an analysis of fdi scenario in indian insurance sector

8/2/2019 An Analysis of FDI Scenario in Indian Insurance Sector

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A PROJECT REPORT ONFOREIGN DIRECT INVESTMENT ANDINTERNATIONAL MARKETING

(INSURANCE SECTOR)SSuubbmmiitttteedd iinn PPaarrttiiaall ffuullffiillmmeenntt ffoorr tthhee aawwaarrdd oofftthhee ddeeggrreeee ooff

MMaasstteerr ooffBBuussiinneessss AAddmmiinniissttrraattiioonn

SUBMITTED BYUJJWAL KUMAR SINGH

MBA/1038/2010


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CERTIFICATE OF APPROVAL

The foregoing thesis entitled Foreign Direct Investment and International

Marketing Vol-I (Insurance Sector) is hereby approved as a credible study of

research topic and has been presented in a satisfactory manner to warrant to

its acceptance as prerequisite to the degree for which it was submitted.

It is understood that by this approval, the undersigned do not necessarily

endorse any conclusion drawn or opinion expressed therein, but approve the

thesis for the purpose for which it is submitted.

(Internal Examiner) (External Examiner)


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DECLARATION CERTIFICATE

This is to certify that the Project Report entitled Foreign Direct Investment

and International Marketing Vol-I (Insurance Sector)has been submitted inPartial fulfilment of the requirement for the award of the degree of Master of

Business Administration. It is a bonafide project work carried out byUjjwalKumar Singh(Roll- MBA/1038/2010).

(Project Guide)


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CONTENTS

S. No. PARTICULARS PAGE NO.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

Introduction

Objectives .

FDI in India ...

Growth of FDI inflow in pre-liberalization period .

Routes of approval ..

Share of investing country .

Foreign market entry strategy .

Industry profile ..

List of insurance companies in India

Current scenario

Growth drivers ..

Emerging trends

Need of FDI in sector .

Barriers to FDI in sector ..

FDI regulations in insurance sector .

Strategy adopted by foreign investors ..

Suggestion .

Conclusion .

References .

1

2

3-4

4-6

7-8

8-9

10-12

13-15

16-17

18-21

22-23

24-27

28-30

31-33

34-35

36-43

44

45

46


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IntroductionForeign Direct Investment plays a major role in the economy of a country. It is

not only a vital source of earning foreign currency but also plays a major role

in the development of a country, specially for developing country like India.

India has a great potential for attracting a large amount of FDI because of its

natural and finest human resources. There are certain roadblocks also which

may make the ride little bumpy. There are a number of factors which play an

important role in attracting foreign investment like politics, rules and

regulation of a certain country, market competition. So, investors as well as

host country must have a close watch on these.

In this project, I will try to find out foreign investment scenario of insurance

sector of India. As insurance sector of India is full of potential and India can be

considered as untapped market in this field. So, there is great opportunity for

foreign investors to enter in the market. There are different features ofinsurance sector of India which will help us to attract more investment. There

are limitations to certain in our control which we can overcome.

When a company enters in the foreign market they have to adopt some

strategy. Some of the strategy depends upon the rules set by country, for

instance in insurance sector all the company have to form joint venture with

an Indian company, because they are only allowed to invest 26% in themarket.

So, analysis of marketing strategy will be done to find out its advantage and

disadvantage to investors.


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Objectives1. To study the FDI scenario of Indian insurance sector

2. To analyse the risks faced by investors in Indian insurance sector

3. To suggest ways and means to reduce those risks

4. To find out the market strategy of foreign investor


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FDI IN INDIAWhat is FDI?Foreign direct investment (FDI) occurs when an investor based in one country

(the home country) acquires an asset in another country ( the host country)

with the intent to manage the asset.

Generally speaking FDI refers to capital inflows from abroad that invest in the

production capacity of the economy and are usually preferred over other

forms of external finance because they are Non-debt creating, non-volatileand their returns depend on the performance of the projects financed by the

investors.

FDI also facilitates international trade and transfer of knowledge, skills and

technology.

The FDI relationship consists of a parent enterprise and a foreign affiliate

which together form a multinational corporation (MNC).Difference Between FDI & FII

FDI - is Foreign Direct Investments i.e. a foreign company having astake in a public sector undertaking in a country for a long period and

that company is called Multinational Enterprise.

FII - is Foreign Institutional Investors, i.e., foreign Investment Bankerslike Goldman sachs, Merrill lynch, Lehman bros etc. investing in Indian

markets, in other words buying Indian stocks. FII's generally buy in

large volumes which has an impact on the stock markets.


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Foreign Direct Investment (FDI) is permitted as under the following forms ofinvestments-

Through financial collaborations.

Through joint ventures and technical collaborations.

Through capital markets via Euro issues.

Through private placements or preferential allotments.

ADVANTAGES OF FDI Increase in Domestic Employment/Drop in unemployment

Investment in Needed Infrastructure. Positive Influence on the Balance of Payments.

New Technology and Know How Transfer.

Increased Capital Investment.

Targeted Regional and Sectoral Development

DISADVANTAGES OF FDI Industrial Sector Dominance in the Domestic Market.

Technological Dependence on Foreign Technology Sources.

Disturbance of Domestic Economic Plans in Favor of FDI-Directed

Activities.

Cultural Change Created by Ethnocentric Staffing The Infusion of

Foreign Culture , and Foreign Business Practices


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Growth of FDI inflows in India in Pre-Liberalization PeriodIn the pre liberalization period the government's attitude to FDI inflows was

open but halfhearted. The investment coming to the country had to seek prior

approval. The data of FDI available for this period is of the amount approved

rather than actually received. However, the amount approved increased

manifold during this period.

Growth of FDI inflows (approved) in India in Pre-Liberalization Period

Growth of FDI inflows (Actual) in Post -Liberalization Period


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Liberalization in India: 24-07-1991 The assassination of Prime Minister Indira Gandhi in 1984, and

later Rajiv Gandhi in 1991 crushed international investor confidence on

the economy that was eventually pushed to the brink by the early

1990s.

India started having balance of payments problems since 1985, and by

the end of 1990, it was in a serious economic crisis.

The government was close to default, its central bank had refused new

credit and foreign exchange reserves had reduced to the point that Indiacould barely finance three weeks worth of imports.

Our foreign exchange reserve was only 1 billion dollar of Import ,GDP

growth was standstill ,economy was in shambles

Our Gold was put to security to foreign countries for money to save

India.

Dr. Manmohan Singh with great support of late PM P.V.Narsimha Rao

presented a great budget of economic liberalization.

This liberalization was duly supported by the then opposition leader

Atal Bihari Vajpayee of BJP.

Within 4 years of liberalization Indian foreign exchange reserve rose to

140 billion dollar

INDIA AN IDEAL INVESTMENT DESTINATION Worlds largest democracy

Second largest emerging market (US$ 2.4 trillion)

Liberal Foreign Investment Regime

Skilled, economic and competitive labor force

Amongst the highest rates of return on investment


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Large domestic market

Stable democratic environment over 60 years of independence

Abundance of natural resources

World class scientific, technical and managerial manpower

Well-established legal system with independent judiciary.

Developed banking system and vibrant capital market

India among the top three investment hot spots and one of the fastest

growing economies in the world.

Large English speaking population

FDI in India are approved through three routes:AUTOMATIC ROUTE:No need of Prior Approval From FIPB,RBI,GOI but the investors are only

required to notify the Regional Office concerned of the Reserve Bank of India

within 30 days of receipt of inward remittances and file the required

documents along with form FC-GPR with that Office within 30 days of issue of

shares to the non-resident investors.

THE FIPB ROUTE: FDI in activities not covered under the automatic route require prior

government approval.

Approvals of all such proposals including composite proposals involvingforeign investment/foreign technical collaboration are granted on the

recommendations of FIPB.

Application for all FDI cases, except NRI investments and 100% EOUs,

should be submitted to the FIPB Unit, DEA, and Ministry of Finance.

Application for NRI and 100% EOU cases should be presented to SIA inDepartment of Industrial Policy and Promotion (DIPP).

Application can be made in Form FC-IL. Plain paper applicationscarrying all relevant details are also accepted.

No fee is payable.


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CCFI ROUTE: Investment proposals falling outside the automatic route.

Having a project cost of Rs. 6,000 million or more would require prior

approval of Cabinet Committee of Foreign Investment (CCFI).

Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings

have to be made by the Indian company with the RBI.

SHARE OF TOP INVESTING COUNTRIES (Fiscal years)

PERCENTAGE TO TOTAL INFLOWS


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SHARE OF TOP INVESTING SECTORS

Percentage to total Inflows


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FOREIGN MARKET ENTRY STRATEGY EXPORTING

LICENCING JOINT VENTURE

MANUFACTURING

ASSEMBLY OPERATIONS

MANAGEMENT CONTRACT

TURNKEY OPERATIONS

ACQUISITION

EXPORTING A company without any marketing or production organization overseas,

export a product from its home base .

It is ease in implementation.

Minimum risk involved.

Function poorly when home country currency is strong

LICENCING It is an agreement that permits a foreign company to use industrial

property, technical know-how and skills, architectural and engineering

designs, or any combination of these in a foreign market.

It is not only restricted to tangible products.

Substantial risks and other difficulties can avoided.


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JOINT VENTURE It is simply a partnership at corporate level.

It is an enterprise formed for a specific business purpose by two or more

investors sharing ownership and control.

There is possibility of a parent firms change in mission or power.

Reduce amount of resource.

MANUFACTURING Manufacturing process can be employed as a strategy involving all or

some manufacturing in foreign country.

Manufacturing operations in host country , not so much to sell there but

for the purpose of exporting from that country to companys home

country or other country is known as sourcing.

ASSEMBLY OPERATIONS Assembly operation is variation on a manufacturing strategy.

Assembly means the fitting or joining together of fabricated

components.

To gain each countrys comparative advantage.

It also allow a companys product to entry many markets without being

subject to tariffs and quotas.


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MANAGEMENT CONTRACT Management contract is agreement with new owner in order to manage

the business.

New owner may lack technical and managerial expertise and need

former owner to manage the investment until local employees are

trained.

It is used as a sound strategy for entering a market with minimum

investment and minimum political risk.

TURNKEY OPERATIONS It is an agreement by seller to supply a buyer with facility fully equipped

and ready to operate by the buyers personnel.

It is usually associated with giant projects.

Term is also used in fast food franchising when a franchisor agree to

select a store site , build the store, equip it ,train manpower etc.

SECTORS WHICH WILL BE ANALYSED Insurance

Banking

Retail

Real Estate

Automobile


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INDUSTRY PROFILEThe insurance industry in India has come a long way since the time when

businesses were tightly regulated and concentrated in the hands of a few

public sector insurers. Following the passage of the Insurance Regulatory and

Development Authority Act in 1999, India abandoned public sector

exclusivity in the insurance industry in favour of market-driven competition.

This shift has brought about major changes to the industry. The beginning of a

new era of insurance development has seen the entry of international insurers,

the proliferation of innovative products and distribution channels, as well asthe raising of supervisory standards.

Evolution of the industryThe growing demand for insurance around the world continues to have a

positive effect on the insurance industry across all economies. India, being one

of the fastest-growing economies (even in the current global economic

slowdown), has exhibited a significant increase in its GDP, and an even larger

increase in its GDP per capita and disposable income. Increasing disposable

income, coupled with the high potential demand for insurance offerings, has

opened many doors for both domestic and foreign insurers. The following

table briefly depicts the evolution of the insurance sector in India.

1818 - Oriental Life Insurance Co. was established in Calcutta.

1870 - The first insurance company, Bombay Mutual Life Insurance

Society, was formed.

1907 - The Indian Mercantile Insurance Limited was formed.

1912 - Life Insurance Companies Act and the Pension Fund Act of 1912

Beginning of formal insurance regulations


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1928 - Indian Insurance Companies Act was passed to collect statistical

data on both life and non-life.

1938 - The Insurance Act of 1938 was passed; there was strict state

supervision to control frauds.

1956 - The Central Government took over 245 Indian and foreign life

insurers as well as provident societies and nationalized these

entities

The LIC Act of 1956 was passed.

1957 - The code of conduct by the General Insurance Council to ensure

fair conduct and ethical business practices was framed.

1972- The General Insurance Business (Nationalization) Act was passed.

1991 - Beginning of economic liberalization

1993 - The Malhotra Committee was set up to complement the reforms

initiated in the financial sector.

1994 - Detariffication of aviation, liability, personal accidents and health

and marine cargo products

1999 - The Insurance Regulatory and Development Authority (IRDA)Bill was passed in the Parliament

2000 - IRDA was incorporated as the statutory body to regulate and

register private sector insurance companies.

General Insurance Corporation (GIC), along with its four

subsidiaries, i.e., National Insurance Company Ltd., Oriental

Insurance Company Ltd., New India Assurance Company Ltd. and


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United India Assurance Company Ltd., was made Indias national

reinsurer.

2005 - Detariffication of marine hull2006 - Relaxation of foreign equity norms, thus facilitating the entry

of new players

2007- Detariffication of all non-life insurance products except the auto

third-party liability segment

In India, the Ministry of Finance is responsible for enacting and implementing

legislations for the insurance sector with the Insurance Regulatory andDevelopment Authority (IRDA) entitled with the regulatory and

developmental role. The government also owns the majority share in some

major companies in both life and non-life insurance segments. Figure below

depicts the structure of the insurance industry in India.

Fig : Indian insurance industry structure

MINISTRY OF FINANCE GOI

IRDA


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Both the life and non-life insurance sectors in India, which were nationalized

in the 1950s and 1960s, respectively, were liberalized in the 1990s. Since the

formation of IRDA and the opening up of the insurance sector to private

players in 2000, the Indian insurance sector has witnessed rapid growth.

List of Insurance companies in IndiaLIFE INSURERSPublic SectorLife Insurance Corporation of India www.licindia.com

Private SectorAllianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in

Birla Sun-Life Insurance Company Limited www.birlasunlife.com

HDFC Standard Life Insurance Co. Limited www.hdfcinsurance.com

ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com

ING Vysya Life Insurance Company Limited www.ingvysayalife.com

Max New York Life Insurance Co. Limited www.maxnewyorklife.com

MetLife Insurance Company Limited www.metlife.com

Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com

SBI Life Insurance Company Limited www.sbilife.co.in

TATA AIG Life Insurance Company Limited www.tata-aig.com

AMP Sanmar Assurance Company Limited www.ampsanmar.com

Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com
http://www.licindia.com/http://www.licindia.com/http://www.allianzbajaj.co.in/http://www.allianzbajaj.co.in/http://www.birlasunlife.com/http://www.birlasunlife.com/http://www.hdfcinsurance.com/http://www.hdfcinsurance.com/http://www.iciciprulife.com/http://www.iciciprulife.com/http://www.ingvysayalife.com/http://www.ingvysayalife.com/http://www.maxnewyorklife.com/http://www.maxnewyorklife.com/http://www.metlife.com/http://www.metlife.com/http://www.omkotakmahnidra.com/http://www.omkotakmahnidra.com/http://www.sbilife.co.in/http://www.sbilife.co.in/http://www.tata-aig.com/http://www.tata-aig.com/http://www.ampsanmar.com/http://www.ampsanmar.com/http://www.avivaindia.com/http://www.avivaindia.com/http://www.avivaindia.com/http://www.ampsanmar.com/http://www.tata-aig.com/http://www.sbilife.co.in/http://www.omkotakmahnidra.com/http://www.metlife.com/http://www.maxnewyorklife.com/http://www.ingvysayalife.com/http://www.iciciprulife.com/http://www.hdfcinsurance.com/http://www.birlasunlife.com/http://www.allianzbajaj.co.in/http://www.licindia.com/


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GENERAL INSURERSPublic SectorNational Insurance Company Limited

www.nationalinsuranceindia.com

New India Assurance Company Limited www.niacl.com

Oriental Insurance Company Limited

www.orientalinsurance.nic.in

United India Insurance Company Limited www.uiic.co.in

Private SectorBajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in

ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com

IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in

Reliance General Insurance Co. Limited www.ril.com

Royal Sundaram Alliance Insurance Co. Ltd. www.royalsun.com

TATA AIG General Insurance Co. Limited www.tata-aig.com

Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com

Export Credit Guarantee Corporation www.ecgcindia.com

REINSURERGeneral Insurance Corporation of India www.gicindia.com
http://www.nationalinsuranceindia.com/http://www.nationalinsuranceindia.com/http://www.niacl.com/http://www.niacl.com/http://www.orientalinsurance.nic.in/http://www.orientalinsurance.nic.in/http://www.uiic.co.in/http://www.uiic.co.in/http://www.bajajallianz.co.in/http://www.bajajallianz.co.in/http://www.icicilombard.com/http://www.icicilombard.com/http://www.itgi.co.in/http://www.itgi.co.in/http://www.ril.com/http://www.ril.com/http://www.royalsun.com/http://www.royalsun.com/http://www.tata-aig.com/http://www.tata-aig.com/http://www.cholainsurance.com/http://www.cholainsurance.com/http://www.ecgcindia.com/http://www.ecgcindia.com/http://www.gicindia.com/http://www.gicindia.com/http://www.gicindia.com/http://www.ecgcindia.com/http://www.cholainsurance.com/http://www.tata-aig.com/http://www.royalsun.com/http://www.ril.com/http://www.itgi.co.in/http://www.icicilombard.com/http://www.bajajallianz.co.in/http://www.uiic.co.in/http://www.orientalinsurance.nic.in/http://www.niacl.com/http://www.nationalinsuranceindia.com/


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Current scenarioA growing middle-class segment, rising income, increasing insurance

awareness, rising investments and infrastructure spending, have laid a strong

foundation to extend insurance services in India. The total premium of the

insurance industry has increased at a CAGR of 24.6% between FY03 and FY10

to reach INR2,523.9 billion in FY10. The opening up of the insurance sector

for private participation/global players during the 1990s has resulted in stiff

competition among the players, with each offering better quality products.

This has certainly offered consumers the choice to buy a product that best fits

his or her requirements.

The number of players during the decade has increased from four and eight in

life and non-life insurance, respectively, in 2000 to 23 in life and 24 in non-

life insurance (including 1 in reinsurance) industry as in August 2010. Most

of the private players in the Indian insurance industry are a joint venture

between a dominant Indian company and a foreign insurer.

Fy00 Fy01 Fy02 fy03 fy04 fy05 fy06 fy07 fy08 fy09 fy10

Life

insurers

Public 1 1 1 1 1 1 1 1 1 1 1

Private 3 10 12 12 13 13 15 15 21 21 22

Non-lifeinsurers

Public 4 4 5 6 6 6 6 6 6 6 6

Private 3 6 8 8 8 8 9 10 15 15 17

Reinsurer

s 1 1 1 1 1 1 1 1 1 1 1

Table: Insurance companies in India from 2000-2010


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Life insurance industry overview

Fig : Market share of private companies (fy 11)

The life insurance sector grew at an impressive CAGR of 25.8% between FY03

and FY10, and the number of policies issued increased at a CAGR of 12.3%

during the same period.

As of August 2011, there were 23 players in the sector (1 public and 22

private). The Life Insurance Corporation of India (LIC) is the only public

sector player, and held almost 65% of the market share in FY10 (based on

first-year premiums).

To address the need for highly customized products and ensure prompt

service, a large number of private sector players have entered the market.

Innovative products, aggressive marketing and effective distribution have

enabled fledgling private insurance companies to sign up Indian customers

more rapidly than expected. Private sector players are expected to play an

increasingly important role in the growth of the insurance sector in the near

future.

market share

SBI LIFE

ICICI PRU

BAJAJ ALLIANZ

RELIANCE LIFE

BIRLA SUNLIFE

HDFC STANDARD

MNYL

KOTAK MAHINDRA

TATA AIG

METLIFE

18.3

16.5

11.6

10.2

7.7

8.5

4.8

3.5

3.4

2.8

4.0 8.6


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In a fragmented industry, new players are gnawing away the market share of

larger players. The existing smaller players have aggressive plans for network

expansion as their foreign partners are keen to capitalize on the enormous

potential that is latent in the Indian life insurance market.

ICICI Prudential, Bajaj Allianz and SBI Life collectively account for

approximately 50% of the market share in the private life insurance segment.

To tap this opportunity, banks have also started entering alliances with

insurance companies to develop/underwrite insurance products rather than

merely distribute them.

Non-life insurance industry overview

FIG : Market share among players in FY11 (in %)

Between FY03 and FY11, the non-life insurance sector grew at a CAGR of

17.05%. Intense competition that followed the de-tariffcation and pricing

deregulation (which was started during FY07) decelerated the growthmomentum.

Market share

NEW INDIA

UNITED INDI

ORIENTAL

NATIONAL

ICICI LOMBARD

OTHERS

BAJAJ ALLIANZ

RELIANCE GENERAL

IFFCO-TOKIO

AIC

STAR HEALTH AND ALLIED


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As of August 2011, the sector had a total of 24 players (6 public insurers, 17

private insurers and 1 re-insurer). The non-life insurance sector offers

products such as auto insurance, health insurance, free insurance and marine

insurance

Private sector players have now pivoted their focus on auto and health

insurance. Out of the total non-life insurance premiums during FY10, auto

insurance accounted for 43.5% of the market share. The health insurance

segment has posted the highest growth, with its share in the total non-life

insurance portfolio increasing from 12.8% in FY07 to 20.8% in FY11. These

two sectors are highly promising, and are expected to increase their share

manifold in the coming years.

With the sector poised for immense growth, more players, including monoline

players, are expected to emerge in the near future. The last two years has seen

the emergence of companies specializing in health insurance such as Star

Health & Allied Insurance and Apollo DKV.

In the last decade, it was observed that most players have experienced growthby formulating aggressive growth strategies and capitalizing on their

distribution network to target the retail segment. Although the players in the

private and public sector largely offer similar products in the non-life

insurance segment, private sector players outscore their public sector

counterparts in their quality of service.


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Growth driversIndias favourable demographics help strengthen market penetration

The life insurance coverage in India is very low, and many of those insured

are underinsured. There is immense potential as the working population (25

60 years) is expected to increase from 675.8 million to 795.5 million in the

next 20 years (20062026). The projected per capita GDP is expected to

increase from INR18,280 in FY01 to INR100,680 in FY26, which is indicative

of rising disposable incomes. The demand for insurance products is expected

to increase in light of the increase in purchasing power.

Health insurance attracts insurance companiesThe Indian health insurance industry was valued at INR51.2 billion as of

FY10. During the period FY03-10, the growth of the industry was recorded at

a CAGR of 32.59%. The share of health insurance was 20.8% of the total non-

life insurance premiums in FY10. Health insurance premiums are expected toincrease to INR300 billion by 2015

Private sector insurers are more aggressive in this segment. Favorable

demographics, fast progression of medical technology as well as the increasing

demand for better healthcare has facilitated growth in the health insurance

sector. Life insurance companies are expected to target primarily the young

population so that they can amortize the risk over the policy term.

Rising focus on the rural marketSince more than two-thirds of Indias population lives in rural areas, micro

insurance is seen as the most suitable aid to reach the poor and socially

disadvantaged sections of society.


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Poor insurance literacy and awareness, high transaction costs and inadequate

understanding of client needs and expectations has restricted the demand for

micro-insurance products. However, the market remains significantly

underserved, creating a vast opportunity to reach a large number of customerswith good value insurance, whether from the base of existing insurers or

through retail distribution networks.

In FY09, individuals generated new business premium worth INR365.7

million under 2.15 million policies, and the group insurance business

amounted to INR2, 059.5 million under 126 million lives. LIC contributed

most of the business procured in this portfolio by garnering INR311.9

million of individual premium from 1.54 million lives and INR1,726.9

million of group premium under 11.1 million lives.

LIC was the first player to offer specialized products with lower premium

costs for the rural population. Other private players have also started

focusing on the rural market to strengthen their reach.

Government tax incentivesCurrently, insurance products enjoy EEE benefits, giving insurance products

an advantage over mutual funds. Investors are motivated to purchase

insurance products to avail the nearly 30% effective tax benefit on select

investments (including life insurance premiums) made every financial year.

Life insurance is already the most popular financial product among Indians

because of the tax benefits and income protection it offers in a country where

there is very little social security. This drives more and more people to come

within the insurance ambit.


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Emerging trends Exploring multiple distribution channels for insurance products

To increase market penetration, insurance companies need to expand their

distribution network. In the recent past, the industry has witnessed the

emergence of alternate distribution channels, which include

bancassurance, direct selling agents, brokers, online distribution, corporate

agents such as non-banking financial companies (NBFCs) and tie-ups of

Para-banking companies with local corporate agencies (e.g. NGOs) in

remote areas.

Agencies have been the most important and effective channel of

distribution hitherto. The industry is viewing the movement of

intermediaries from mere agents to advisors.

Product innovation

With customers asking for higher levels of customization, product

innovation is one of the best strategies for companies to increase their

market share. This also creates greater efficiency as companies can

maintain lower unit costs, offer improved services and distributors can

increase flexibility to pay higher commissions and generate higher sales.

The pension sector, due to its inadequate penetration (only 10% of the

working population is covered) offers tremendous potential for insurance

companies to be more innovative.

Consolidation in future

The past few years have witnessed the entry of many companies in the

domestic insurance industry, attracted by the significant potential of

insurance sector. However, increasing competition in easily accessible

urban areas, the FDI limit of 26% and the recent downturn in equity


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markets have impacted the growth prospects of some small private

insurance companies.

Such players may have to rethink about their future growth plans. Hence,

consolidation with large and established players may prove to be a better

solution for such small insurers. Larger companies would also prefer to

take over or merge with other companies with established networks and

avoid spending money in marketing and promotion. Therefore,

consolidation will result in fewer but stronger players in the country as

well as generate healthy competition.

Mounting focus on EV over profitability

Many companies are achieving profitability by controlling expenses;

releasing funds for future appropriations as well as through a strong

renewal premium build up. As a few larger insurers continue to expand,

most are focused on cost rationalization and the alignment of business

models to ground level realities. This will better equip insurers to realize

reported embedded value (EV) and generate value from future newbusiness.

In the short term, companies are likely to face challenges to achieve the

desired levels of profitability. As companies are also planning to get listed

and raise funds, the higher profitability will help companies to get a better

valuation of shares. However, in the long term, companies would need to

focus on increasing EV, as almost 70% of a companys EV is influenced by

renewal business and profitability is not as much of an indicator for

valuation. Hence, players are now focusing on increasing their EV than

profitability figures.

Rising capital requirements

Since insurance is a capital-intensive industry, capital requirements are

likely to increase in the coming period. The capital requirement in the lifeinsurance business is a function of the three factors: (1) sum at risk; (2)


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policyholders assets; (3) new business strain and expense overruns. With

new guidelines in place, capital requirements across the sector are likely to

go up due to:

Higher sum assured driving higher sum at risk

Greater allocation to policyholders assets due to lower charges

Back loading of charges is resulting in high new business strain, and

expense overruns due to low productivity of the newly set distribution

network (and inability to recover corresponding costs upfront)

For non-life insurance companies, the growing demand for healthinsurance products as well as motor insurance products is likely to boost

the capital requirement.

With the capital market picking up and valuations on the rise, insurance

companies are exploring various ways of increasing their capital base to

invest in product innovation, introducing new distribution channels,

educating customers, developing the brand, etc.

This is due to the following reasons:

A major portion of the costs in insurance companies is fixed (though it

should be variable or semi-variable in nature). Hence, the reduction in

sales will not result in the lowering of operational expenses, thus

adversely impacting margins. As such, reduced margins would impact

profitability, and insurers would need to invest additional funds.

The sustained bearishness in capital markets could further pressurize the

investment margins and

Increase the capital strain, especially in the case of capital/return

guarantee product.

Besides, companies are likely to witness a slowdown in new business

growth. Companies may also opt for product restructuring to lower their

costs and optimally utilize capital.


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According to IRDA Regulations 2000, all insurance companies are

required to maintain a solvency ratio of 1.5 at all times. But this

solvency margin is not sustainable. With the growing market risks, the

level of required capital will be linked to the risks inherent in theunderlying business. India is likely to start implementing Solvency II

norms in the next three to four years.

The transition from Solvency I norms to Solvency II norms by 2012 is

expected to increase the demand for actuaries and risk management

professionals. The regulator has also asked insurance companies to get

their risk management systems and processes audited every three years

by an external auditor. Many insurance companies have started aligning

themselves with the new norms and hiring professionals to meet the

deadline.

Contribution of insurance to FDIThe importance of FDI in the development of a capital-deficient country such

as India cannot be undermined. This is where the high-growth sectors of an

economy play an important role by attracting substantial foreign investments.

Currently, the total FDI in the insurance sector, which was INR50.3 billion at

the end of FY09, is estimated to increase to approximately INR51 billion in

FY10. It is difficult to estimate, but an equal amount of additional foreign

investment, can roughly flow into the sector if the government increases the

FDI limit from 26% to 49%.

The insurance sector, by virtue of attracting long-term funds, is best placed to

channelize long-term funds toward the productive sectors of the economy.

Therefore, the growth in their premium collections is expected to translate

into higher investments in other key sectors of the economy. Therefore, the

liberalization of FDI norms for insurance would not only benefit the sector,

but several other critical sectors of the economy.


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Need of FDI in Insurance sectorThe insurance sector in India is highly under-penetrated and capital-

intensive. High investment, poor underwriting and lack of technical expertise

are the major problems Indian insurance firms are currently struggling with.

Insurers focus on top line growth at any cost resulted in poor operating and

inefficiency in the system. The industry has inferior operating expense ratio

(cost of operation to generate operating income or operating expense divided

by gross operating income) compared to global standards both in life and non-

life segments. Due to these challenges we still have many people across the

country that are either under-insured or uninsured and it will take hugecapital and expertise to reach and educate them and design new insurance

products that meet their requirements. This amount of money is difficult to get

from the domestic market, especially when the sector has made losses in near

past.

With a limited ability to access long term capital, private insurance companies

are not able to grow fast and expand in new verticals. As per the Insurance

Regulatory and Development Authority, only eight out of 22 private life

insurance companies and seven out of 13 private non-life insurance

companies were profitable last year. Due to this lacklustre performance by

private companies, it is difficult for them to raise capital through initial public

offering (IPO) route and even if they are able to get successful IPOs, the fund

will be diverted from other sectors that also require capital market financing.

The other way to get funds is FII which by its very nature provide funding forshort term only and not for long term as required by insurance firms to build

and expand their business. We have already witnessed outflow of FII funds

during last recession which lead to 50 per cent drop in Bombay Stock

Exchange.

In contrast to these sources foreign direct investment (FDI) is more sustainable

and offer long term investment. The industry is expected to grow at a muchfaster pace due to huge capital inflow, expertise and transfer of technical


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know-how. Various sources within the industry suggest that the industry will

grow to $60-$70 billion in size from its current size of $45 billion and the life

insurance sector will get more than a billion dollar of FDI given the increase in

its limit to 49 per cent.

Rural India may also benefit from this move as with current resources Indian

firms are not able to serve this market. The opportunity is evident from the

fact that around 50 insurers are serving Indias 1.2 billion population

compared to 400 insures serving 60 million Britons. These Indian insurers are

currently focusing on the urban market leaving the rural market uninsured.

To tap this market, insurance companies require more expertise and

innovative products, designed specifically for rural India. This can be done by

raising the FDI limit and by ensuring that it is directed towards inclusive

insurance of our country by focusing on the rural and social sectors.

To make sure rural India benefit from such a move the IRDA should come up

with new norms and guidelines for insurers where a particular portion of the

FDI inflow in the sector is used in rural and social sectors. Regulations also

need to change in the direction which facilitates movement towards an era of

electronic policy issuance and de-materialisation. This will help insurers to

reach and operate in regions where they dont have presence due to logistical

difficulties.

Insurance sector is an important driver of job creation and as the number of

insurance firms increase and enter into new markets, it will provide jobs to

millions of people. Statistics reveals that private insurers have created more

than three million jobs (direct and indirect) 2003 onwards. The joint ventures

with foreign players will provide enough capital and expertise to develop new

products and hire more agents, analyst and supporting staff to enter into new

urban and rural markets.

Raising the FDI cap will also help developing infrastructure in the country. It

is a well known fact that the sustainable and inclusive growth of India isprimarily dependent on the ability of government to provide adequate


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infrastructure to all sectors. But figures suggest that we spend only 6 per cent

of our GDP on infrastructure development as compared to 20 per cent of GDP

by China. Lack of funds is a primary concern to build up and support huge

infrastructure projects. As per the Eleventh Plan, government spending cansupport only 43 per cent of infrastructure development projects and around

70-80 per cent of rest of funding has to be raised through debt market where

insurance companies with long-term investment horizon can play a vital role.

As of now insurance firms are not major contributors in infrastructure

funding but with a higher FDI cap and improved regulations and guidelines

there is a possibility to attract more firms to invest their insurance premiums

in infrastructure projects.

A section of supporters suggest that instead of raising the limit to 49 per cent,

it should be raised to 51 per cent. It will have a bigger impact in attracting

more investment in the sector. However, the sector is still in a developing state

and Indian players are not capable and experienced to compete with their

foreign peers (above 50 per cent FDI will give management control to foreign

players). So it is advisable to wait until the market is mature and Indianplayers get sufficient expertise and technical know-how to compete with their

foreign peers.

We will see major change in the way the Indian insurance sector is

functioning at the moment. The business model will change from agent-

centric to customer-centric, which offers more value to its end customers.

There will be more products in the market catering the needs of all sections of

society; the role of insurance agents will transform from mere intermediaries

to financial advisers; people will be more aware of insurance products and

customers will get better products and services at competitive prices. The

shortage of technical know-how and expertise in the Indian industry (like

claims management, actuarial, underwriting etc) will be overcome by

technology and know-how transfer, generally not available under the current

system.


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Barriers to FDI in the insurance sectorDespite its recent growth, the Indian insurance market lags behind other

economies in the baseline measure of insurance penetration. At only 2.8%,

India is well behind the 13% for the UK, 11% for Japan, 10% for Korea, 9.6%

for the US, and even 3.4% for China. Given the dramatic demographic shifts

now taking place in India, it is clear that the insurance industry will need to

play an increasingly important role in the future. For this to be achieved,

further modernisation is required of the regulatory environment for insurance

in India.

The following barriers to insurance in India are considered as most important:

- 26% cap on foreign direct investment in insurance companies

- Set tariffs and conditions which still dominate non-life insurance in India

- Reinsurance monopoly

Barriers with regards to the national treatment in insurers in India Certain government banks are unwilling to accept insurance covers written

by private insurance companies (i.e. Marine)

Removing this barrier would increase revenues available to private insurers

and widen the choice of available cover

Foreign reinsurers are not granted right of first refusal privileges while

domestic reinsurers have this right.

The national reinsurer, General Insurance Corporation, has the right but not

obligation to accept any business that requires reinsurance over and above

20% mandatory cessions. This unfair advantage has created an unlevel playing

field, and National Re remains effectively a monopoly in the market.


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Effective prohibition on cessions abroad. Insurance law makes it mandatory

to place the business within India (exhaust local capacity) before reinsurance

can be taken out with foreign reinsurers.

Greater reinsurance competition would increase pressure on price.

Barriers with regard to market access of foreign insurers in India Restrictions on foreign equity ownership of insurance and insurance

brokerage companies. Foreign insurers cannot establish unless via a joint

venture with an approved partner with a minimum 74% local shareholding.

This restriction will hamper the growth prospects of private companies,

as growth requires more capital allocation, which the local partners

may be unable to match. While the intent of the current government to

raise the foreign equity ownership cap to 49% has been made clear, it

has yet to result in action.

Set tariffs dominate the market resulting in poor development of

underwriting skills and leading to cross-subsidisation.

74% of the market GWP is regulated by tariff; the Tariff Advisory

Committee decides on price, terms and conditions. This prevents

insurance companies from offering product or price differentiation.

Capitalisation requirements in India are at USD 25 million for initial

establishment. This may restrict market entry by mono-line insurers. Their entry would

create greater awareness and demand.

Limitations with respect to payment of claims in foreign currency-exceptions

require approvals from RBI


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A lengthy permission process is required from the central bank.

Removal of this barrier would reduce administrative costs and reduce

currency risk.

Imposition of 20% mandatory cessions across the board for non-life classes to

state reinsurer.

The National Reinsurer, General Insurance Corporation, benefits from a

share of 20% of every business written by Insurance companies. This

prevents insurance companies from retaining profitable classes of

business on their own books and restricts them from seeking better

terms from foreign reinsurers.

Insurance companies investments are strictly limited. Most funds in

insurance companies are only allowed to be invested in low-return state and

central government bonds.

This is an impediment for foreign insurers as their profits and the

returns available to policyholders - may suffer from their inability to

invest in a wider range of investment products.


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FDI Regulations in Insurance SectorA non-resident entity (other than a citizen of Pakistan or an entity

incorporated in Pakistan) can invest in India, subject to the Foreign Direct

Investment (FDI) policy. A citizen of Bangladesh or an entity incorporated in

Bangladesh can invest in India under the FDI policy, only under the

Government route.

NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are

permitted to invest in the capital of Indian companies on repatriation basis,

subject to the condition that the amount of consideration for such investment

shall be paid only by way of inward remittance in free foreign exchange

through normal banking channels.

As per the policy, Foreign Direct Investment (FDI) by non-resident in resident

entities through transfer or issue of security to a person resident outside India

in insurance sector is as follows:

1. FDI upto 26% is allowed under the automatic route.

2. This will be subject to the condition that Companies bringing in FDI shall

obtain necessary license from the Insurance regulatory Development

Authority (IRDA) for undertaking insurance activities.

A person desiring to obtain a licence (hereinafter referred to as the

applicant) from Insurance Regulatory Development Authority to act as a

corporate agent or a composite corporate agent shall proceed as follows:

1. The applicant shall make an application to a designated person in Form

IRDA-Corporate Agents-A-1. (Provided that the applicant, who desires to be a

composite corporate agent, shall make two such separate applications)


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2. The fees payable by the applicant to the Authority shall be Rupees Two

Hundred and Fifty only.

3. The designated person may, on receipt of the application along with theevidence of payment of fees to the Authority, and on being satisfied that the

corporate insurance executive of the applicant:-

i. possesses the prescribed qualifications;

ii. possesses the prescribed practical training;

iii. has passed the prescribed examination;

iv. has furnished an application complete in all respects;

v. has the requisite knowledge to solicit and procure insurance business; and

vi. is capable of providing the necessary service to the policyholders;

Grant or renew, as the case may be, a licence in Form IRDA-Corporate Agents-

L-1

4. Every licence granted by the Authority to a corporate agent or any renewal

thereof, in terms of these regulations, shall remain in force for three years.

A licence granted to a corporate agent may be renewed for a further period of

three years on submission of the application form along-with a renewal fee of

rupees two hundred and fifty, at least thirty days prior to the date of expiry of

the licence.


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Strategy adopted by foreign investorsIn India only 26% fdi is allowed through automatic route. Generally foreign

insurance company make alliance with reputed Indian company or bank and

operates their business in Joint Venture with their Indian counterpart. It is

necessary that Indian company should have at least 74% share in the venture.

What is joint venture?

There are many good business and accounting reasons to participate in a Joint

Venture (often shortened JV). Partnering with a business that has

complementary abilities and resources, such as finance, distribution channels,

or technology, makes good sense. These are just some of the reasons

partnerships formed by joint venture are becoming increasingly popular.

A joint venture is a strategic alliance between two or more individuals or

entities to engage in a specific project or undertaking. Partnerships and joint

ventures can be similar but in fact can have significantly different implications

for those involved. A partnership usually involves a continuing, long-term

business relationship, whereas a joint venture is based on a single business

project.

Parties enter Joint Ventures to gain individual benefits, usually a share of the

project objective. This may be to develop a product or intellectual property

rather than joint or collective profits, as is the case with a general or limited

partnership.

A joint venture, like a general partnership is not a separate legal entity.

Revenues, expenses and asset ownership usually flow through the joint

venture to the participants, since the joint venture itself has no legal status.

Once the Joint venture has met its goals the entity ceases to exist.


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What are the Advantages of forming a Joint Venture? Provide companies with the opportunity to gain new capacity and

expertise

Allow companies to enter related businesses or new geographic markets or

gain new technological knowledge

access to greater resources, including specialised staff and technology

sharing of risks with a venture partner

Joint ventures can be flexible. For example, a joint venture can have a

limited life span and only cover part of what you do, thus limiting both

your commitment and the business' exposure. In the era of divestiture and consolidation, JVs offer a creative way for

companies to exit from non-core businesses.

Companies can gradually separate a business from the rest of the

organisation, and eventually, sell it to the other parent company. Roughly

80% of all joint ventures end in a sale by one partner to the other.

The Disadvantages of Joint Ventures It takes time and effort to build the right relationship and partnering with

another business can be challenging. Problems are likely to arise if:

The objectives of the venture are not 100 per cent clear and communicated

to everyone involved.

There is an imbalance in levels of expertise, investment or assets brought

into the venture by the different partners.

Different cultures and management styles result in poor integration and

co-operation.

The partners don't provide enough leadership and support in the early

stages.

Success in a joint venture depends on thorough research and analysis of

the objectives.


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Embarking on a Joint Venture can represent a significant reconstruction to

your business. However favourable it may be to your potential for growth, it

needs to fit with your overall business strategy.

It's important to review your business strategy before committing to a joint

venture. This should help you define what you can sensibly expect. In fact,

you might decide there are better ways to achieve your business aims.

You may also want to study what similar businesses are doing, particular those

that operate in similar markets to yours. Seeing how they use joint ventures

could help you decide on the best approach for your business. At the sametime, you could try to identify the skills they use to partner successfully.

You can benefit from studying your own enterprise. Be realistic about your

strengths and weaknesses - consider performing strengths, weaknesses,

opportunities and threats analysis (swot) to identify whether the two

businesses are compatible. You will almost certainly want to identify a joint

venture partner that complements your own skills and failings.

Remember to consider the employees' perspective and bear in mind that

people can feel threatened by a joint venture. It may be difficult to foster

effective working relationships if your partner has a different way of doing

business.

When embarking on a joint venture its imperative to have your

understanding in writing. You should set out the terms and conditions agreed

upon in a written contract, this will help prevent misunderstandings and

provide both parties with strong legal recourse in the event the other party

fails to fulfil its obligations while under contract.

A written Joint Venture Agreement should cover:

The parties involved The objectives of the joint venture
http://www.rpemery.com/online/joint-venture-agreement.htmlhttp://www.rpemery.com/online/joint-venture-agreement.html


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Financial contributions you will each make whether you will transfer any

assets or employees to the joint venture

Intellectual property developed by the participants in the joint venture

Day to day management of finances, responsibilities and processes to befollowed.

Dispute resolution, how any disagreements between the parties will be

resolved

How if necessary the joint venture can be terminated.

The use of confidentiality or non-disclosure agreements is also

recommended to protect the parties when disclosing sensitive commercial

secrets or confidential information.

JOINT VENTURE STRATEGIESBusinesses should not engage in joint ventures without adequate planning and

strategy. They cannot afford to, since the ultimate goal of joint ventures is the

same as it is for any type of business operation: to make a profit for the owners

and shareholders. A successful company in any type of business is often

recruited heavily for participation in joint ventures. Thus, they can pick and

choose in which partnerships they would like to engage, if any. They follow

certain ground rules, which have been developed over the years as joint

ventures have grown in popularity.

For example, experience dictates that both parties in a joint venture should

know exactly what they wish to derive from their partnership. There must be

an agreement before the partnership becomes a reality. There must also be a

firm commitment on the part of each member. One of the leading causes for

the failure of joint ventures is that some participants do not reveal their true

intentions in the partnerships. For example, some private companies in

advanced countries have formed partnerships with militant governments to

supply technological expertise and develop products such as chemicals or


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nuclear reactors to be used for allegedly peaceful purposes. They learned later

that the products were used for military purposes. Such results can be

detrimental to the companies involved and adversely affect their bottom lines

and reputations, to speak nothing of the direct victims of the militarydevelopment.

Businesses should form joint ventures with experienced partners. If the

partners do not have approximately equal experience, one can take advantage

of the other, which can lead to failure. Joint ventures generally do not survive

under this imbalanced dynamic. Nor do they survive if companies jump into

them without testing the partnership first.

Partners in joint ventures would often be better off participating in small

projects as a way to test one another instead of launching into one large

enterprise without an adequate feeling-out process. This is especially true

when companies with different structures, corporate cultures, and strategic

plans work together. Such differences are difficult to overcome and frequently

lead to failure. That is why a "courtship" is beneficial to joint ventureparticipants.


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Some examples of joint venture in insurance sectorTata AIG Insurance Solutions

Tata AIG Insurance Solutions, one of the leading insurance providers in India,

started its operation on April 1, 2001. A joint venture between Tata Group

(74% stake) and American International Group, Inc. (AIG) (26% stake), Tata

AIG Insurance Solutions has two different units for life insurance and general

insurance. The life insurance unit is known as Tata AIG Life Insurance

Company Limited, whereas the general insurance unit is known as Tata AIG

General Insurance Company Limited.

AVIVA Life Insurance

AVIVA Life Insurance, one of the popular insurance companies in India, is a

joint venture between the renowned business group, Dabur and the largest

insurance group in the UK, Aviva plc. AVIVA Life Insurance has an extensive

network of 208 branches and about 40 Bancassurance partnerships, spread

across 3,000 cities and towns across the country. There are more than 30,000

Financial Planning Advisers (FPAs) working for AVIAV Life Insurance. It offers

various plans like Child, Retirement, Health, Savings, Protection and Rural.

MetLife Insurance

MetLife India Insurance Company Limited is another popular player in Indianinsurance sector. A joint venture between the Jammu and Kashmir Bank, M.

Pallonji and Co. Private Limited and other private investors and MetLife

International Holdings, Inc., MetLife Insurance offers a wide range of financial

solutions to its customers including Met Suraksha, Met Suraksha TROP, Met

Mortgage Protector and Met Suraksha Plus etc. It has its branches situated

over 600 locations across the country. More than 50,000 Financial Advisors

work for MetLife.


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ING Vysya Life Insurance

ING Vysya Life Insurance entered into the Indian insurance industry inSeptember 2001. A joint venture between ING Group, Ambuja Cements, Exide

Industries and Enam Group, ING Vysya Life Insurance uses its two channels,

viz. the Alternate Channel and the Tied Agency Force to distribute its products.

The first channel has branches in 234 cities across the country and has got

366 sales teams. On the other hand, the later one has more than 60,000

advisors. Currently, ING Vysya Life Insurance has tie ups with more than 200

cooperative banks.

Birla Sun Life Financial Services

Birla Sun Life Financial Services is a joint venture between Aditya Birla Group

and Sun Life Financial Inc, Canada. It has got an extensive network of more

than 600 branches. More than 1,75,000 empanelled advisors work for BirlaSun Life, which currently covers over 2 million lives.

MAX New York Life

Max New York Life Insurance Company Ltd. is one of the top insurance

companies in India. A joint venture between Max India Limited and New York

Life International (a part of the Fortune 100 company - New York Life), Max

New York Life Insurance Company Ltd. started its operation in April 2001. It

currently has around 715 offices located in 389 cities across the country. It

also has around 75,832 agent advisors. Max New York Life offers 39

products, which cover both, life and health insurance.


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Bajaj Allianz

Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE,

where Bajaj Finserv Limited holds 74% of the stake, whereas Allianz SE holds

the rest 26% stake. Bajaj Allianz has been rated iAAA by ICRA for its ability to

pay claims. The company also achieved a growth of 11% with a premium

income of ` 2866 crore as on March 31, 2009.

Bharti AXA Life Insurance

Bharti AXA Life Insurance, one of the top insurance companies in India, is ajoint venture between Bharti group and world leader AXA. Bharti holds 74%

stakes, whereas AXA holds the rest of 26%. Bharti AXA has its branches

located in 12 states across the country. It offers a range of individual, group

and health plans for its customers. Currently more than 8000 employees work

for Bharti AXA Life Insurance.


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SuggestionOn the basis of my study I figured out some of the important factors which

can help India in not only attracting more FDI in insurance sector but can also

help to increase Indias reputation as a premium investment destinations.

Some of the suggestions are as follows:-

It was demanded since long time that FDI cap for insurance sector

should raise upto at least 49% from its current 26%. This will attract

further more investors in India. As competition will increase and this

will result into enhanced product quality

A lengthy permission process is required from the central bank.

Removal of this barrier would reduce administrative costs and reduce

currency risk for foreign company.

The state-owned General Insurance Corporation (GIC), with itstraditionally close ties to the primary insurers of the public sector, holds

a monopoly, being the only domestic reinsurer in India. Mandatory

cessions to GIC and its right of first refusal privilege prevent Indian

primary insurers from diversifying their risks freely and flexibly.

Opening up Reinsurance sector will definitely help India to attract more

FDI.


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ConclusionThere is no doubt that the potential market for the buyers of insurance is

significant in India and offers a great scope of growth. While estimating the

potential of the Indian insurance market we often tempt to look at it from theperspective of macro-economic variables such as the ratio of premium to GDP,

which is indeed comparatively low in India. For example, India's life insurance

premium as a percentage of GDP is 1.3% against 5.2% in the US, 6.5% in the

UK or 8% in South Korea. But the fact is that the large part of the India's (the

number of potential buyers of insurance) is certainly attractive. However, this

ignores the difficulties of approaching this population. Much of the demand

may not be accessible because of poor distribution, large distances or high

costs relative to returns.

Despite innumerable delays the sector has finally opened up for private

competition. The threat of private players shaking and giving the run for

incremental market share for the Public Sector mammoths has been

overplayed. The number of potential buyers of insurance is certainly attractive

but much of this population might not be accessible for the new insurers.

Since distribution will be a key determinant of success for all insurance

companies regardless of age or ownership, Indian Insurance companies

should broaden the distribution network. As the product move towards the

mature stages of commodization (increased awareness and popularity) theycould then a host of new channels like grocery stores, direct mails. Regulators

must formulate strong and fair guidelines and ensure that old and new players

are subject to the same rules and at the same time the government should

ensure that the IRDA does not become yet another toothless tiger like CEA or

TRAI.

In a reopened Indian insurance market, regulators must formulate strong fair

and transparent guidelines and make sure that old and new players aresubject to the same rules. Companies meanwhile must be prepared to set and

meet high standards for themselves. The big challenge for both companies and

regulators is to ensure that they replicate the benefits of the past while

eliminating its ills.


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References www.rbi.org.in

www.irda.com Banking and Insurance - Law and PracticebyThe Institute of Company Secretaries

of India (ICSI)

International Marketing by Michael R. Czinkota, Illka A. Ronkainen

Global Marketing (3rd Edition) by Warren J. Keegan, Mark Green

International marketing by R. Srinivasan

Ministry of commerce websites

Business Today

Business & Economy
http://www.rbi.org.in/http://www.rbi.org.in/http://www.irda.com/http://www.irda.com/http://jainbookagency.com/newdetails.aspx?id=72516http://jainbookagency.com/newdetails.aspx?id=72516http://jainbookagency.com/booksearch.aspx?aname=The%20Institute%20of%20Company%20Secretaries%20of%20India%20(ICSI)http://jainbookagency.com/booksearch.aspx?aname=The%20Institute%20of%20Company%20Secretaries%20of%20India%20(ICSI)http://jainbookagency.com/booksearch.aspx?aname=The%20Institute%20of%20Company%20Secretaries%20of%20India%20(ICSI)http://jainbookagency.com/booksearch.aspx?aname=The%20Institute%20of%20Company%20Secretaries%20of%20India%20(ICSI)http://jainbookagency.com/booksearch.aspx?aname=The%20Institute%20of%20Company%20Secretaries%20of%20India%20(ICSI)http://jainbookagency.com/booksearch.aspx?aname=The%20Institute%20of%20Company%20Secretaries%20of%20India%20(ICSI)http://jainbookagency.com/newdetails.aspx?id=72516http://www.irda.com/http://www.rbi.org.in/

an analysis of fdi scenario in indian insurance sector

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