Globlization And Its Impact Of Insurance

Industry In India
INTRODUCTION

The word "Fear" has only four alphabets like love but both of them have very different e meaning.
Whatever man (malor female) does for the love of their families always starts with the background
of fear. Generally so many times we have been asking our selves that, what will happen if we were
not there, but we keep on asking rather then doing something for it. Time is precious, it never stops
for any one and we are living in the world of uncertainty; the uncertainty of job, the uncertainty of
money, the uncertainty of property and like this the story goes continuous for the whole life of a
man.

A thriving insurance sector is of vital importance to every modern economy. Firstly because it
encourages the habit of saving, secondly because it provides a safety net to rural and urban
enterprises and productive individuals. And perhaps most importantly it generates long- term
invisible funds for infrastructure building. The nature of the insurance business is such that the
cash inflow of insurance companies is constant while the payout is deferred and contingency
related.

This characteristic feature of their business makes insurance companies the biggest investors in
long-gestation infrastructure development projects in all developed and aspiring nations. This is
the most compelling reason why private sector (and foreign) companies, which will spread the
insurance habit in the societal and consumer interest are urgently required in this vital sector of the
economy. Opening up of insurance to private sector including foreign participation has resulted
into various opportunities and challenges in India.

LIFE INSURANCE MARKET

The Life Insurance market in India is an underdeveloped market that was only tapped by the state
owned LIC till the entry of private insurers. The penetration of life insurance products was 19
percent of the total 400 million of the insurable population. The state owned LIC sold insurance
as a tax instrument, not as a product giving protection. Most customers were under- insured with
no flexibility or transparency in the products. With the entry of the private insurers the rules of the
game have changed.

The 12 private insurers in the life insurance market have already grabbed nearly 9 percent of the
market in terms of premium income. The new business premium of the 12 private players has
tripled to Rs 1000 crore in 2002- 03 over last year. Meanwhile, with regard to state owned LIC's
new premium business has fallen.

Innovative products, smart marketing and aggressive distribution. That's the triple whammy
combination that has enabled fledgling private insurance companies to sign up Indian customers
faster than anyone ever expected. Indians, who have always seen life insurance as a tax saving
device, are now suddenly turning to the private sector and snapping up the new innovative products
on offer.

The growing popularity of the private insurers is evidenced in other ways. They are coining money
in new niches that they have introduced. The state owned companies still dominate segments like
endowments and money back policies. But in the annuity or pension products business, the private
insurers have already wrested over 33 percent of the market. And in the popular unit-linked
insurance schemes they have a virtual monopoly, with over 90 percent of the customers.
The private insurers also seem to be scoring big in other ways- they are persuading people to take
out bigger policies. For instance, the average size of a life insurance policy before privatization
was around Rs 50,000. That has risen to about Rs 80,000. But the private insurers are ahead in this
game and the average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh- way bigger than
the industry average.

Buoyed by their quicker than expected success, nearly all private insurers are fast- forwarding the
second phase of their expansion plans. No doubt the aggressive stance of private insurers is already
paying rich dividends. But a rejuvenated LIC is also trying to fight back to woo new customers.

INSURANCE TODAY

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N.
Malhotra, was formed to evaluate the Indian insurance industry and recommend its future
direction. The Malhotra committee was set up with the objective of complementing the reforms
initiated in the financial sector.

With the setup of Insurance Regulatory Development Authority (IRDA) the reforms started in the
Insurance sector. It has became necessary as if we compare our Insurance penetration and per
capita premium we are much behind then the rest of the world. The table above gives the statistics
for the year 2000.

With the expected increase in per capita income to 6% for the next 10 year and with the
improvement in the awareness levels the demand for insurance is expected to grow.
As per an independent consultancy company, Monitor Group has estimated a growth form Rs. 218
Billion to Rs. 1003 Billion by 2008. The estimations seems achievable as the performance of 13
life Insurance players in India for the year 2002-2003 (up to October, based on the first year
premium) is Rs. 66.683 million being LIC the biggest contributor with Rs. 59,187 million. As of
now LIC has 2050 branches in 7 zones with strong team of 5,60,000 agents.

IMPACT OF GLOBALISATION

While nationalized insurance companies have done a commendable job in extending the volume
of the business, opening up insurance sector to private players was a necessity in the context of
globalization of financial sector. If traditional infrastructural and semipublic goods industries such
as banking, airlines, telecom, power etc., have significant private sector presence, continuing a
state of monopoly in provision of insurance was indefensible and therefore, the globalization of
insurance has been done as discussed earlier. Its impact has to be seen in the form of creating
various opportunities and challenges.

The introduction of private players in the industry has added colours to the dull industry. The
initiatives taken by the private players are very competitive and have given immense competition
to the on time monopoly of the market LIC. Since the advent of the private players in the market
the industry has seen new and innovative steps taken by the players in the sector. The new players
have improved the service quality of the insurance. As a result LIC down the years have seen the
declining in its career. The market share was distributed among the private players. Though LIC
still holds 75% of the insurance sector the upcoming nature of these private players are enough to
give more competition to LIC in the near future. LIC market share has decreased from 95%(2002-
03) to 81% (2004-05). The following company holds the rest of the market share of the insurance
industry.

TABLE - 1

IMPACT OF GLOBALISATION

NAME OF THE PLAYER MARKET SHARE (%)

LIC 82.3

ICICI PRUDENTIAL 5.63

BIRLA SUN LIFE 2.56

BAJA ALLIANZ 2.03

SBI LIFE 1.80

HDFC STANDARD 1.36

TATA AIG 1.29

MAX NEW YORK 0.90

AVIVA 0.79

OM KOTAK MAHINDRA 0.51

ING VYASA 0.37

AMP SANMAR 0.26

METLIFE 0.21
PRESENT SCENARIO OF GLOBALISATION

In a tough battle to expand market shares the private sector life insurance industry consisting of 14
life insurance companies at 26% have lost 3% of market share to the state owned Life Insurance
Corporation(LIC) in the domestic life insurance industry in 2006-07. According to the figures
released by Insurance Regulatory & Development Authority, the total premium of these 14
companies have shot up by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crore.

LIC with a total premium mobilisation of Rs 55,934 crore has been able to retain a market share
of 74.26 % during the reporting period. In total the life insurance industry in first year premium
has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07 performance has thrown a
few surprises in the ranking among the private sector life insurance companies. New entrants like
Reliance Life and SBI Life had shown a huge growth of over 381% and 210% respectively during
the year. Reliance Life which has become one of the top five companies ended the year with a
premium of Rs 930 crore during the year.

Though ICICI Prudential Life Insurance remained as the No 1 private sector life insurance
company during the year. Bajaj Allianz overtook ICICI Prudential in terms of monthly market
share in March, for the first time ever. Bajaj's market share among private players in non-single
premium for March stood at 29.1% vs. ICICI Prudential's 23.8%. Bajaj gained 4.6 percentage point
market share among private sector players for FY07.

Among other private players, SBI Life and Reliance Life continued to do well, each gaining 4%
market share in FY07. SBI Life's growth was driven by increasing contribution from ULIP
premiums. Another notable developments of the 2006-07 performance has been the expansion of
retail markets by the life insurance comapnies. Bajaj Alliannz Life insurance has added 20 lakh
policies while ICICI Prudential has expanded over 19 lakh policies during the year.

With the largest number of life insurance policies in force in the world, Insurance happens to be a
mega opportunity in India. It's a business growing at the rate of 15-20 per cent annually and
presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent
to the country's GDP. Gross premium collection is nearly 2 per cent of GDP and funds available
with LIC for investments are 8 per cent of GDP.

Yet, nearly 80 per cent of Indian population is without life insurance cover while health insurance
and non-life insurance continues to be below international standards. And this part of the
population is also subject to weak social security and pension systems with hardly any old age
income security. This itself is an indicator that growth potential for the insurance sector is
immense.

A well-developed and evolved insurance sector is needed for economic development as it provides
long term funds for infrastructure development and at the same time strengthens the risk taking
ability. It is estimated that over the next ten years India would require investments of the order of
one trillion US dollar. The Insurance sector, to some extent, can enable investments in
infrastructure development to sustain economic growth of the country.
Insurance is a federal subject in India. There are two legislations that govern the sector- The
Insurance Act- 1938 and the IRDA Act- 1999. The insurance sector in India has become a full
circle from being an open competitive market to nationalisation and back to a liberalised market
again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn
witnessed over a period of almost two centuries.

Important milestones in the life insurance business in India

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical
information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to 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
and nationalised. LIC formed by an Act of Parliament- LIC Act 1956- with a capital contribution
of Rs. 5 crore from the Government of India.

In a tough battle to expand market shares the private sector life insurance industry consisting 14
life insurance companies at 26% have lost 3% of market share to the state owned Life Insurance
Corporation(LIC) in the domestic life insurance industry in 2006-07. According to the figures
released by Insurance Regulatory & Development Authority the total premium these 14 companies
have shot up by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crore.

LIC with a total premium mobilisation of Rs 55,934 crore has been able retain a market share of
74.26 % during the reporting period. In total the life insurance industry in first year premium has
grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07 performance has thrown a few
surprises in the ranking among the private sector life insurance companies. New entrants like
Reliance Life and SBI Life had shown a huge growth of over 381% and 210% respectively during
the year. Reliance Life which has become one of the top five companies ended the year with a
premium of Rs 930 crore during the year.

Though ICICI Prudential Life Insurance remained as the No 1 private sector life insurance
company during the year Bajaj Allianz overtook ICICI Prudential in terms of monthly market share
in March, for the first time ever. Bajaj's market share among private players in non-single premium
for March stood at 29.1% vs. ICICI Prudential's 23.8%. Bajaj gained 4.6 percentage point market
share among private sector players for FY07.

Among other private players, SBI Life and Reliance Life continued to do well, each gaining 4%
market share in FY07. SBI Life's growth was driven by increasing contribution from ULIP
premiums. Another notable development of the 2006-07 performance has been the expansion of
retail markets by the life insurance companies. Bajaj Alliannz Life insurance has added 20 lakh
policies while ICICI Prudential has expanded over 19 lakh policies during the year.
OPPORTUNITES

- A state monopoly has little incentive to innovative or offers a wide range of products. It can be
seen by a lack of certain products from LIC's portfolio and lack of extensive risk categorization in
several GIC products such as health insurance. More competition in this business will spur firms
to offer several new products and more complex and extensive risk categorization.

- It would also result in better customer services and help improve the variety and price of
insurance products.

- The entry of new players would speed up the spread of both life and general insurance. Spread
of insurance will be measured in terms of insurance penetration and measure of density.

- With the entry of private players, it is expected that insurance business roughly 400 billion rupees
per year now, more than 20 per cent per year even leaving aside the relatively under developed
sectors of health insurance, pen More importantly, it will also ensure a great mobalisation of funds
that can be utilized for purpose of infrastructure development that was a factor considered for
globalisation of insurance.

- More importantly, it will also ensure a great moblisation of funds that can be utilized for purpose
of infrastructure development that was a factor considered for globalisation of insurance.

- With allowing of holding of equity shares by foreign company either itself or through its
subsidiary company or nominee not exceeding 26% of paid up capital of Indian partners will be
operated resulting into supplementing domestic savings and increasing economic progress of
nation. Agreements of various ventures have already been made to be discussed later on in this
paper.

- It has been estimated that insurance sector growth more than 3 times the growth of economy in
India. So business or domestic firms will attempt to invest in insurance sector. Moreover, growth
of insurance business in India is 13 times the growth insurance in developed countries. So it is
natural, that foreign companies would be fostering a very strong desire to invest something in
Indian insurance business.

- Most important not the least tremendous employment opportunities will be created in the field of
insurance which is burning problem of the present day today issues.

CHALLENGES BEFORE THE INDUSTRY

New age companies have started their business as discussed earlier. Some of these companies have
been able to float 3 or 4 products only and some have targeted to achieve the level of 8 or 10
products. At present, these companies are not in a position to pose any challenge to LIC and all
other four companies operating in general insurance sector, but if we see the quality and standards
of the products which they issued, they can certainly be a challenge in future. Because the
challenge in the entire environment caused by globalisation and liberalization the industry is facing
the following challenges.
- The existing insurer, LIC and GIC, have created a large group of dissatisfied customers due to
the poor quality of service. Hence there will be shift of large number of customers from LIC and
GIC to the private insurers.

- LIC may face problem of surrender of a large number of policies, as new insurers will woo them
by offer of innovative products at lower prices.

- The corporate clients under group schemes and salary savings schemes may shift their loyalty
from LIC to the private insurers.

- There is a likelihood of exit of young dynamic managers from LIC to the private insurer, as they
will get higher package of remuneration.

- LIC has overstaffing and with the introduction of full computerization, a large number of the
employees will be surplus. However, they cannot be retrenched. Hence the operating costs of LIC
will not be reduced. This will be a disadvantage in the competitive market, as the new insurers will
operate with lean office and high technology to reduce the operating costs.

- GIC and its four subsidiary companies are going to face more challenges, because their
management expenses are very high due to surplus staff. They can't reduce their number due to
service rules.

- Management of claims will put strain on the financial resources, GIC and its subsidiaries since it
is not up the mark.

- LIC has more than to 60 products and GLC has more than 180 products in their kitty, which are
outdated in the present context as they are not suitable to the changing needs of the customers. Not
only that they are not competent enough to complete with the new products offered by foreign
companies in the market.

- Reaching the consumer expectations on par with foreign companies such as better yield and much
improved quality of service particularly in the area of settlement of claims, issue of new policies,
transfer of the policies and revival of policies in the liberalized market is very difficult to LIC and
GIC.

- Intense competition from new insurers in winning the consumers by multi-distribution channels,
which will include agents, brokers, corporate intermediaries, bank branches, affinity groups and
direct marketing through telesales and interest.

- The market very soon will be flooded by a large number of products by fairly large number of
insurers operating in the Indian market. Even with limited range of products offered by LIC and
GIC, the consumers are confused in the market. Their confusion will further increase in the face
for large number of products in the market. The existing level of awareness of the consumers for
insurance products is very low. It is so because only 62% of the Indian population is literate and
less than 10% educated. Even the educated consumers are ignorant about the various products of
the insurance.
- The insurers will have to face an acute problem of the redressal of the consumers, grievances for
deficiency in products and services.

- Increasing awareness will bring number of legal cases filled by the consumers against insurers is
likely to increase substantially in future.

- Major challenges in canalizing the growth of insurance sector are product innovation, distribution
network, investment management, customer service and education.

ESSENTIALS TO MEET THE CHALLENGES

- Indian insurance industry needs the following to meet the global challenges

- Understanding the customer better will enable insurance companies to design appropriate
products, determine price correctly and increase profitability.

- Selection of right type of distribution channel mix along with prudent and efficient FOS [Fleet
On Street] management.

- An efficient CRM system, which would eventually create sustainable competitive advantages
and build a long-lasting relationship

- Insurers must follow best investment practices and must have a strong asset management
company to maximize returns.

- Insurers should increase the customer base in semi urban and rural areas, which offer a huge
potential.

- Promoting health insurance and using e-broking to increase the business.

CONCLUSION

Thus, in the last on basis of above the discussion we can conclude that need for private sector entry
is justifiable on the basis of enhancing the efficiency of operation, achieving greater density and
insurance coverage in the country and for greater mobilization of long-term savings for long
gestation infrastructure projects. In the wake of such competition it is essential for the government
monopolies (LIC and GIC) that they quickly up grade their technology, restructure themselves on
more efficient lines and operate as broad run enterprise. New players should not be treated as
rivalries to government companies, but they can supplement in achieving the objective of growth
of insurance business in India.

* Lecturer, Department of Commerce, Bharathiar University, Coimbatore-46

Article Source: http://EzineArticles.com/669312

Chapter-II
Insurance sector in India
CHAPTER —II
INSURANCE SECTORS IN INDIA
Introduction
Developing countries like India need a special kind of strategies to
improve the economic development. India learnt a lesson from developed
countries through the impact of private participation. History proved in
many countries that the economic growth with multidimensional approach to
achieving all the level of people is possible with the joint hands of private
sectors only. New economic policy 1991 provides innovative steps to
explore the Indian industries into global scenario. Based on the expert
committee recommendation government has changed their attitude and
announced special policy regarding promotion of Indian industrial and
service sector with the help of private and global entries. LPG model of
development with several major changes at the domestic and global level
such as opening of private sector, simplification of license system to setup
industrial units, abolishing the threshold limit of assets in respect of MRTP,
facilitate foreign direct investment and encourage more exports.
Insurance Sector In India
Insurance concept was developed in order to create awareness among the
people of the risk exposure they are involved. Insurance sector is one of the
fund based financial services, which provided by non-banking institution. In
India, the first insurance company was established in the year 1835named as
Bombay mutual assurance society limited. In1974, another company was
established named as oriental life assurance company limited. The
5
government of India nationalized these two insurance companies in the year
1956 and was named as LIC&GIC.
Before the private entries in the insurance sector Life Insurance
Corporation & GIC has wholly dominated in the field of insurance business.
LIC& GIC could cover only limited segment of the people and these sector
need competitive oriented private participants to fulfill the demands of the
customer. Therefore, the government announced the liberalized policy
regarding insurance sector with the help of these liberalized policy Insurance
sectors, is being opened up their competence to meet competition, the
strength of human element and management skill to organizational
adaptations and marketing strategies make different from their performance.
Privatization of insurance sector
Private participants in insurance sector placed major achievements in the
field of growth of insurance sector in India. With the effect of the new
competitive environment and globalize trade practice, the marketing of
insurance sector assumed greater significance. Today's insurance sector
requires new strategies to provide various schemes with confidence of the
customer. Indian insurance sector is functioning with twenty private sectors
players. ICICI prudential life insurance Ltd and SBI life insurance ltd are the
dominating private sector insurance companies in India. In the year 2000-
2001 onwards private players entered into life insurance business. The name
of the private sectors life insurance company as follows;
• HDFC Standard life insurance Company limited
• ICICI prudential life insurance company limited
* OM katak mahindra life insurance Company limited
6
• Birla sun life insurance company limited
• Tata AIG life insurance company limited
• SBI life insurance company limited
• ING Vysya life insurance company limited
Apart from the life insurance business, private participants also
entered into general insurance business. Some of the private players in the
general insurance are as follows;
• Royal Sundaram Alliance Insurance company limited
• TATA AIG General Insurance company limited
• ICICI Lombard General Insurance company limited
Impact of LPG wr, insurance sector
As on December 2002, the liberalized private life insurance sector
is dominated by ICICI prudential life insurance followed by SBI life
insurance in terms of total business. In terms of number of policies, Allianz
bajaj life insurance company dominates market with sale of 94,959 policies
followed by ICICI prudential life insurance company which sold 64,594
policies.
The unique feature of Indian life insurance sector is that different
product segments are dominated different players. Like whole life policy are
dominated by max new work life insurance, which has premium of Rs 13.85
crore (86% of premium of the products). Endowment policies are dominated
by ICICI prudential life insurance, which has premium of Rs 46.81 crore
premium of the product). Money back policies are. dominated by
7
Tata AIG life insurance. Markets of unit-linked products are dominated by
Birla sun life insurance.
AMP Sanmar Assurance Company limited provides insurance cover for
life at a lower cost and sum assured along with bonus. It is one of the fast
growing joint venture insurance sectors in India. Franklin Templeton Life
Insurance Company concentrates investment based insurance products,
which attracts the middle-income group and retired people mat life insurance
company compete with domestic and multinational insurance company for
selling their products.
Share of public and private sector insurance company in net domestic
product (At current prices is Rs 47,074 crore (38.8%) by public sector and
Rs84, 453 crore (64.2%) by private sector. Life Insurance Corporation of
India covered only 28% of the total population still the tear 2000. but now it
has increased to 34% with the help of private insurance sector players still
now Life Insurance Corporation dominating in all the insurance products.
LPG creates awareness about the insurance products to public with
different products and the innovative strategies insurance sector improved
with deregulation advanced information technology globalize market
volatility of the market increased customer demand and sophistication of
market and customers.
In India there exits immense scope for insurance products and companies
per capital insurance premium in India is $7, which is lowest in the world. In
South Korea the per capita insurance premium is $1,338.
8
In India insurance premium accounts for a mere 2.5% of GDP
(World average is 7.8%) in India insurance premium as a percentage of
saving is 6% as compared to 53% in the UK.
Glob alisation Of Insurance Sector
Globalization has brought in new opportunities to developing countries
like India. With the effect of the multinational insurance companies
collaboration with Indian financial companies and entered India from 2001-
2002 onwards FDI permitted up to 46% in insurance sector. Presently some
of the multinational pint venture insurance companies are as follows;
AMPANMAR life assurance company ltd
Franklin Templeton life assurance company ltd
Max Newyark life assurance company ltd
Mat life assurance company ltd
Alliance bajaj life assurance company ltd
Globalization of insurance sector not only promotes more private and
multinational insurance companies in India but also India insurance
companies entered into global market and investment in foreign securities.
Life Insurance Corporation invested Rs.355 crore in England, morcies
and some other European countries government securities. Life Insurance
Corporation established Life Insurance Corporation of international lid,
which is playing in the global market. ICICI prudential Life Insurance
Corporation extended their insurance business into many Asian countries life
Singapore, Malaysia and Thailand... SBI Life Insurance Corporation
planning to operate their insurance business in global market. Japan based
9
NIPPAN Life Insurance Corporation extent their business in India from the
year 2005 onwards.
Challenges before the Industry
The changes in the entire environment caused by globalization and
liberalization the industry insurance is facing following challenges.
• The existing insurers, LIC & GIC have created a large group of
dissatisfied customers due to the policy or quality of service.
Hence there will be shift of a large number of customers from LIC
& GIC to the private insurer.
+ Life Insurance Corporation may face problem of surrender of a
large number of policy, as new insurers will that them by offer of
innovative products at lower prices.
The corporate clients under group schemes and salary savings
scheme may shift their loyalty from Life Insurance Corporation to
the private insurer.
10
Conclusion
Insurance sector is one of the major financial service sectors, which
provides insurance facilities to public and mobilize more funds from public.
Insurance business recorded remarkable growth in once developed countries
like South Korea, US, UK and European countries. But in India
development of insurance business is moving very slow. Only 34% of the
people got insurance services but the demand of insurance services are more
LPG provides greater opportunities not only to insurance sector but also to
the customers who need innovative insurance products.
The growth in the Indian insurance industry can be properly
channelized if some of the impediments facing the industry can be removed.
However the success of the insurance industry will primarily depend upon
meeting the rising expectations of the consumers who will be real kings in
the liberalized insurance market in future.
11
Chapter-II
Insurance sector in India
CHAPTER —II
INSURANCE SECTORS IN INDIA
Introduction
Developing countries like India need a special kind of strategies to
improve the economic development. India learnt a lesson from developed
countries through the impact of private participation. History proved in
many countries that the economic growth with multidimensional approach to
achieving all the level of people is possible with the joint hands of private
sectors only. New economic policy 1991 provides innovative steps to
explore the Indian industries into global scenario. Based on the expert
committee recommendation government has changed their attitude and
announced special policy regarding promotion of Indian industrial and
service sector with the help of private and global entries. LPG model of
development with several major changes at the domestic and global level
such as opening of private sector, simplification of license system to setup
industrial units, abolishing the threshold limit of assets in respect of MRTP,
facilitate foreign direct investment and encourage more exports.
Insurance Sector In India
Insurance concept was developed in order to create awareness among the
people of the risk exposure they are involved. Insurance sector is one of the
fund based financial services, which provided by non-banking institution. In
India, the first insurance company was established in the year 1835named as
Bombay mutual assurance society limited. In1974, another company was
established named as oriental life assurance company limited. The
5
government of India nationalized these two insurance companies in the year
1956 and was named as LIC&GIC.
Before the private entries in the insurance sector Life Insurance
Corporation & GIC has wholly dominated in the field of insurance business.
LIC& GIC could cover only limited segment of the people and these sector
need competitive oriented private participants to fulfill the demands of the
customer. Therefore, the government announced the liberalized policy
regarding insurance sector with the help of these liberalized policy Insurance
sectors, is being opened up their competence to meet competition, the
strength of human element and management skill to organizational
adaptations and marketing strategies make different from their performance.
Privatization of insurance sector
Private participants in insurance sector placed major achievements in the
field of growth of insurance sector in India. With the effect of the new
competitive environment and globalize trade practice, the marketing of
insurance sector assumed greater significance. Today's insurance sector
requires new strategies to provide various schemes with confidence of the
customer. Indian insurance sector is functioning with twenty private sectors
players. ICICI prudential life insurance Ltd and SBI life insurance ltd are the
dominating private sector insurance companies in India. In the year 2000-
2001 onwards private players entered into life insurance business. The name
of the private sectors life insurance company as follows;
• HDFC Standard life insurance Company limited
• ICICI prudential life insurance company limited
* OM katak mahindra life insurance Company limited
6
• Birla sun life insurance company limited
• Tata AIG life insurance company limited
• SBI life insurance company limited
• ING Vysya life insurance company limited
Apart from the life insurance business, private participants also
entered into general insurance business. Some of the private players in the
general insurance are as follows;
• Royal Sundaram Alliance Insurance company limited
• TATA AIG General Insurance company limited
• ICICI Lombard General Insurance company limited
Impact of LPG wr, insurance sector
As on December 2002, the liberalized private life insurance sector
is dominated by ICICI prudential life insurance followed by SBI life
insurance in terms of total business. In terms of number of policies, Allianz
bajaj life insurance company dominates market with sale of 94,959 policies
followed by ICICI prudential life insurance company which sold 64,594
policies.
The unique feature of Indian life insurance sector is that different
product segments are dominated different players. Like whole life policy are
dominated by max new work life insurance, which has premium of Rs 13.85
crore (86% of premium of the products). Endowment policies are dominated
by ICICI prudential life insurance, which has premium of Rs 46.81 crore
premium of the product). Money back policies are. dominated by
7
Tata AIG life insurance. Markets of unit-linked products are dominated by
Birla sun life insurance.
AMP Sanmar Assurance Company limited provides insurance cover for
life at a lower cost and sum assured along with bonus. It is one of the fast
growing joint venture insurance sectors in India. Franklin Templeton Life
Insurance Company concentrates investment based insurance products,
which attracts the middle-income group and retired people mat life insurance
company compete with domestic and multinational insurance company for
selling their products.
Share of public and private sector insurance company in net domestic
product (At current prices is Rs 47,074 crore (38.8%) by public sector and
Rs84, 453 crore (64.2%) by private sector. Life Insurance Corporation of
India covered only 28% of the total population still the tear 2000. but now it
has increased to 34% with the help of private insurance sector players still
now Life Insurance Corporation dominating in all the insurance products.
LPG creates awareness about the insurance products to public with
different products and the innovative strategies insurance sector improved
with deregulation advanced information technology globalize market
volatility of the market increased customer demand and sophistication of
market and customers.
In India there exits immense scope for insurance products and companies
per capital insurance premium in India is $7, which is lowest in the world. In
South Korea the per capita insurance premium is $1,338.
8
In India insurance premium accounts for a mere 2.5% of GDP
(World average is 7.8%) in India insurance premium as a percentage of
saving is 6% as compared to 53% in the UK.
Glob alisation Of Insurance Sector
Globalization has brought in new opportunities to developing countries
like India. With the effect of the multinational insurance companies
collaboration with Indian financial companies and entered India from 2001-
2002 onwards FDI permitted up to 46% in insurance sector. Presently some
of the multinational pint venture insurance companies are as follows;
AMPANMAR life assurance company ltd
Franklin Templeton life assurance company ltd
Max Newyark life assurance company ltd
Mat life assurance company ltd
Alliance bajaj life assurance company ltd
Globalization of insurance sector not only promotes more private and
multinational insurance companies in India but also India insurance
companies entered into global market and investment in foreign securities.
Life Insurance Corporation invested Rs.355 crore in England, morcies
and some other European countries government securities. Life Insurance
Corporation established Life Insurance Corporation of international lid,
which is playing in the global market. ICICI prudential Life Insurance
Corporation extended their insurance business into many Asian countries life
Singapore, Malaysia and Thailand... SBI Life Insurance Corporation
planning to operate their insurance business in global market. Japan based
9
NIPPAN Life Insurance Corporation extent their business in India from the
year 2005 onwards.
Challenges before the Industry
The changes in the entire environment caused by globalization and
liberalization the industry insurance is facing following challenges.
• The existing insurers, LIC & GIC have created a large group of
dissatisfied customers due to the policy or quality of service.
Hence there will be shift of a large number of customers from LIC
& GIC to the private insurer.
+ Life Insurance Corporation may face problem of surrender of a
large number of policy, as new insurers will that them by offer of
innovative products at lower prices.
The corporate clients under group schemes and salary savings
scheme may shift their loyalty from Life Insurance Corporation to
the private insurer.
10
Conclusion
Insurance sector is one of the major financial service sectors, which
provides insurance facilities to public and mobilize more funds from public.
Insurance business recorded remarkable growth in once developed countries
like South Korea, US, UK and European countries. But in India
development of insurance business is moving very slow. Only 34% of the
people got insurance services but the demand of insurance services are more
LPG provides greater opportunities not only to insurance sector but also to
the customers who need innovative insurance products.
The growth in the Indian insurance industry can be properly
channelized if some of the impediments facing the industry can be removed.
However the success of the insurance industry will primarily depend upon
meeting the rising expectations of the consumers who will be real kings in
the liberalized insurance market in future.
11
5 Impacts of Globalization on Insurance
Markets

There’s no stopping the globalization train. It’s already here and it’s going to go further and
wider. How has globalization affected the insurance markets and insurance companies all over
the world?

Competition in the Insurance Markets

First and foremost, local insurance companies started facing more widespread competition – not
only from within the country, but also from the region and from international conglomerates.
Now, this is great news for the customer. After all, they now have the opportunity to choose from
a range of products and services that are best suited to their individual requirements.

To sharpen the competitive edge, insurance firms have also tweaked their offerings to make them
more tempting. This can range from improving coverage to reducing premiums.

With competition comes greater challenges. Insurance companies now look beyond the local
market to acquire customers. In addition to a comprehensive suite of products, they strive to give
their brand an international outlook while paying attention to local context and cultural
sensitivities.

Growth in Opportunities

The thing about globalization is that it has caused other industries to expand as well. This has
resulted in a plethora of opportunities for insurance companies. Today, a standard insurance firm
doesn’t have to limit itself to a limited number of products or services.

With globalization, consumers’ demands change and their needs become more varied. There are
also more opportunities for wealth creation and preservation. For instance, more organized labor
means more healthcare coverage for employees. Wider globalization means more opportunities
for overseas investments, and thus more investment-linked plans.

Globalization has also caused immigration numbers to rise. There are more people within the
population who will be looking to sign up for insurance products, and thus more opportunities to
do business.

New Industry Trends in Insurance

Insurance companies are also beginning to experience centralization processes, thanks to

partnerships with banks and reinsurance companies, and mergers with smaller or larger
competitors.
There’s a growth in the type of insurance services and products as well. For instance, we are
seeing insurance products for newer risks such as informational risk, political risk, security risks,
and even military risks.

Just as FinTech is changing the banking world, InsurTech is transforming the industry. As the
insurance industry starts embracing technological innovation and eCommerce, we’re also
looking at more insurance products being sold via the Internet.

Increased Consumer Demand for Insurance

As more and more foreign insurance companies enter a local insurance market, customers’
awareness tends to grow. Their knowledge of possible insurance and investment plans becomes
richer. Needless to say, this creates a demand for more products. Consumers are not willing to
make do with what was available anymore. They expect comprehensive coverage plans, low
premium rates, and flexible policies.

Some countries are experiencing higher economic output due to globalization and international
trade. Economic growth in these countries has boosted affordability, allowing most consumers to
go in for high-end insurance and investment-linked plans.

Increased Customer Satisfaction

With globalization, there’s a renewed focus on customer satisfaction and trust. As customers get
savvier and educated about insurance products, the need to gain their trust and build strong
relationships becomes imperative to the top line. In the name of competition, insurance firms are
putting in extra effort to provide better products and clearer communications driven towards
meeting the expectations of both local and international customers.

To borrow the words of Kofi Annan, the Former Secretary General of the United Nations, “It has
been said that arguing against globalization is like arguing against the laws of gravity”,
globalization has impacted every aspect of our lives and the insurance industry is not exempt
from it. The sooner insurance markets embrace the effects of globalization, the better are their
chances in ensuring consistent growth in the face of this unstoppable force.
What is IRDA? How does it benefit the
customers?

The Insurance Regulatory and Development Authority, abbreviated as IRDA, operates with the
aim of protecting the interests of policyholders. It is an autonomous body which regulates and
develops insurance business in India.

History

In 1990, India faced a major financial crisis in Balance of payments (BOP). The World Bank
recommended that India should introduce economic and financial reforms. Going forward, the
policy of ‘Globalization, Liberalization and Privatisation’ was adopted by the Government of
India. In 1991, economic and financial reforms started getting implemented. In 1993,
Committee on Reforms in the Insurance Sector, headed by Mr. R. N. Malhotra, (Retired
Governor, Reserve Bank of India) was set up to recommend reforms. IRDA came into existence
with the recommendations of ‘Malhotra committee’ which was constituted by the government of
India in Jan 1994. The committee studied the past penetration of insurance in India and future
scope for growth and development of the industry. On the basis of that research, some of the
reforms recommended were: -

 Private sector companies should be allowed to promote insurance companies.

 Foreign promoters should also be allowed.
 Government to vest its regulatory powers on an independent regulatory body answerable
to Parliament.

Based on its recommendations, IRDA Act 1999 was passed in the parliament. In April 2000, it
was incorporated as a statutory body.

Functions and Duties of IRDA and its benefit to the customers

Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions of IRDA.

1. Registering and regulating insurance companies: Each and every insurance company has
to be registered with IRDA. As an initial requirement, 100 crore paid up capital is required for
obtaining a licence. IRDA ensures that no one enters the industry with mala fide intentions.

2. Protecting policyholders’ interests: Insurance is a complex financial product and hence

IRDA keeps a close watch on the interests of the policy holders. A number of rules have been
set up right from the filling of the proposal form to the disbursement of maturity/death claim. For
example, if the policy holder is not satisfied, he/she has the right to claim a refund on the policy
within 15 days from the receipt of policy document.
*The point to be noted is that it is not the issuance date but the date when the person physically
receives the document.

3. Licensing and establishing norms for insurance intermediaries: Insurance brokers and
insurance agents have to obtain a license before selling insurance products. Agents have to
undergo a training course and pass an online test. The objective of this function is to ensure that
the market intermediaries are well versed in insurance products and are competent in offering the
right financial solution to the customers.

4. Promoting professional organisations in insurance: IRDA keeps on issuing guidelines for

smooth and efficient functioning of the insurance companies. For example, there is rule that once
a person has applied for insurance, the company has a TAT (turnaround time) of 15 days. This
means that it will have to decide on whether to issue the policy or reject it in the stipulated time
frame. The IRDA has setup an insurance ombudsman (public advocate) for addressing the
grievances of the customers. The rules set for the ombudsman are heavily tilted in favour of the
customers.

5. Regulating and overseeing premium rates and terms of non-life insurance covers: The
customers get the benefit of standard premium rates. Portability of health insurance has also been
introduced by IRDA. This helps keep the health insurance companies on their toes and they
provide more flexibility in their products and services so that a customer doesn’t contemplate
switching to a competing insurance provider.

6. Specifying financial reporting norms of insurance companies: There are quarterly audits of
insurance companies and a number of reports have to be submitted by the insurance companies
on a monthly basis. This way, the IRDA keeps a check on the financial health of the companies.

7. Regulating investment of policyholders’ funds by insurance companies: Firstly, no

money can be invested outside India and secondly, the money can be invested only in the list of
approved sectors/companies in India. Thus, the IRDA ensures that the policy holders’ money is
safe and generates good interest.

8. Ensuring the maintenance of solvency margin by insurance companies: Insurance

companies need to have sufficient cash to meet out the costs due to claims. Premium paid by
customers is very less compared to the offered sum assured (i.e. the value of risk cover). Every
life insurer is required to maintain a Required Solvency Margin as per Section 64VA of the
Insurance Act 1938. As prescribed by the IRDA, Required Solvency Margin is the amount by
which an insurance company's capital exceeds its projected liabilities; effectively a measure of
its financial health.

The IRDA (Assets, Liabilities and Solvency Margin of Insurers) Regulations, 2000 describes in
detail the method of computation of the Required Solvency Margin.

The Life Insurance Council explicitly explains how this ratio is computed.
Thus, by using this Solvency Margin ratio as a yard stick, IRDA monitors the financial health
and the statutory obligation of disbursing the claims by the companies to its customers.

9. Ensuring insurance coverage in rural areas and of vulnerable sections of society:

Majority of the Indian population is either not insured or under insured. Urban areas have more
insurance customers as compared to rural areas. Premium paying capacity is also more in urban
areas. Therefore for the benefit of rural customers, IRDA has made it mandatory for insurance
companies to generate a minimum 5% of the business from rural market.
Functions of Insurance

1) Insurance Provides Certainty: -

Insurance provides certainty of payment at the uncertainty of loss. Better
planning and administration can reduce the uncertainty of loss. But the insurance
relieves the person from such difficult task. Moreover if the subject matters are not
adequate, the self-provision may prove costlier. There are different types of
uncertainty in the risk. The risk will occur or not, when will occur, how much loss
will be there? In other words there are uncertainty of happening of time and the
amount of loss. Insurance removes all these uncertainty and the assured is given
certainty of the payment of the loss. The insurer charge premium for providing the
said certainty.

2) Insurance Provides Protection: -

The main function of the insurance is to provide protection against the

probable chances of loss. The time and amount of loss are uncertain and at the
happening of risk, the person will suffer loss in absence of insurance. The insurance
guarantees the payment of loss and thus protects the assured from sufferings. The
insurance cannot check the happening of risk but can provide for losses at the
happening of the risk.

3) Risk-Sharing: -

The risk is uncertain, and therefore, the loss arising from the risk is also
uncertain. All the persons who are exposed to the risk share when risk takes place
the loss. The risk sharing in ancient time was done only at the time of damage or
death; but today, on the basis of probability of risk, the share is obtained from each
and every insured in the shape of premium without which the insurer does not
guarantee protection.

4) Prevention of Loss: -

The insurance join hands with those in situation which are engaged in
preventing the losses of the society because the reduction in loss causes lesser
payment to the assured and so more saving is possible which will assist in reducing
the premium. Lesser premium invites more business and more business cause
lesser share to be assured. So again premium is reduced to, which will stimulate
more business and more protection to the masses. Therefore the insurance assist
financially to the health organization, fire brigade, educational institutions, and
other organization, which are engaged in preventing the losses of the masses from
death or damage.

5) Insurance Provides Capital: -

 The insurance provides capital to the society. The accumulated funds are
invested in productive channel. The dearth of capital of the society is minimized to
a greater extent with the help of investment of insurance. The industry, the
business and the individual are benefited by the investment and loans of the
insurers.

6) Insurance Improves Efficiency: -

The insurance eliminates worries and miseries of the losses of death and
destruction of property. The carefree person can devote his body and soul together
for better achievement. It improves not only his efficiency, but the efficiencies of
the masses are also advanced.

7) Insurance Economic Progress: -

The insurance by protecting the society from huge losses of damage,

destruction and death, provides an initiative to work hard for the betterment of
the masses. The next factor of the economic progress, the capital is also immensely
provided by the masses. The property, the valuable assets, the man, the machine
and the society cannot lose much at the disaster.
 Role of Insurance Sector in India

 Protection from Risks arising Out of Natural Calamities

Insurance has also been playing important role in protecting the industry and
commercial activities from natural calamities like fire, marine losses, floods,
earthquakes, cyclones etc.
  Protection from the Risks Caused by Human Beings
Insurance provides protection against risks caused by human beings such as strikes
by workers, their negligence in carrying out work, theft and dacoity, evil
disturbances and many other such acts. In addition to the issue of policies against
such causes, insurance also issues policies to protect the industry and commercial
institutions from the loss of money in transit.

 Protection against Statutory Liabilities

Insurance also plays the role of protecting the industry and commerce in fulfilling
statutory liabilities towards the workers, arising out of industrial accidents. The
employer is bound to compensate such workers under the provision of workers'
compensation act. In case the employer obtains an accidental policy in favor of
employees; the money to be paid as compensation to the accident victims, can be
chimed from the insurance company.

 Financial Security
Insurance provides financial security also to industry and commerce. Exports of
goods to other countries by sea, storage of goods in safe godowns and various other
kinds of financial losses are secured by insurance policies.

 Protection from Loss of Profits

Insurance' also has extended its role of prot6cting different industrial and
commercial activities, it provides protection against losses arising from shops or
factories. It also undertakes to indemnity the loss of profits from business
functions. This way, the loss of profits and property / both are protected.

 Protection of Debts
A trader can protect himself by taking appropriate policy against the credit sales or
property kept on security against goods or property. Thus, the insurance protests
the trader even in case the debtor dies or of damages to the goods.

 Provides stability in commercial and industrial activities

Insurance companies extend various kinds of assistance to business enterprise to
run the business regularly and continuously. It plays important role in partnership
business by insuring the life of partners so that in case of death of any partner, the
claim received from the insurance company can be used for meeting payment to
the dependents of deceased partner.