and

competitive financial system

suitable for the requirements of theeconomyKeeping in mind the structural

changes currently underway andRecognizing that insurance is an

important part of the overallfinancial system where it was

necessary to address the need for

Insurance Sector Reforms


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recommendations

StructureGovernment should take over the holdings of

GIC and its subsidiaries.

All the insurance companies should be givengreater freedom to operate.

CompetitionPrivate Companies with a min paid up capital of

Rs.1bn should be allowed to enter the sector.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 the domestic

companies.Postal Life Insurance should be allowed tooperate in the rural market.

Only one State Level Life Insurance Companyshould be allowed to operate in each state.


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recommendations

Regulatory Body The Insurance Act should be changed.An Insurance Regulatory body should be set up.

Controller of Insurance- a part of the FinanceMinistry- should be made independent.

InvestmentsMandatory 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

Customer ServiceLIC should pay interest on delays in payments

beyond 30 days.Must be encouraged to set up unit linked pension

plans.Computerization of operations and updating of

technology to be carried out in the insurance


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recommendations

The Committee:Emphasized that in order to improve the

customer services and increase thecoverage of insurance policies, industryshould be opened up to competition.

Felt the need to exercise caution as anyfailure on the part of new players couldruin the public confidence in the industry.

Felt the need to provide greater autonomy toinsurance companies in order to improvetheir performance and enable them to actas independent companies with economicmotives.

Proposed setting up an independentregulatory body- The Insurance Regulatoryand Development Authority.


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1912 - The Indian Life Assurance CompaniesAct enacted as the first statute to regulatethe life insurance business.

1928 - The Indian Insurance Companies Actenacted to enable the government to collectstatistical information about both life andnon-life insurance businesses.

1938 - Earlier legislation consolidated andamended to by the Insurance Act with theobjective of protecting the interests of theinsuring public.

1956 - 245 Indian and foreign insurers andprovident societies taken over by the centralgovernment and nationalized. LIC formed byan Act of Parliament, viz. LIC Act, 1956, witha capital contribution of Rs. 5 crore from the

Government of India.

MilestonesinLIC


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1907 - The Indian Mercantile Insurance Ltd.set up, the first company to transact allclasses of general insurance business.

1957 - General Insurance Council, a wing of the Insurance Association of India, frames acode of conduct for ensuring fair conductand sound business practices.

1968 - The Insurance Act amended to regulateinvestments and set minimum solvencymargins and the Tariff Advisory Committeeset up.

1972 - The General Insurance Business(Nationalization) Act, 1972 nationalized thegeneral insurance business in India witheffect from 1st January 1973.

MilestonesinGIC


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107 insurers amalgamated and grouped intofour companies viz.:

The National Insurance Company Ltd. The New India Assurance Company Ltd. The Oriental Insurance Company Ltd. The United India Insurance Company Ltd.

GIC incorporated as a company.

Milestones in GIC


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Contributors

Life Insurers:Allianz Bajaj Life Insurance Co. Ltd.AMP Sanmar Assurance Co. Ltd.Birla Sun Life Insurance Co. Ltd.Dabur CGU Life Insurance Company Pvt. Ltd.HDFC Standard Life Insurance Co. Ltd.ICICI Prudential Life Insurance Co. Ltd.ING Vysya Life Insurance Co. Pvt. Ltd.Life Insurance Corporation of India.Max New York Life Insurance Co. Ltd.

Metlife India Insurance Co. Pvt. Ltd.Om Kotak Mahindra Life Insurance Co. Ltd.SBI Life Insurance Co. Ltd.

Tata AIG Life Insurance Co. Ltd.


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Non-Life Insurers:Bajaj Allianz General Insurance Co. Ltd.ICICI Lombard General Insurance Co. Ltd.IFFCO Tokyo General Insurance Co. Ltd.National Insurance Co. Ltd.New India Assurance Co. Ltd.

Oriental Insurance Co. Ltd.Reliance General Insurance Co. Ltd.Royal Sundaram Alliance Insurance Co. Ltd.

Tata AIG Life Insurance Co. Ltd.

United India Insurance Co. LtdReinsurers:

General Insurance Corporation of India.

Contributors


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Contribution to growth:Currently, the insurance sector size is

estimated at Rs.500 billion.On account of intense marketing strategies

adopted by private insurance players, themarket share of state owned insurancecompanies like GIC, LIC and others havecome down to 70% in last 4-5 years fromover 97%.

The private insurance players despite thesector is still regulated has been offeringrate of return (RoR) to its policy holderswhich is estimated at about 35% as against20% of domestic insurance companies.


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Contribution to growth:LIC and GIC have limited number of policies

to offer to their subscribersPrivate insurance companies offer many

policies and the premium amount as wellas the maturity period is much competitiveas against those of government insurancecompanies.

The private sector insurance players havestarted exploring the rural markets inwhich until recently, the state ownedcompanies had the monopoly.

Indias life insurance premium, as apercentage of GDP is 1.8%


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Future of the Sector:

Indian insurance sector is likely to registerunprecedented growth of 200% andattain a size of Rs. 2000 billion by 2009-10

A private sector insurance business willachieve a growth rate of 140% as aresult of aggressive marketing techniquebeing adopted by them against 35-40%

growth rate of state owned insurancecompanies.In rural markets, the share of private

insurance players would increasesubstantially as these have been able to


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Insurance Sector - Emerging Areas:

Demand for Pension Plans Two relatively modern trends affect life insurance

business in India significantly: Joint Family System andelderly are increasingly having to fend for

themselves

Separateness of Banking and InsuranceBancassurance

Role of Information Techno-logy

Using Postal Network Creating Insurance awarenessInnovative Products

4996143 overview of insurance sector india[1]

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