insurance sector india

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INTRODUCTION :

Insurance is a form of risk mgmt. primarilyused to hedge againstthe risk of uncertain loss.Insurance is defined as the equitable transfer

the risk of loss, from one entity to another, inexchange for payment.

Insurance, whether life or non-life, providespeople with a reasonable degree of securityand assurance that they will be protected in theevent of a calamity or failure of any sort .
http://en.wikipedia.org/wiki/Hedge_(finance)http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Uncertaintyhttp://en.wikipedia.org/wiki/Uncertaintyhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Hedge_(finance)


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F A C T O R S A F F E C T I N G

S E R V I C E S

E C T O R Five environmental variables that affect all

industries-

Customers

Competitors

Government

Technology and

Globalization .


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ORIGIN AND GROWTH OF INSURANCE SECTOR :

Insurance in modern form originated during the 13thcentury. (The earliest references to insurance- found inthe 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 1818when it was conceived as a means to provide for English Widows.

A higher premium was charged for Indian lives than thenon-Indian lives (considering to be more riskier for coverage).


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Oriental life Insurance Company was incorporated atCalcutta in 1818 , followed by Bombay Life AssuranceCompany in 1823 and Triton Insurance Company for General Insurance in 1850 . By 1938 there were 176

insurance companies.Insurance regulation formally began in India throughthe passing of two acts

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

However the first comprehensive legislation wasintroduced with the Insurance Act of 1938 thatprovided strict state control over insurance businessin the country.


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The business of India Insurance grew at afaster place as competition amongst theIndian companies intensified.

The decision of nationalization of lifeinsurance business took place in 1956 when245 Indian and foreign insurance providentsocieties were first merged and then

nationalized.It paved the way towards the establishment of one nationalized monopoly corporation calledLife Insurance Corporation (LIC)



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Nationalization was justified on the grounds that itwould create the much needed funds for rapidindustrialization and self-reliance in heavyindustries.

The Insurance Act was amended to allow for social control over the general insurancebusiness.Subsequently in 1973, non-life insurance businesswas nationalized and the General InsuranceBusiness (Nationalization) Act, 1972 was applied.



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

Insurance Corporation (GIC) were themonopoly insurance providers in India.Under GIC there were four subsidiaries

National 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 entry restrictions for private sector investors.Foreign investment insurance market wasalso allowed with 26 percent cap.GIC was converted into India's nationalreinsure, from December 2000 .

All the subsidiaries working under the GICumbrella were restructured as independentinsurance companies.



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INSURANCE S ECTOR REFORMS

In 1993, Malhotra Committee- headed byformer Finance Secretary and RBIGovernor R.N. Malhotra- was formed to

evaluate the Indian insurance industryand recommend its future direction.The Malhotra committee was set up withthe objective of complementing thereforms initiated in the financial sector.


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The reforms were aimed at:Creating a more efficient and competitivefinancial system suitable for the

requirements of the economyKeeping in mind the structural changescurrently underway and

Recognizing that insurance is an importantpart of the overall financial system where itwas necessary to address the need for similar reforms.

INSURANCE S ECTOR REFORMS


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R E C O M M E N D A T I O N S

StructureGovernment should take over the holdings of GIC and itssubsidiaries.

All the insurance companies should be given greater freedom to operate.

CompetitionPrivate Companies with a min paid up capital of Rs.1billion

should be allowed to enter the sector.No Company should deal in both Life and GeneralInsurance through a single entity.Foreign companies may be allowed to enter the industry incollaboration with the domestic companies.

Postal Life Insurance should be allowed to operate in therural market.Only one State Level Life Insurance Company should beallowed to operate in each state.


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Regulatory BodyThe Insurance Act should be changed.

An Insurance Regulatory body should be set up.Controller of Insurance- a part of the Finance Ministry-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 anycompany

Customer Service

LIC should pay interest on delays in payments beyond 30days.Must be encouraged to set up unit linked pension plans.Computerization of operations and updating of technology tobe carried out in the insurance industry


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The Committee:Emphasized that in order to improve the customer services and increase the coverage of insurancepolicies, industry should be opened up tocompetition.

Felt the need to exercise caution as any failure onthe part of new players could ruin the publicconfidence in the industry.

Proposed setting up an independent regulatorybody- The Insurance Regulatory and Development

Authority.


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1912 - The Indian Life Assurance Companies Actenacted as the first statute to regulate the lifeinsurance business.

1928 - The Indian Insurance Companies Act enactedto enable the government to collect statisticalinformation about both life and non-life insurancebusinesses.

1938 - Earlier legislation consolidated and amendedto by the Insurance Act with the objective of protecting the interests of the insuring public.1956 - 245 Indian and foreign insurers and provident

societies taken over by the central government andnationalized. LIC formed by an Act of Parliament, viz.LIC Act, 1956, with a capital contribution of Rs. 5crore from the Government of India.

M I L E S T O N E S I N L I C


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1907 - The Indian Mercantile Insurance Ltd. set up,the first company to transact all classes of generalinsurance business.1957 - General Insurance Council, a wing of theInsurance Association of India, frames a code of conduct for ensuring fair conduct and sound businesspractices.

1968 - The Insurance Act amended to regulateinvestments and set minimum solvency margins andthe Tariff Advisory Committee set up.1972 - The General Insurance Business(Nationalization) Act, 1972 nationalized the generalinsurance business in India with effect from 1stJanuary 1973.

M I L E S T O N E S I N G I C


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107 insurers UNITED and grouped into four 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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C O N T R I B U

T O R S

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. Ltd

Reinsurers: General Insurance Corporation of India.

C O N T R I B U

T O R S


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CONTRIBUTION TO GROWTH :Currently, the insurance sector size is estimated atRs.500 billion.On account of intense marketing strategies adoptedby private insurance players, the market share of state owned insurance companies like GIC, LIC andothers have come down to 70% in last 4-5 yearsfrom over 97%.The private insurance players despite the sector isstill regulated has been offering rate of return (RoR)to its policy holders which is estimated at about35% as against 20% of domestic insurancecompanies.


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CONTRIBUTION TO GROWTH :LIC and GIC have limited number of policies tooffer to their subscribersPrivate insurance companies offer many policiesand the premium amount as well as the maturityperiod is much competitive as against those of government insurance companies.The private sector insurance players have startedexploring the rural markets in which until recently,the state owned companies had the monopoly.Indias life insurance premium, as a percentageof GDP is 1.8%


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FUTURE OF THE S ECTOR :

Indian insurance sector is likely to register unprecedented growth of 200% and attain asize of Rs. 2000 billion by 2009-10

A private sector insurance business will achieve

a growth rate of 140% as a result of aggressivemarketing technique being adopted by themagainst 35-40% growth rate of state ownedinsurance companies.In rural markets, the share of private insuranceplayers would increase substantially as thesehave been able to generate a faith among their rural consumers.


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INSURANCE S ECTOR - E MERGING AREAS :

Demand for Pension PlansTwo 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-logyUsing Postal Network

Creating Insurance awarenessInnovative Products


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insurance sector india

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