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1818 saw the advent of life insurance business in India with the establishment of
the Oriental Life Insurance Company in Calcutta. This Company however failed in
1834. In 1829, the Madras Equitable had begun transacting life insurance business
in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and
in the last three decades of the nineteenth century, the Bombay Mutual (1871),
Oriental (1874) and Empire of India (1897) were started in the Bombay Residency.
This era, however, was dominated by foreign insurance offices which did good
business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and
London Globe Insurance and the Indian offices were up for hard competition from
the foreign companies.
The history of general insurance dates back to the Industrial Revolution in the
west and the consequent growth of sea-faring trade and commerce in the
17th century. It came to India as a legacy of British occupation. General Insurance
in India has its roots in the establishment of Triton Insurance Company Ltd., in the
year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd,
was set up. This was the first company to transact all classes of general insurance
business. 1957 saw the formation of the General Insurance Council, a wing of the
Insurance Associaton of India. The General Insurance Council framed a code of
conduct for ensuring fair conduct and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set
minimum solvency margins. The Tariff Advisory Committee was also set up then.
This millennium has seen insurance come a full circle in a journey extending to
nearly 200 years. The process of re-opening of the sector had begun in the early
1990s and the last decade and more has seen it been opened up substantially. In
1993, the Government set up a committee under the chairmanship of RN Malhotra,
former Governor of RBI, to propose recommendations for reforms in the insurance
sector. The objective was to complement the reforms initiated in the financial
sector. The committee submitted its report in 1994 wherein , among other things, it
recommended that the private sector be permitted to enter the insurance industry.
They stated that foreign companies be allowed to enter by floating Indian
companies, preferably a joint venture with Indian partners.
The IRDA opened up the market in August 2000 with the invitation for
application for registrations. Foreign companies were allowed ownership of up to
26%. The Authority has the power to frame regulations under Section 114A of the
Insurance Act, 1938 and has from 2000 onwards framed various regulations
ranging from registration of companies for carrying on insurance business to
protection of policyholders interests.
Today there are 28 general insurance companies including the ECGC and
Agriculture Insurance Corporation of India and 24 life insurance companies
operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-
20%. Together with banking services, insurance services add about 7% to the
countrys GDP. A well-developed and evolved insurance sector is a boon for
economic development as it provides long- term funds for infrastructure
development at the same time strengthening the risk taking ability of the country.
Introduction
With the development of computer technology, the World-Wide-Web has become
the connection medium for the networked world. Computers from locations that
are geographically dispersed can talk with each other through the internet. The
connectedness and rapidity of Internet processes is revolutionizing the traditional
models of our society, from technology to academics to entertainment. It is
therefore not surprising that business and trading processes are also being modified
by the Internet through e-commerce. Since the advent of the Internet, e-commerce
has become the most popular application - earning large revenues and forging a
rapid growth in related technology.
Recent surveys indicate that around 300 million people all over the world access
the Internet and about 15-20 percent of them use the Internet for e-commerce. At
present, South East Asian countries exhibit the highest rate of Internet growth.
India has been one of the key players in the information technology sector over the
past few years. Internet access in India has doubled every year over the last five
years and forecasts predict this growth to quadruple ever year over the next three
years. India is poised for a rapid growth in e-business.
Until now, the focus of e-commerce has been mainly on business to commerce
(B2C) applications, the emphasis is now shifting towards business to business
(B2B) applications. The insurance industry provides an appropriate model that
combines both B2C and B2B applications. However, the insurance industry has
been reluctant to adapt to e-business due to factors such as lack of appropriate
software infrastructure, non-awareness among customers and security concerns.
Like most other industries in India, the insurance industry has also used the
Internet mainly as another distribution channel. However, with rapid growth of
information technology infrastructure and radical economic reforms, online
insurance offers immense opportunities in India. Thus it makes sense to analyze
the impact of the recent reforms introduced in the Indian insurance industry and
how they can affect the future of online insurance in India.
Insurance companies offering e-services can be classified into the following
categories:
Web Sites almost every insurance company has a homepage providing information
about the company and products. However, these homepages are little more than
passive online versions of the company's brochures. For example, the Indian
insurance leader in the non-life segment National Insurance Corporation (NIC)
details the policies that it carries. On the other hand, New India Assurance only
provides contact information on its Web site. These sites are used primarily for
marketing support and do not support interactive dialog with interested clients.
Product Portals are sites that provide a collection of links to sites of interest.
Examples of such sites are Assure India, and Bima Guru.
Unfortunately, these sites are also equally passive as company Web pages. Point-
of-Sale Portals Unlike most other commodities, the sale of insurance products is
initiated by the sellers. Certain sits exploit this approach by offering insurance
products while selling insurable goods such as cars or while providing information
on health or college education.
Intermediate Brokers are intermediate sites that do not sell insurance products
directly but assist clients in matching their requirements with the policies offered
by insurance companies.
Reverse Auction In this model, the client is usually an organization interested in
group insurance. The client announces its requirements and selects the best offer
made by an insurance company.
Consumers are very sensitive to the introduction of new products in the market.
The enthusiasm to try out a new product results in the initial sales of the good.
When the initial or trial phase of the service is over, the product survives if the
consumer finds the utility from the good to be worth paying its price. If the product
survives, it serves as an incentive for competitors to enter the market with the same
or very similar products. The supply of the product increases. If the demand for the
product remains fixed, the price begins to fall. As there are more and more sellers
enter the market, the price of the good reduces. All these sellers can be assumed to
have an equal share of the total revenue from selling the particular type of good
since they sell very closely related products. However, the seller that had
introduced the product to the market obtains the maximum revenue since it
enjoyed the advantage of the initial sales of the good. This seller is known as the
first mover. However, first mover's advantage is a double edged sword since the
first mover also faces the risk of failure of the product. First mover's advantage is
relatively safe for established sellers that introduce a new product in the market.
Since the insurance industry is yet to shift to the online perspective, especially in
India, there is a large scope of obtaining the first mover advantage to established
insurance providers like General Insurance Corporation. E-insurance offers a large
untapped market and the first mover advantage is likely to be quite large. Even
after insurance sales have gone online, the first mover advantage can still be
obtained by introducing new policies, new incentives for policy buyers and new
schemes for insurance purchase from time to time.
The E-Insurance Scenario in India
Inspite of the rapid growth of information technology over the last five years, e-
commerce in India is still in a nascent stage of development. The reason for this
can be attributed to the lack of infrastructure, both at technical and commercial
levels and to the certain hurdles posed by Indian economic policies. Consequently,
e-insurance was also in a formative stage about a year ago. However, rapid growth
in Internet infrastructure and radical reforms in economic policies pertaining
mainly to the insurance sector have forged a rapid growth in e-insurance over the
past year.
The history of Indian Insurance and IRDA Bill
The first major step in the insurance industry was taken in India in 1956 when the
Indian government nationalized private insurance companies and created the Life
Insurance Corporation. In 1972, non-life insurance business was also nationalized
by creating the General Insurance Corporation. Both LIC and GIC are public sector
undertakings and have been holding a monopoly and in the insurance industry in
India. In order to restructure the insurance sector and end the monopoly of these
companies in the wake of liberalization of the Indian economy, a high power
committee was set up in 1993. The research findings and recommendations made
by this committee has been summarized in the Insurance Regulatory and
Development Authority (IRDA) bill. The IRDA bill comprises the reforms
introduced by the Indian government to open up the insurance sector to
participation by private and foreign companies. IRDA was itself established as a
corporate body to regulate insurance in the country.
The IRDA bill was passed by the Indian government in December 1999.
Thereafter, the Indian insurance industry has seen unforeseen growth in the number
of entrants. The companies that have entered the Indian insurance market since the
passing of the IRDA bill. The collaboration of foreign insurance companies in the
Indian market foretells a rapid growth in technology and increased competition in
the otherwise monopolist Indian insurance market.
E-Insurance in India
The intriguing question before all associated with the insurance industry is that will
it be possible for private companies or even public sector monoliths to sell
insurance online in India in the near future? Insurance companies will probably
have to wait for Internet penetration to increase and the still ambiguous e-
commerce rules to take concrete form. However, what is not debatable is that new
private entrants will change the rules of the game for the Indian insurance business,
both in the life and the non- life segment, unfolding opportunities for software
engineers and professional agents. To peep into the possibilities and opportunities
emerging out of the integration of insurance and information technology, various
organisations have organised seminars and conferences in the recent past to
explore the possibilities of selling insurance on the Net and gauge the opportunities
for the growing Indian software industry.
According to T. Ramanan of Assocham, life insurers were among the first to go
online with informative content and features like actuarial calculators. However,
according to him, they have been relatively slow to embrace online commerce,
which currently makes up about 1 per cent of the total term life market. Only 12
per cent of insurance companies globally sell policies online. Experts expect the
percentage of term life sold over the Internet to increase from I per cent to 15 per
cent by 2003, which in monetary terms works out to $21 billion. Although
traditionally term life insurance has been sold through independent agents, the big
shift will become manifest sooner than later. And more importantly Indians cannot
watch from the sidelines as this paradigm shift in the insurance sector takes place.
In the non-life sector, automobile policies are popular over the Internet. Premium
income, points out the paper, is expected to rise to $18 billion from about $1
billion currently. The growth of global online insurance business augurs well for
the Indian IT sector. The exponential growth in the online insurance business will
unfold significant business opportunities for software companies/consultants. The
opportunities that rise out of this will be both global and local, because new
entrants will have to either fine tune or prepare customized packages for the Indian
market. Online insurance will also help companies reduce costs and keep
premiums low, a prerequisite in a price sensitive market like India. The
government, however, will have to address problems relating to bandwidth on an
urgent basis to make online insurance a reality in India. Other major challenges to
face Indian insurers will be to design and develop strategies for delivering services
to well segmented customers. The third challenge lies in developing the right
combination of customer segments and applicable distribution channel strategies.
Most Web sites offer contact numbers of their branch officers where we can get
further details of the products on offer. The Agent locator feature, available on
maxnewyorklife.com, iciciprulife.com and on bimaonline.com help one locate an
insurance agent most accessible to you based on a search facility. One would
expect downloadable proposal forms on insurance web sites, but these are missing
in most cases. Only Iicindia.com seems to offer downloadable proposal and claim
forms for a few of the schemes.
Application of IT in insurance
As awareness of quality service began growing among policyholders in India also,
LIC of India had to think of many applications of information technology. Up
gradation of technology was undertaken on a huge scale. All the 2050 branch
offices, which were serving centers, were equipped with computer systems.
Training of employees also was organized on a large scale. Several software
packages for different servicing operations were introduced. A cash module was
introduced, operating with, the cashier, while sitting at his desk, is enable to print
and issue official receipts on the spot to the policyholders when they tender money
towards premium, the entire operation take a few minutes. A new business module
was introduced which enable even underwriting operations to be computerized. It
brought a complete integration of all activities connected with the processing of
policy documents Similarly, loans and surrender value module, policy revival
module, claims module were also introduced. Now revival quotations, a policy
quotations or maturity claims intimation letters are generated on the Computer. All
these gave tremendous boost to the efficiency in rendering service to the
policyholders Up gradation of technology also helped in another direction. Several
reports which could be used as MIS get generated for use by managers at all levels.
This helps management to review performance against prescribed indices and to
take appropriate corrective actions where necessary. To bring out the revolutionary
changes in communication to policyholders, several steps were taken. Inter-Voice
Response Systems have been introduced which policyholders ascertain several
types of information about their policy like policy status, premium position, loan
amount, maturity / next survival benefit due , accumulation of bonus , etc. over
telephones language in language of his choice. The policyholder can also get the
information on fax. MAN is installed in several cities, which enables policyholders
to pay premiums or get their status reports, revival, loan, surrender quotations in
any of branches offices convenient to them in the cities. Now, many of the cities
with MAN are connected by WAN, which enables policyholders to pay premium
anywhere in the country. E-mail connections have been established in many of the
offices and internet connections has been given to all the divisional offices, all
department in all the zonal offices and central offices. A website www.licinda.com
was set up to give information on the Internet about the organization, products,
service. The web pages has been made interactive with the features like online
Premium Calculation, On-line Bonus Calculation, On-line Forms etc. The
site includes features on Frequently Asked Questions by Non Resident Indians.
The corporation has also set up interactive touch screen based multimedia Kiosks
in prime location in the metros and major cities for dissemination of information
on the product and services. The corporation has plans to redesign these kiosks to
provide policy details and accept premium payments. All these applications have
definitely brought a great amount of satisfaction to policyholders. The steps taken
by LIC of India during the past 5 to 6 years are an indication of the importance role
that information technology can play in ensuring a very high quality in the serving
operations of a life insurance company. Several private life insurance companies
are also utilizing the latest technology available including creating their own web
sites. A few private web sites like Bima online also have been established
Technology is the most important tool in another very important area of life
insurance functions. It is valuation. The process by which the values of various
polices of insurance existing at a point of time are obtained is called valuation of
liabilities of an insurer was small, policy values used to be calculated for
individuals policies. But when the number of policies runs into several lakh or
crore, as a present it is extremely inconvenient to calculate the value of each
contract separately. Methods have, therefore, been devised to collect data for each
plan of insurance in a form suitable for valuation in groups having some common
characteristic like age, duration or term to run to maturity and like. Grouping is
done only if there is sufficient number of policies to make the group of a
reasonable size. For a sufficient large life insurance organization, this work is
possible only through application of technology. It is a legal requirement today in
our country for a life insurance company to conduct an actuarial valuation every
year. This adds to importance of IT application. With increasing complexity of
products both life insurance and pension entering the market, the field force,
especially the agents needs a large support from the company represent. While
discussing life insurance program with potential customers, agents need
sophisticated information including benefits, comparisons, , needs and matching
products , rates and impact on the customers budget , returns, etc,. Like in Japan,
life insurance companies in India may also supply Palm Tops to their sales force.
This will be possible only through extension of concepts of information
technology. Market research is another area where information technology has a
great role to play. Todays, the customer has become the center around the entire
market revolves. The world is fast moving towards market driven economy.
Organizations, which were merely based on sales concept, are eagerly aiming to
convert themselves into marketing organizations. Life insurance companies which
primarily deal with the financial needs of the people cannot ignore these realities.
The life insurance has become very dynamic. The needs, aspirations, attitudes,
buying behaviors, standards and quality of life are changing. The perceptions of
what constitutes standards and quality of life are changing. The perceptions of
what constitutes standard of life is also undergoing a metamorphosis. Different
types of product are the need hour. The demand is more for flexible rather than
packaged products especially in the service market. To certain its share and to
improve it, there is no alternative for any life insurance company than to have a
continuous market research. The company should know the demographic changes
taking place in the society. They should know what is selling and where. They
should know the pace of sales on the day to day basis. They should not only know
the emerging customer profile but also the size of the market. All these need a
scientific market survey and research either done in house or outsourced. A typical
market survey report is appended which shows the enormity of the job. Without the
support of technology, this will be an impossible task for the company.
Indian Insurance Sectors and Its Information Technology Needs The insurance
sector in India is nearly 150 years old. It is now in the third phase of its existence.
The first phase was the long growth phase before the two nationalizations in 1956
and 1971 of life and general insurance respectively. At that point of time, there
were more than 200 life insurance companies and 108 general insurance
companies. They were all private sector insurers with the exception of one state-
owned general insurer. Several overseas insurers were operating in India through
branches. In the second phase, the entire sector became a state monopoly. In the
third phase, we now have several new private sector players competing with the
large public sector insurers. There is a evolutionary change in the technology that
has revolutionized the entire insurance sector. Insurance industry is a data-rich
industry, and thus, there is a need to use the data for trend analysis and
personalization. With increased competition among insurers, service has become a
key issue. Moreover, customers are getting increasingly sophisticated and
techsavvy. People today dont want to accept the current value propositions, they
want personalized interactions and they look for more and more features and add
ones and better service. The insurance companies today must meet the need of the
hour for more and more personalized approach for handling the customer. Today
managing the customer intelligently is very critical for the insurer especially in the
very competitive environment. Companies need to apply different set of rules and
treatment strategies to different customer segments. However, to personalize
interactions, insurers are required to capture customer information in an integrated
system. With the explosion of Website and greater access to direct product or
policy information, there is a need to developing better techniques to give
customers a truly personalized experience. Personalization helps organizations to
reach their customers with more impact and to generate new revenue through cross
selling and up selling activities. To ensure that the customers are receiving
personalized information, many organizations are incorporating knowledge
database-repositories of content that typically include a search engine and lets the
customers locate the all document and information related to their queries of
request for services. Customers can hereby use the knowledge database to manage
their products or the company information and invoices, claim records, and
histories of the service inquiry. These products also may be able to learn from the
customers previous knowledge database and to use their information when
determining the relevance to the customers search request.
Kiosks
E-Insurance in India
The intriguing question before all associated with the insurance industry is that will
it be possible for private companies or even public sector monoliths to sell
insurance online in India in the near future? Insurance companies will probably
have to wait for Internet penetration to increase and the still ambiguous e-
commerce rules to take concrete form. However, what is not debatable is that new
private entrants will change the rules of the game for the Indian insurance business,
both in the life and the non- life segment, unfolding opportunities for software
engineers and professional agents. To peep into the possibilities and opportunities
emerging out of the integration of insurance and information technology, various
organisations have organised seminars and conferences in the recent past to
explore the possibilities of selling insurance on the Net and gauge the opportunities
for the growing Indian software industry. According to T. Ramanan of Assocham,
life insurers were among the first to go online with informative content and
features like actuarial calculators. However, according to him, they have been
relatively slow to embrace online commerce, which currently makes up about 1 per
cent of the total term life market. Only 12 per cent of insurance companies globally
sell policies online. Experts expect the percentage of term life sold over the
Internet to increase from I per cent to 15 per cent by 2003, which in monetary
terms works out to $21 billion. Although traditionally term life insurance has been
sold through independent agents, the big shift will become manifest sooner than
later. And more importantly Indians cannot watch from the sidelines as this
paradigm shift in the insurance sector takes place. In the non-life sector,
automobile policies are popular over the Internet. Premium income, points out the
paper, is expected to rise to $18 billion from about $1 billion currently. The growth
of global online insurance business augurs well for the Indian IT sector. The
exponential growth in the online insurance business will unfold significant
business opportunities for software companies/consultants. The opportunities that
rise out of this will be both global and local, because new entrants will have to
either fine tune or prepare customized packages for the Indian market. Online
insurance will also help companies reduce costs and keep premiums low, a
prerequisite in a price sensitive market like India. The government, however, will
have to address problems relating to bandwidth on an urgent basis to make online
insurance a reality in India. Other major challenges to face Indian insurers will be
to design and develop strategies for delivering services to well segmented
customers. The third challenge lies in developing the right combination of
customer segments and applicable distribution channel strategies. Most Web sites
offer contact numbers of their branch officers where we can get further details of
the products on offer. The Agent locator feature, available on maxnewyorklife.com,
iciciprulife.com and on bimaonline.com help one locate an insurance agent most
accessible to you based on a search facility. One would expect downloadable
proposal forms on insurance web sites, but these are missing in most cases. Only
Iicindia.com seems to offer downloadable proposal and claim forms for a few of
the schemes.