“PROJECT ON LIFE INSURANCES COMPANY V/S OTHER INSURANCES COMPANIES”

Master of commerce

Semester – III

20116 – 2017

ACKNOWLEDGEMENT
I must acknowledge my indebtedness to various personalities, but for whom,
this project could not have seen the light of the day.
I am profoundly grateful to Prof. Usha Kiran Rai, Faculty of Management
Studies, BHU who agreed to become my mentor and guide for the project and
gave me the opportunity to work on this project. I am also grateful, for her
support and guidance throughout this project with valuable information and
giving me a better insight of the things, without which the successful
culmination of this project would not have been possible. Not only did she
inspired me throughout the progress of the project, but, also motivated me to
get an insight into the field of my work.
I would also like to extent my immense gratitude to Prof. A. K. Agrawal, and
respected Dean Prof. Deepak Barman, Faculty of Management Studies, BHU
who allowed me to choose the topic for my Dissertation.
Shashank Tripathi
CHAPTER 1

INTRODUCTION

1. CONCEPT OF INSURANCE :
Life has always been an uncertain thing. To be secure against unpleasant
possibilities, always requires the utmost resourcefulness and foresight on the
part of man. To pray or to pay for protection is the spirit of the humanity. Man
has been accustomed to pray God for protection and security from time
immemorial. In modern days Insurance Companies want him to pay for
protection and security. The insurance man says "God helps those who help
themselves"; probably he is correct.
Too many people in this country are not in employment; and work for too
many no longer guarantees income security. Several millions are part-time, self
employed and low-earning workers living under pitiable circumstances where
there is no security cover against risk. Further the inherent changing
employment risks, the prospect of continual change in the work place with its
attendant threats of unemployment and low pay especially after the adoption
of New Economic Policy and the imminent life cycle risks - a new source of
insecurity which includes the changing demands of family life, separation,
divorce and elderly dependents ± are tormenting the society. Risk has become
central to one's life. It is within this background life insurance policy has been
introduced by the insurance companies covering risks at various levels. Life
insurance coverage is against disablement or in the event of death of the
insured, economic support for the dependents. It is a measure of social
security to livelihood for the insured or dependents. This is to make the right to
life meaningful, worth living and right to livelihood a means for sustenance.
Therefore, it goes without saying that an appropriate life insurance policy
within the paying capacity and means of the insured to pay premium is one of
the social security measures envisaged under the Indian Constitution. Hence,
right to social security, protection of the family, economic empowerment to
the poor and disadvantaged are integral part of the right to life and dignity of
the person guaranteed in the constitution.
Man finds his security in income (money) which enables him to buy food,
clothing, shelter and other necessities of life. A person has to earn income not
only for himself but also for his dependents, viz., wife and children. He has to
provide legally for his family needs, and so he has to keep aside something
regularly for a rainy day and for his old age. This fundamental need for security
for self and dependents proved to be the mother of invention of the institution
of life insurance.

What is Insurance:
The business of insurance is related to the protection of the economic values
of assets. Every asset has a value. The asset would have been created through
the efforts of the owner. The asset is valuable to the owner, because he
expects to get some benefit from it. The benefit may be an income or some
thing else. It is a benefit because it meets some of his needs. In the case of a
factory or a cow, the product generated by is sold and income generated. In
the case of a motor car, it provides comfort and convenience in transportation.
There is no direct income.
Every asset is expected to last for a certain period of time during which it will
perform. After that, the benefit may not be available. There is a life-time for a
machine in a factory or a cow or a motor car. None of them will last for ever.
The owner is aware of this and he can so manage his affairs that by the end of
that period or life-time, a substitute is made available. Thus, he makes sure
that the value or income is not lost. However, the asset may get lost earlier. An
accident or some other unfortunate event may destroy it or make it non-
functional. In that case, the owner and those deriving benefits from there,
would be deprived of the benefit and the planned substitute would not have
been ready. There is an adverse or unpleasant situation. Insurance is a
mechanism that helps to reduce the effect of such adverse situations.
Insurance, in law and economics, is a form of risk management primarily used
to hedge against the risk of a contingent loss. Insurance is defined as the
equitable transfer of the risk of a potential loss, from one entity to another, in
exchange for a premium. Insurer, in economics, is the company that sells the
insurance. Insurance rate is a factor used to determine the amount, called the
premium, to be charged for a certain amount of insurance coverage. Risk
management, the practice of appraising and controlling risk, has evolved as a
discrete field of study and practice.
Origin of Insurance
PRACTICE OF INSURANCE IN INDIA: 1818-1956
It is claimed that insurance was practiced in India even in Vedic times in one
form or the other. The Sanskrit term "Yogakshema" in the Rigveda meant some
kind of insurance, which was practiced by the Aryans in India nearly 3000 years
ago. During the Mughal period insurance took firm roots. There are even
references to the cover against war risks. Losses due to the passage of royal
troops through farms were compensated by the State as a gesture of goodwill.
The year 1818 is an epoch -making year in the history of our country. The first
Life Insurance Company on India soil appears to have been started in this year.
A group of Europeans pioneered the establishment of the Oriental Life
Insurance Society to afford relief to the distressed relatives of European. The
venture was not quite successful but the company was reformed in 1829.The
renewed Company also got into trouble in 1833 when Agency House of
Calcutta, partners of the same, fell.

Prince Dwarkanath Tagore was the only solvent partner & the sole
responsibility for carrying on the institution developed on him. Meanwhile,
early in Janury1834, the Government made up its mind to establish a Public
Insurance Company & a Committee was set up for this purpose .A number of
foreign Insurance Companies then operating in the country viewed this move
with alarm. They set up Committees of their own enquire into their individual
affairs. Dwarkanath Tagore, too, had a Committee appointed to look into the
affairs of the Oriental. As a result, another company was born out of the
previous one in the name of "New Oriental Company"
In the reorganization of the "Oriental" in the year 1834, two other gentlemen
were associated. One was Ramtanu Lahiri and the other Rustamjee Cowasjee.
The latter was another prominent figure of the business world. Rustamjee
entered insurance business in 1828, he was already known to the community
and the Government as a wealthy Parsi merchant. Rustamjee's connection
with insurance also started with "Laudable Societies", but he was later on
associated with Companies like "Sun Life Office (1834) ", New Oriental
(1835),Universal Life (1835) , New Laudable (1840) , and Indian Laudable
(1841) . He was also on the Committee of the Union Insurance Company which
was formed by a group of five persons. This Company was issuing policies
covering river-risks only. He was intimately connected with the Committee of
Insurance Offices in Calcutta. Rustamjee Cowasjee & Dwarkanath Tagore was
probably the first Indians to join in partnership business with the Europeans &
in the field of insurance they were pioneers on this side of the country.
Apart from Calcutta, several enterprising people in Bombay started in 1823 the
"Bombay Life" Assurance Company. The company went into liquidation soon
and could not revive. In 1829, the "Madras Equitable "was formed. It finally
ceased to function in 1921 due to financial difficulties after the First World
War.
The effort to set up a public insurance company at the government level also
went in vain, mainly from objection of private operators. Majority of the early
attempts to form insurance offices were in the province of Bengal. This was
due to its political & economic importance at that time.
The contribution of Raja Ram Mohan Roy, one of the greatest social reformers
of India, to the development of life insurance is very great. He was deeply
concerned about the sad plight of desperate widows and helpless orphans.

OVERSEAS INSURERS
Initially, when Life Offices were established in large numbers in Britain, some
of them ventured to issue sterling policies to the British residents in India.
Premiums collected here were credited to England largely for British
beneficiaries. Business seems to have been brisk and profitable and was
usually under short term policies. Insurance mortality tables and insufficient
mortality data of Englishmen in India made the premiums heavy-heavier than
at home. Insurance was denied to the "natives" even if they wanted it- for
their lives were always considered risky and sometimes valueless. When Indian
lives were accepted as a very special case, the extras charged were still
heavier.
Prominent amongst the companies which came to India around this period was
the "Medical Invalid and General" incorporated in London in 1841. As more
areas were annexed and the ruling power, with vested interests in developing
trade, took charge , the "Medical" extended its area of operation, established
large connections, absorbed the" Agra Life" and in 1835, took over the "New
Oriental". P.M. Tate, the then manager of the "Medical", was a keen
businessman, widely liked, influential and shrewd. With W.F. Ferguson, who
was the manager of the "New Oriental" before amalgamation, he commenced
very active operations which were temporarily affected by the 1857 "Mutiny".
The Universal Life Insurance Company established in England in 1836 opened
its Indian Branch in 1840 and enjoyed a long period of successful operations
until it was taken over by the "North British" in May 1901. Insurance exceeding
Rs. 10 crores were issued in India during this period. Another English Company
operating in India at that time was the Colonial Life Assurance Company. It was
established in 1846 under the auspices of the Standard Life Assurance
Company. The original prospectus of this company declared its purpose as
"extending to the Colonies of Great Britain and to Indian the full benefit of Life
Assurance". It appointed agents with local boards which were first established
on Calcutta, Bombay, Madras and Colombo. Later on this company was taken
over by the "Standard Life" and made valuable contribution to investigations
into the mortality experience of assured lives in India. Eventually it ceased its
operations in India in 1938.
It is difficult to say which was the oldest Life Policy in India, but the oldest
known appears to be one sold by the Royal Insurance (which commenced
business in India in 1845) on the life was to Cursetjee Furdonjee on 6th January
1848, no reference to any earlier policy being available. In the year 1853, the
Liver pool and London and Globe Insurance Company established in England in
1836, commenced business in India. Sir Charles Forbes was its first agent,
succeeded by M/s. Forbes, Forbes and Campbell. It accepted only European
lives and commenced insuring Indian lives only after 1929.This too, was mainly
to oblige good agents of the Company for classes other than life business. The
North British and Mercantile was the next company to appear on the Indian
scene.
It started fire insurance business in the year 1861 and life business 1864. The
London Assurance started life business in 1864, limited principally to European
lives and closed down its life department when the Life Assurance Companies
Act 1912 made submission of returns compulsory.
On 3rd December, 1870, seven earnest men of Bombay with just seven rupees
for initial expenses gave shape to a plan of offering insurance to the public
without the risk of ruin and the "Bombay Mutual Life Assurance Society" came
into existence. This was followed by the Oriental Life Assurance Company
in1874, the Bharat in 1896 and the Empire of India in 1897.
THE BIRTH OF INDIAN INSURERS
With the advent of the 20th century, the glorious renaissance of swadeshi days
dawned. At the same time, well- to do Indians realized the potentiality of
Indian Insurance business. The Swadeshi movement of 1905-1907 gave rise to
more insurance companies. The United India in Madras, National Indian and
National Insurance in Calcutta and the Co-operative Assurance at Lahore were
established in 1906. In 1907, Hindustan Co-operative Insurance Company took
its birth in one of the rooms of the Jorasanko House of the great poet
Rabindranath Tagore, in Calcutta. The Indian Mercantile (1907) was started in
Bombay,
General Assurance (1908) at Ajmer and the Swadeshi Life (Later Bombay Life)
in Bombay in 1908.
The end of the First World War (1914-18) witnessed an influx of insurance
companies in India. Famous Indian business houses started new insurance
companies. Industrial and Prudential Bombay, Western India, Satara, were
floated before the war, but by 1919, companies like Jupiter General, New
India, Vulcan Insurance Company etc. came into being. Pandit K.Santhanam
with blessing of Lala Lajpat Rai and Pandit Motilal Nehru started Laxmi
Insurance Co. Similarly, Andhra Insurance was started in Masulipatnam, with
the initiative of stalwarts like Dr. Pattabhi Sitaramaiah. From political platforms
also, national leaders supported this cause. It is duty to every Indian to support
only Indian Insurance. The keynote of our Swaraj is in placing all our insurance
with our Indian companies", said Mahatma Gandhi in his message. "I hope
Indians will realize the importance of patriotism only through Indian insurance
institution", stated Pandit Jawaharlal Nehru. Thus, the cause of Indian
insurance became a national issue. The pursuit to boost Indian insurance
represented a crusade to extricate the Indian economy from foreign
domination.

PROGRESS IN INSURANCE BUSINESS

The growth of Life Insurance in concrete terms could be said to being during
the first two decades of twentieth century when most of the major companies
were founded. They grew in terms of rise in the number of companies, in
terms of number of policies and sum assured as well as total life fund. Indian
Insurance Year Book, published for the first time in 1914, gives the figure of the
total business-in -force as 22.44 crore which grew to Rs. 298 crore in 1938. In
1914, there were only 44companies transacting insurance business in India,
and during the next 25 years their number rose to 176. The total progress on
all the primary heads, viz. life fund (Rs. 50.50 crore), premium income (Rs.
10.50 crore) and new business (Rs. 43.30 crore) indicate that Indian Insurance
Business had been making a definite headway during this years. The inter-war -
years thus saw rapid growth life insurance in India.
The promotion of new life insurance companies continued to be almost a craze
and insurance companies mushroomed. In this period, 176 insurance
companies were formed and many of them failed. Thus unhealthy growth was
harmful to the interest of the policy holders and insurance business in India.
Feeling concerned about it, the All India Life Assurance Offices' Association
urged upon the Government in 1932 to undertake the insurance legislation to
• (a) Compulsorily register all Life Insurance companies.
• (b) Secure a deposit of Rs.2 lakh from all Life Insurance companies.
• (c) Compel foreign companies doing business in India to keep sufficient funds
in India securities to meet their liabilities under all policies issued in India.

INSURANCE ACT, 1938

The Insurance Act, 1938, was the first comprehensive legislation governing not
only life but also non- life branches of insurance to provide strict state control
over insurance business. In sub- sections to dealt with provident companies,
mutual offices and co-operative societies as well.
The silent features of the Act were as follows:
• (A) Constitution of a Department of Insurance under a superintendent vested
with wide powers of supervision and control over all kinds of insurance
companies. • (B) Regulation for the compulsory registration of insurance
companies and for filing of returns of investment and financial conditions. • (C)
Provisions for deposit, to prevent insurers of inadequate financial resources of
speculative concerns for commencing business. • (D) Provisions that 55% of
the net life fund of an Indian or non- Indian insurer should invested in Indian
Government and approved securities with at least 25% in Indian Government
Rupee securities.. All other companies, i.e., foreign companies must invest
100% of their Indian liabilities in Indian Government and approved securities,
with at least 33.3% Indian Government securities. • (E) Prohibition of rebating,
restriction of commission, licensing of agents etc. Maximum rates of
commission were fixed at 40% of the first premiums and 5% of the renewal
premium in respect of life assurance business. The agent must be licensed, to
improve the status of the profession. • (F) Periodical valuation of Indian
Insurance business of foreign companies and the business of Indian companies.
• (G) Provision for policyholders' directors, making it possible for the
representatives of policyholders to be on the Board of directors. • (H)
Standardization of policy conditions required all companies to file standard
forms and tables of premium approved by an Actuary. Under this requirement,
the initial deposit for life insurance business was raised from Rs. 25000 in
Government securities to Rs. 50000 in cash approved securities, which was
subsequently to be raised by installments to Rs. 2 lakh within a specified time
limit.
Nationalization
THE LIFE INSURANCE CORPORATION OF INDIA: 1956
This was the first step taken towards the nationalization of life insurance
business in India. On 20th January, 1956 all life insurance companies were
taken over by 43 nominated custodians. The custodians were experienced
senior executives of private insurance companies, reporting directly to the
Finance Ministry. From the word go, the complex task of running the industry
on a permanent basis and continuing the services to policy holders without
interruption were their major concerns. The actual work of integration had to
await legislation. The custodians managed the insurance companies till 1-09-
1956, when Life Insurance Corporation was established under the general
direction and control of the Ministry of Finance.
The Ordinance provided for the transfer of the control of 154 Indian insurers,
16 non Indian insurers and 75 provident societies. These arrangements were
designed to ensure that no inconvenience whatsoever was caused to the policy
holders. With the Government take over the management aimed towards the
evolution of a common uniform premium rate, policy conditions and service
and working procedures and above all to help promote team spirit.
The corporation, a body corporate shall consist of not more than 15 members
appointed by the Central Government, one of them being appointed by the
government as chairman.
The capital of the corporation was at Rs 5 crore provided by the central
government.

INSURANCE SECTOR REFORMS

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI
Governor R.N. Malhotra was formed to evaluate the Indian Insurance industry
and recommended its future direction.
The Malhotra committee was set up with the objective of complementing the
reforms initiated in the financial sector.
The reforms were aimed at "creating a more efficient and competitive financial
system suitable for the requirements of the economy keeping in mind the
structural changes currently underway and recognizing that insurance is an
important part of the over all financial system where it was necessary to
address the need for similar reforms...".
In 1994, the committee submitted the report and some of the key
recommendations included:

(1) STRUCTURE
• Government stake in the Insurance Companies to be brought down to 50%. •
Government should take over the holdings of GIC and its subsidiaries so that
these subsidiaries can act as independent corporations. • All the insurance
companies should be given greater freedom to operate

(2) COMPETETION
• Private Companies with minimum paid up capital of Rs.1 bn should be
allowed to enter the industry.
• No Company should deal in both Life and General Insurance through a single
entry.
• Foreign Companies may be allowed to enter the industry in collaboration
with the domestic companies.
• Postal Life Insurance should be allowed to operate in the rural market.
• Only one State Level Life Insurance Company should be allowed to operate in
each state.

(3) REGULATORY BODY

• The Insurance Act should be changed • An Insurance Regulatory Body should
be set up.
• Controller of Insurance (Currently a part from the Finance Ministry)should be
made independent

(4) INVESMENTS
• Mandatory Investments of LIC Life Fund in government securities to be
reduced from 75% to 50%. • GIC and its subsidiaries are not to hold more than
5% in any company (There current holdings to be brought down to this level
over a period of time).

(5) CUSTOMER SERVICE

• LIC should pay interest on delays on payments beyond 30 days.
• Insurance Companies must be encouraged to set up unit linked pension plans
• Computerization of operations and updating of technology to be carried out
in the insurance industry.
The committee emphasized that in order to improve the customer service and
increase the coverage of insurance industry should opened up to competition.
But at the same time, the committee felt the need to exercise caution as any
failure on the part of new players could ruin the public confidence in the
industry.
Hence, it was decided to allow competition in a limited way by stipulating the
minimum capital requirement of Rs. 100 crores. The committee felt the need
to provide greater autonomy to insurance companies in order to improve their
performance and enable them to act as independent companies with
economic motives. For this purpose, it had proposed setting up an
independent regulatory body.

Liberalization :
OPENING UP OF INSURANCE SECTOR – 1999 THE INSURANCE
REGULATORY AND DEVELOPMENT AUTHORITY
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill
in Parliament in December 1999. The IRDA since its incorporation as a
statutory body in April 2000 has fastidiously stuck to its schedule of framing
regulations and registering the private sector insurance companies.
The other decision taken simultaneously to provide the supporting systems to
the insurance sector and in particular the life insurance companies was the
launch of the IRDA's online service for issue and renewal of licenses to agents.
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance
agents in place to sell their products, which are expected to be introduced by
early next year.
Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. In the private sector 14 life
insurance companies have been registered.

ENTRY OF PRIVATE COMPANIES

Under the IRDA Act, private companies can now operate in India's insurance
industry. However, they must obtain a license from the IRDA before being
permitted to write business.
To have its license application considered, a domestic private company must
be registered in accordance with the Companies Act of 1956 and have
approximately US$ 20 million of investment capital. The specific licensing
requirements that Private Indian Companies must fulfill are set forth in the
Registration on Indian Insurance Companies Regulations, published by the
IRDA 2000.

LIFTING OF BARRIERS TO FOREIGN INVESTMENT

The IRDA Act also lifts certain barriers to foreign direct investment in Indian
insurance industry.
Global insurers are now permitted to set up and register a domestic company
in order to write business in India. However, regulations stipulate that they
have a capital base of at least US $ 20 million, and their investment in such
company is capped at 26 percent. Thus, to participate in the market, they must
form a joint venture with an Indian partner that is able to invest the remaining
funds.
The equity investments limit is the same for global reinsures seeking to write
business in India, but they are required to put up a capital of approximately
US$ 45 million in order to establish a domestic company.
Since the IRDA first enacted these rules, 13 new life insurance companies have
entered the market.
On the other hand, no global reinsurer has established a domestic company.
Instead, most of the top international reinsurance companies operate from
their overseas offices by sharing the reinsurance risks picked up by the GIC. A
recent proposal has been put forward to increase foreign direct investment to
49 percent. In addition, global companies are pushing for the right to establish
branch offices in India. These changes are likely to substantially increase the
presence of international insurers, reinsurers, and brokers in India.
The IRDA Insurance Brokers Act in India 2002 permitted overseas insurance
and reinsurance brokers to enter the market, but with the same equity cap as
that governing the operations of foreign insurers and reinsurers. Thus, foreign
brokers must also form a joint venture with an Indian partner in order to
establish an Indian broking house.
The 2002 IRDA legislation established four broker categories, one of which
brokers must select when applying for a license:
1. Category 1A : Direct General Insurance Broker
2. Category 1B : Direct Life Insurance Broker
3. Category 2 : Reinsurance Broker
4. Category 3: Composite Broker
5. Category4: Others, for example Insurance Consultants and Risk
Management Consultants.
Each category has different solvency margins and capital adequacy ratios, and
all categories need to carry professional indemnity insurance at different
minimum levels.
In the years since market liberalization was initiated, the insurance sector has
witnessed some impressive changes. The needs of insurance and reinsurance
buyers have grown; the market is introducing new products to address these
needs; and the services of brokers are now seen as critical to making informed
insurance and reinsurance decisions.

OVERVIEW OF THE CURRENT INSURANCE MARKET

In the years since the IRDA Act initiated market reforms, the insurance sector
has experienced some remarkable changes.
The entry of a large number of Indian and Foreign private companies in life
insurance business has to lead greater choice in terms of products and
services. Increased consumer awareness of the benefits and importance of
insurance and reinsurance has generated many more buyers; and new
distribution channels_ among them brokers, bank assurance, the Internet, and
corporate agents_ have provided additional ways of getting products and
services to customers.

Private insurance companies have to date written a small percentage of

business in this sector during the last three years, but they have ushered in a
competitive environment that has accelerated market growth.
State owned insurers still write the bulk of insurance business, and they have
the net worth required to underwrite large corporate risks without depending
almost entirely on reinsurance support. However, their focus on restructuring
is beginning to put them at a disadvantage against private competitors.
Over the next few years, the share of the market held by the public insurers is
expected to drop substantially, with private companies assuming a growing
percentage of the business written.
At present there are 15 private insurers with two standalone private players
and remaining private-foreign joint venture.

Purpose and Need of Insurance :

Assets are insured, because they are likely to be destroyed through accidental
occurrences. Such possible occurrences are called perils. Fire, floods,
breakdowns, lightening, earthquakes, etc, are perils. If such perils can cause
damage to the asset, we say that the asset is exposed to that risk. Perils are the
events. Risks are the consequential losses or damages. The risk to a owner of a
building, because of the peril of an earthquake, may be a few lakhs or a few
crores of rupees, depending on the cost of the building and the contents in it.
The risk only means that there is a possibility of loss or damage. The damage
may or may not happen. Insurance is done against the contingency that it may
happen. There has to be an uncertainty about the risk. Insurance is relevant
only if there are uncertainties. If there is no uncertainty about the occurrence
of an event, it cannot be insured against. In the case of human being, death is
certain, but the time of death is uncertain. In the case of person who is
terminally ill, the time of death is not uncertain, though not exactly known. He
cannot be insured.
Insured does not protect the asset. It does not prevent its loss due to peril. The
peril cannot be avoided through insurance. The peril can sometimes be
avoided through better safety and damage control management. Insurance
only tries to reduce the impact of the risk on the owner of the asset and those
who depend on that asset. It only compensates the losses ± and that too, not
fully.
Only economic consequences can be insured. If the loss is not financial,
insurance may not be possible. Example of non-economic losses are love and
affection of parents, leadership of managers, sentimental attachments to
family heirlooms, innovative and creative abilities, etc.

How Insurance Works?

The mechanism of insurance is very simple. People who are exposed to the
same risks come together and agree that, if any one of them suffers a loss, the
others will share the loss and make good to the person who lost. All people
who send goods by ship are exposed to the same risks, which are related to
water damage, ship sinking, piracy, etc. Those owning factories are not
exposed to these risks, but they are exposed to different kinds of risks like, fire,
hailstorms, earthquake, lightning, burglary, etc. Like this, different kinds of
risks can be identified and separate groups made, including those exposed to
such risks. By this method, the heavy loss that any one of them may suffer (all
of them may not suffer such losses at the same time) is divided into bearable
small losses by all. In other words, the risk is spread among the community and
the likely big impact on one is reduced to smaller manageable impacts on all.
If a Jumbo Jet with more than 350 passengers crashes, the loss would run into
several crores of rupees. No airline would be able to bear such a loss. It is
unlikely that many Jumbo Jets will crash at same time. If 100 airline companies
flying Jumbo Jets, come together into an insurance pool, whenever one of the
Jumbo Jets in the pool crashes, the loss to be borne by each airline would
come down to a few lakhs of rupees. Thus, insurance is a business of
µsharing¶.
There are certain principles, which make it possible for insurance to remain a
fair arrangement. The first is that it is difficult for any one individual to bear the
consequences of the risks that he is exposed to. It will become bearable when
the community shares the burden. The second is that the perils should occur in
an accidental manner. Nobody should be in a position to make the risk happen.
In other words, none in the group should set fire to his assets and ask others to
share the costs of damage. This would be taking unfair advantage of an
arrangement put into place to protect people from risks they are exposed to.
The occurrence has to be random, accidental, and not the deliberate creation
of the insured person.
The manner in which the loss is to be shared can be determined before-hand.
It may be proportional to the risk that each person is exposed to. This would be
indicative of the benefit he would receive if the peril befell him. The share
could be collected from the members after the loss has occurred or the likely
shares may be collected in advance, at the time of admission to the group.
Insurance companies collect in advance and create a fund from which the
losses are paid.
The collection to be made from each person in advance is determined on
assumptions. While it may not be possible to tell beforehand, which person
will suffer, it may be possible to tell, on the basis of past experiences, how
many persons, on an average, may suffer losses. The following two examples
explain the above concept of insurance:

Example 1
In a village, there are 400 houses, each valued at Rs. 20000. Each year, on the
average, 4 houses get burnt, resulting into a total loss of Rs. 80000. If all the
400 owners come together and contribute Rs. 200 each, the common fund
would be Rs. 80000. this is enough to pay Rs. 20000 to each of the 4 owners
whose houses got burnt. Thus, the risk of 4 owners is spread over 400 house-
owners of the village.

Example 2
There are 1000 persons who are all aged 50 and are healthy. It is expected that
of these, 10 persons may die during the year. If the economic value of the loss
suffered by the family of each dying person is taken to be Rs. 20000, the total
loss would work out to Rs. 200000. If each person in a group contributed Rs.
200 a year, the common fund would be Rs. 200000. This would be enough to
par Rs. 20000 to the family of each of the ten persons who die. Thus, the risks
in the case of 10 persons, are shared by 1000 persons.

Insurance of ‘Human Asset’

A human being is an income generating asset. One¶s manual labour,
professional skills and business acumen are the assets. This asset also can be
lost through unexpectedly early death or through sickness and disabilities
caused by accidents. Accidents may or may not happen. Death will happen, but
the timing is uncertain. If it happens around the time of one¶s retirement,
when it could be expected that the income will normally cease, the person
concerned could have made some other arrangements to meet the continuing
needs. But if it happens much earlier when the alternate arrangements are not
in place, there can be losses to the person and dependents. Insurance is
necessary to help those dependent on the income.
A person, who may have made arrangements for his needs after his
retirement, also would need insurance. This is because the arrangements
would have been made on the basis of some expectations like, likely to live for
another 15 years, or that children will look after him. If any of these
expectations do not become true, the original arrangement would become
inadequate and there could be difficulties. Living too long can be as much a
problem as dying too young. Both are risks, which need to be safeguarded
against. Insurance takes care.

Insurance of Intangibles :
The concept of insurance has been extended beyond the coverage of tangible
assets. Exporters run risk of losses if the importers in the other country default
in payments or in collecting the goods. They will also suffer heavily due to
sudden changes in currency exchange rates, economic policies or political
disturbances in the other country. These risks are insured. Doctors run the risk
of being charged with negligence and subsequent liability for damages. The
amounts in question can be fairly large, beyond the capacity of individuals to
bear. These are insured. Thus, insurance is extended to intangibles. In some
countries, the voice of a singer or the legs of a dancer may be insured.

Types of Insurance :
Any risk that can be quantified can potentially be insured. Specific kinds of risk
that may give rise to claims are known as "perils". An insurance policy will set
out in detail which perils are covered by the policy and which are not.
Below is a (non-exhaustive) list of the many different types of insurance that
exist. A single policy may cover risks in one or more of the categories set forth
below. For example, auto insurance would typically cover both property risk
(covering the risk of theft or damage to the car) and liability risk (covering legal
claims from causing an accident). A homeowner's insurance policy in the U.S.
typically includes property insurance covering damage to the home and the
owner's belongings, liability insurance covering certain legal claims against the
owner, and even a small amount of health insurance for medical expenses of
guests who are injured on the owner's property.
• Automobile insurance known in the UK as motor insurance, is probably the
most common form of insurance and may cover both legal liability claims
against the driver and loss of or damage to the insured's vehicle itself.
Throughout most of the United States an auto insurance policy is required to
legally operate a motor vehicle on public roads. In some jurisdictions, bodily
injury compensation for automobile accident victims has been changed to a
no-fault system, which reduces or eliminates the ability to sue for
compensation but provides automatic eligibility for benefits.
• Aviation insurance insures against hull, spares, deductible, hull war and
liability risks.
• Boiler insurance (also known as boiler and machinery insurance or
equipment breakdown insurance) insures against accidental physical damage
to equipment or machinery.
• Builder's risk insurance insures against the risk of physical loss or damage to
property during construction. Builder's risk insurance is typically written on an
"all risk" basis covering damage due to any cause (including the negligence of
the insured) not otherwise expressly excluded.

• Business insurance can be any kind of insurance that protects businesses

against risks. Some principal subtypes of business insurance are (a) the various
kinds of professional liability insurance, also called professional indemnity
insurance, which are discussed below under that name; and (b) the business
owners policy (BOP), which bundles into one policy many of the kinds of
coverage that a business owner needs, in a way analogous to how
homeowners insurance bundles the coverage that a homeowner needs.
• Casualty insurance insures against accidents, not necessarily tied to any
specific property.
• Credit insurance repays some or all of a loan back when certain things
happen to the borrower such as unemployment, disability, or death. Mortgage
insurance (which see below) is a form of credit insurance, although the name
credit insurance more often is used to refer to policies that cover other kinds
of debt.
• Crime insurance insures the policyholder against losses arising from the
criminal acts of third parties. For example, a company can obtain crime
insurance to cover losses arising from theft or embezzlement.
• Crop insurance "Farmers use crop insurance to reduce or manage various
risks associated with growing crops. Such risks include crop loss or damage
caused by weather, hail, drought, frost damage, insects, or disease, for
instance."
• Defense Base Act Workers' compensation or DBA Insurance provides
coverage for civilian workers hired by the government to perform contracts
outside the US and Canada. DBA is required for all US citizens, US residents, US
Green Card holders, and all employees or subcontractors hired on overseas
government contracts. Depending on the country, Foreign Nationals must also
be covered under DBA. This coverage typically includes expenses related to
medical treatment and loss of wages, as well as disability and death benefits.
• Directors and officers liability insurance protects an organization (usually a
corporation) from costs associated with litigation resulting from mistakes
incurred by directors and officers for which they are liable. In the industry, it is
usually called "D&O" for short. ‡ Disability insurance policies provide financial
support in the event the policyholder is unable to work because of disabling
illness or injury. It provides monthly support to help pay such obligations as
mortgages and credit cards.
• Total permanent disability insurance provides benefits when a person is
permanently disabled and can no longer work in their profession, often taken
as an adjunct to life insurance.
• Errors and omissions insurance: See "Professional liability insurance" under
"Liability insurance".
• Expatriate insurance provides individuals and organizations operating outside
of their home country with protection for automobiles, property, health,
liability and business pursuits.
• Financial loss insurance protects individuals and companies against various
financial risks. For example, a business might purchase cover to protect it from
loss of sales if a fire in a factory prevented it from carrying out its business for a
time. Insurance might also cover the failure of a creditor to pay money it owes
to the insured. This type of insurance is frequently referred to as "business
interruption insurance." Fidelity bonds and surety bonds are included in this
category, although these products provide a benefit to a third party (the
"obligee") in the event the insured party (usually referred to as the "obligor")
fails to perform its obligations under a contract with the oblige.
• Health insurance policies will often cover the cost of private medical
treatments if the National Health Service in the UK (NHS) or other publicly-
funded health programs do not pay for them. It will often result in quicker
health care where better facilities are available.
• Home insurance or homeowners insurance: See "Property insurance". ‡
Liability insurance is a very broad superset that covers legal claims against the
insured. Many types of insurance include an aspect of liability coverage. For
example, a homeowner's insurance policy will normally include liability
coverage which protects the insured in the event of a claim brought by
someone who slips and falls on the property; automobile insurance also
includes an aspect of liability insurance that indemnifies against the harm that
a crashing car can cause to others' lives, health, or property. The protection
offered by a liability insurance policy is twofold: a legal defense in the event of
a lawsuit commenced against the policyholder and indemnification (payment
on behalf of the insured) with respect to a settlement or court verdict. Liability
policies typically cover only the negligence of the insured, and will not apply to
results of willful or intentional acts by the insured.
• Environmental liability insurance protects the insured from bodily injury,
property damage and cleanup costs as a result of the dispersal, release or
escape of pollutants.
• Professional liability insurance also called professional indemnity insurance,
protects professional practitioners such as architects, lawyers, doctors, and
accountants against potential negligence claims made by their patients/clients.
Professional liability insurance may take on different names depending on the
profession. For example, professional liability insurance in reference to the
medical profession may be called malpractice insurance. Notaries public may
take out errors and omissions insurance (E&O). Other potential E&O
policyholders include, for example, real estate brokers, home inspectors,
appraisers, and website developers.
• Life insurance provides a monetary benefit to a decedent's family or other
designated beneficiary, and may specifically provide for burial, funeral and
other final expenses. Life insurance policies often allow the option of having
the proceeds paid to the beneficiary either in a lump sum cash payment or an
annuity.
• Annuities provide a stream of payments and are generally classified as
insurance because they are issued by insurance companies and regulated as
insurance and require the same kinds of actuarial and investment
management expertise that life insurance requires. Annuities and pensions
that pay a benefit for life are sometimes regarded as insurance against the
possibility that a retiree will outlive his or her financial resources. In that sense,
they are the complement of life insurance and, from an underwriting
perspective, are the mirror image of life insurance.
• Locked funds insurance is a little-known hybrid insurance policy jointly issued
by governments and banks. It is used to protect public funds from tamper by
unauthorized parties. In special cases, a government may authorize its use in
protecting semi-private funds which are liable to tamper. The terms of this
type of insurance are usually very strict. Therefore it is used only in extreme
cases where maximum security of funds is required.
• Marine insurance and marine cargo insurance cover the loss or damage of
ships at sea or on inland waterways, and of the cargo that may be on them.
When the owner of the cargo and the carrier are separate corporations,
marine cargo insurance typically compensates the owner of cargo for losses
sustained from fire, shipwreck, etc., but excludes losses that can be recovered
from the carrier or the carrier's insurance. Many marine insurance
underwriters will include "time element" coverage in such policies, which
extends the indemnity to cover loss of profit and other business expenses
attributable to the delay caused by a covered loss.
• Mortgage insurance insures the lender against default by the borrower.
• National Insurance is the UK's version of social insurance (which see below).
• No-fault insurance is a type of insurance policy (typically automobile
insurance) where insurers are indemnified by their own insurer regardless of
fault in the incident.
• Nuclear incident insurance covers damages resulting from an incident
involving radio active materials and is generally arranged at the national level.
(For the United States, see the PriceAnderson Nuclear Industries Indemnity
Act.)
• Pet insurance insures pets against accidents and illnesses - some companies
cover routine/wellness care and burial, as well.
• Political risk insurance can be taken out by businesses with operations in
countries in which there is a risk that revolution or other political conditions
will result in a loss.
• Pollution Insurance A first-party coverage for contamination of insured
property either by external or on-site sources. Coverage for liability to third
parties arising from contamination of air, water or land due to the sudden and
accidental release of hazardous materials from the insured site. The policy
usually covers the costs of cleanup and may include coverage for releases from
underground storage tanks. Intentional acts are specifically excluded
• Property insurance provides protection against risks to property, such as fire,
theft or weather damage. This includes specialized forms of insurance such as
fire insurance, flood insurance, earthquake insurance, home insurance, inland
marine insurance or boiler insurance.
• Purchase insurance is aimed at providing protection on the products people
purchase. Purchase insurance can cover individual purchase protection,
warranties, guarantees, care plans and even mobile phone insurance. Such
insurance is normally very limited in the scope of problems that are covered by
the policy.
• Retrospectively Rated Insurance is a method of establishing a premium on
large commercial accounts. The final premium is based on the insured's actual
loss experience during the policy term, sometimes subject to a minimum and
maximum premium, with the final premium determined by a formula. Under
this plan, the current year's premium is based partially (or wholly) on the
current year's losses, although the premium adjustments may take months or
years beyond the current year's expiration date. The rating formula is
guaranteed in the insurance contract. Formula: retrospective premium =
converted loss + basic premium × tax multiplier. Numerous variations of this
formula have been developed and are in use. ‡ Social insurance can be many
things to many people in many countries. But a summary of its essence is that
it is a collection of insurance coverage (including components of life insurance,
disability income insurance, unemployment insurance, health insurance, and
others), plus retirement savings, that mandates participation by all citizens. By
forcing everyone in society to be a policyholder and pay premiums, it ensures
that everyone can become a claimant when or if he/she needs to. Along the
way this inevitably becomes related to other concepts such as the justice
system and the welfare state. This is a large, complicated topic that engenders
tremendous debate, which can be further studied in the following articles (and
others):
o Social welfare provision
o Social security
o Social safety net
o National Insurance
o Social Security (United States)
o Social Security debate (United States)
• Terrorism insurance provides protection against any loss or damage caused
by terrorist activities.
• Title insurance provides a guarantee that title to real property is vested in the
purchaser and/or mortgagee, free and clear of liens or encumbrances. It is
usually issued in conjunction with a search of the public records performed at
the time of a real estate transaction.
• Travel insurance is an insurance cover taken by those who travel abroad,
which covers certain losses such as medical expenses, lost of personal
belongings, travel delay, personal liabilities, etc.
• Workers' compensation insurance replaces all or part of a worker's wages
lost and accompanying medical expense incurred because of a job-related
injury.

Advantages of Life Insurance :

Life insurance has no competition from any other business. Many people think
that life insurance is an investment or a means of saving. This is not a correct
view. When a person saves, the amount of funds available at any time is equal
to the amount of money set aside in the past, plus interest. This is so in a fixed
deposit in the bank, in national savings certificates, in mutual funds and all
other savings instruments. If the money is invested in buying shares and
stocks, there is the risk of the money being lost in the fluctuations of the stock
market. Even if there is no loss, the available money at any time is the amount
invested plus appreciation. In life insurance, however, the fund available is not
the total of the savings already made (premiums paid), but the amount one
wished to have at the end of the savings period (which is the next 20 or 30
years). The final fund is secured from the very beginning.
One is paying for it later, out of the savings. One has to pay for it only as long
as one lives or for a lesser period if so chosen. There is no other scheme which
provides this kind of benefit. Therefore life insurance has no substitute.
Even so, a comparison with other forms of savings will show that life insurance
has the following advantages.
• In the event of death, the settlement is easy. The heirs can collect the
moneys quicker, because of the facility of nomination and assignment. The
facility of nomination is now available for some bank accounts.
• There is a certain amount of compulsion to go though the plan of savings. In
other forms, if one changes the original plan of savings, there is no loss. In
insurance, there is a loss.
• Certain cannot claim the life insurance moneys. They can be protected
against attachments by courts.
• There are tax benefits, both in income tax and in capital gains.
• Marketability and liquidity are better. A life insurance policy is property and
can be transferred or mortgaged. Loans can be raised against the policy.
The following tenets help agents to believe in the benefits of life insurance.
Such faith will enhance their determination to sell and their perseverance.
• Life insurance is not only the best possible way for family protection. There is
no other way.
• Insurance is the only way to safeguard against the unpredictable risks of the
future. It is unavoidable. ‡ The terms of life are hard. The terms of insurance
are easy.
• The value of human life is far greater than the value of property. Only
insurance can preserve it.
• Life insurance is not surpassed by many other savings or investment
instrument, in terms of security, marketability, stability of value or liquidity.
• Insurance, including life insurance, is essential for the conservation of many
businesses, just as it is in the preservation of homes.
• Life insurance enhances the existing standards of living. ‡ Life insurance
helps people live financially solvent lives.
• Life insurance perpetuates life, liberty and the persuit of happiness. ‡ Life
insurance is a way of life.

The Business of Insurance :

Insurance companies are called insurers. The business of insurance is to (a)
bring together persons with common insurance interests (sharing the same
risks), (b) collect the share or contribution (called premium) from all of them,
and (c) pay out compensation (called claims) to those who suffer. The premium
is determined on the same lines as indicated in the examples above, but with
some further refinements.
In India, insurance business is classified primarily as life and non-life or general.
Life insurance includes all risks related to the lives of human beings and
General insurance covers the rest. General insurance has three classifications
viz., Fire (dealing with all fire related risks), Marine (dealing with all transport
related risks and ships) and Miscellaneous (dealing with all others like liability,
fidelity, motor crop, personal accident, etc.). Personal accident and sickness
insurance, which are related to human beings, is classified as µnon-life¶ in
India, but is classified as µlife¶, in many other countries. What is µNon-life¶ in
India is termed as µProperty and Casualty¶ in some other countries.
The premium is based on expectations of the losses. These expectations are
based on studies of occurrences in the past and the use of statistical principles.
There is, in statistics, a ³law of large numbers´. When you toss a coin, the
chance of a head or tail coming up is half. If the coin is tossed 10 times, one
cannot be sure that the head will come up 5 times. If the coin is tossed 1
million times, the number of heads will be closer to half a million
proportionately than in the case of 10. The variation will be less as a
percentage. So also, the larger the numbers (of risks) included in the pool, the
better the chances that the assumptions regarding the probability of the risk
occurring, which is the basis of premium calculation, will be realized in
practice. In order to be amenable to statistical predictions, insurers have to
insure large numbers of risks. Larger the spread of business better is the
experience in relation to expectations.
The business of insurance is nothing but one of sharing. It spreads losses of an
individual over the group of individuals who are exposed to similar risks.
People who suffer loss get relief because their loss is made good. People who
do not suffer loss are relieved because they were spared the loss.
The insurer is in the position of a trustee as it is managing the common fund,
for and on behalf of the community of policyholders. It has to ensure that
nobody is allowed to take undue advantage of the arrangement. That means
that the management of the insurance business requires care to prevent entry
(into the group) of people whose risks are not of the same kind as well as
paying claims on losses that are not accidental. The decision to allow entry is
the process of underwriting of risk. Underwriting includes assessing the risk,
which means, making an evaluation of how much is the exposure to risk. The
premium to be charged depends on this assessment of the risk. Both
underwriting and claim settlements have to be done with great care.

Criticism of Insurance Companies :

Some people believe that modern insurance companies are money-making
businesses which have little interest in insurance. They argue that the purpose
of insurance is to spread risk so the reluctance of insurance companies to take
on high-risk cases (e.g. houses in areas subject to flooding, or young drivers)
runs counter to the principle of insurance. Other criticisms include:
• Insurance policies contain too many exclusion clauses. For example, some
house insurance policies do not cover damage to garden walls.
• Most insurance companies now use call centre and staff attempt to answer
questions by reading from a script. It is difficult to speak to anybody with
expert knowledge.
Role of Insurance in Economic Development :
For economic development, investments are necessary. Investments are made
out of savings. A life insurance company is a major instrument for the
mobilization of savings of people, particularly from the middle and lower
income groups. These savings are channeled into investments for economic
growth.
As on 31.3.2002, the total investments of the LIC exceeded Rs. 245000 crores,
of which more than Rs. 130000 crores were directly in Government (both State
and Centre) related securities, more than Rs. 12000 crores in the State
Electricity Boards, nearly Rs. 20000 crores in housing loans and Rs. 4000 crores
in water supply and sewerage systems. Other investments included road
transport, setting up industrial estates and directly financing industry.
Investments in the corporate sector (shares, debentures and term loans)
exceeded Rs. 30000 crores. These directly affect the lives of the people and
their economic well-being.
A life insurance company will have large funds. These amounts are collected by
way of premiums. Every premium represents a risk that is covered by that
premium. In effect, therefore, these vast amounts represent pooling of risks.
The funds are collected and held in trust for the benefit of the policyholders.
The management of life insurance companies are required to keep this aspects
in mind and make all its decisions in ways that benefit the community. This
applies also to its investments. That is why successful insurance companies
would not be found investing in speculative ventures. Their investments, as in
the case of the LIC, benefit the society at large.
Apart from investments, business and trade benefit through insurance.
Without insurance, trade and commerce will find it difficult to face the impact
to major perils like fire, earthquake, floods, etc. Financiers, like banks, collapse
if the factory, financed by it, is reduces to ashes by terrible fire. Insurers cover
also the loss to financiers, if their debtors default.

2. GLOBAL INSURANCE INDUSTRY :

The global insurance industry is one of the largest sectors of finance. It ranges
from consumer to corporate and industrial insurance, and even reinsurance, or
insurance of insurance.
The major insurance markets of the world are obviously the US, Europe, Japan,
and South Korea. Emerging markets are found throughout Asia, specifically in
India and China, and are also in Latin America.
With the internet and other forms of high-speed communication, companies
and individuals are now able to purchase insurance and related financial
products from almost anywhere in the world. Increasing affluence, especially
in developing countries, and a rising understanding of the need to protect
wealth and human capital has led to significant growth in the insurance
industry.
Given the evolving and growing socio-economic conditions worldwide,
insurance companies are increasingly reaching out across borders and are
offering more competitive and customized products than ever before.
Over the past ten years, global insurance premiums have risen by more than
50%, with annual growth rates ranging between 2 and 10%.In 2004, global
insurance premiums amounted to $3.3 trillion.
The majority of insurance comes from developed nations such as most of
Europe, the US, and Japan. In 2004, premiums in North American amounted to
$1,217 billion, while the European Union generated $1,198 billion, and Japan
produced $492 billion. The UK amounted to $295 billion.
The four biggest generators of insurance premiums comprised almost two-
thirds of premiums for 2004, the US and Japan amount to half, while they only
make up 7% of the world¶s population.
In contrast, the emerging markets that make up 85% of the world¶s population
produced only 10% of the premiums.
The leading global insurance companies are:
• Zurich Financial Services,
• AXA
• Berkshire Hathaway/ Berkshire Hathaway Re
• Allianz
• Aviva
• ING Group
• Munich RE Group
• American International Group (AIG)
• Nippon Life Insurance
• Assicurazioni Generali

GLOBAL LIFE INSURANCE DENSITY :

3. PERFORMANCE OF INDIAN INSURANCE INDUSTRY :
Performance up to October 2006
The performance growth rate that was 22.8 percent as at September 2006 has
moved up to 23.3 percent at the end of October 2006, an improvement of
significance. The total premium at the end of October is Rs.14,628 crore as
against Rs.11,855 crore. The established players have added Rs.807 crore at a
growth rate of 8.3 percent with the new players adding Rs.1966 crore at a
growth rate of 62 percent. Here again, ICICI Lombard has achieved an accretion
of Rs.887 crore; whereas the total accretion of all the established players is Rs
807 crores, a truly impressive record. New India with Rs.286 crore, closely
followed by Oriental with Rs.277 crore are the major contributors for the
established players. Reliance, a late starter in the race for premium acquisition
has recorded an accretion of Rs.357 crore as against a meager last year
renewal of Rs.89 crore. The growth path is now led by several players: with
eight out of the twelve players having achieved accretions in excess of Rs.100
crore and more at the end of October 2006. With the imminent detariffing
around the corner in January 2007, the next two months should witness even
more fierce battles for supremacy of the market turf. A few of the new players
are inching towards breaking into the big league premium players of
yesteryears and this may happen sooner than one thought. Interesting and
challenging times are certainly ahead for all the players.

Premiums Rise 163.68% over October, 2006

Individual premium:
The life insurance industry underwrote Individual Single Premium of
Rs.1336610.10 lakh for the period ended October, 2006 of which the private
insurers garnered Rs.118242.78 lakh and LIC garnered Rs.1218367.32 lakh. The
corresponding numbers for the previous year were Rs.443296.40 lakh for the
industry, with private insurers underwriting Rs.64530.68 lakh and LIC
Rs.378765.72 lakh. The Individual Non-Single Premium underwritten during
April-October, 2006 was Rs.1771903.71 lakh of which the private insurers
underwrote Rs.536863.16 lakh and LIC Rs.1235040.55 lakh. The corresponding
numbers for the previous year were Rs.743586.24 lakh, Rs.260432.63 lakh and
Rs.483153.61 lakh respectively.
Group premium:
The industry underwrote Group Single Premium of Rs.467348.58 lakh of which
the private insurers underwrote Rs.30147.74 lakh and LIC Rs.437200.84 lakh.
The lives covered being 7678192, 456696 and 7221496 respectively. The
corresponding numbers for the previous year were Rs.171382.70 lakh with
private insurers underwriting Rs.17261.98 lakh and LIC Rs.154120.72 lakh and
the lives covered being 8547743, 397721 and 8150022 respectively. The Group
Non-Single Premium underwritten during April-October, 2006 was Rs.53221.05
lakh which was underwritten entirely by the private insurers, covering 2366084
lives. The corresponding numbers for the previous year were Rs. 18031.15 lakh
and covering 1277400 lives.

Segment-wise segregation:
A further segregation of the premium underwritten during the period indicates
that Life, Annuity, Pension and Health contributed Rs.2329869.52 lakh
(64.24%), Rs.74006.48 lakh (2.04%), Rs.1221904.91 lakh (33.69%) and
Rs.897.90 lakh (0.02%) respectively. In respect of LIC, the break up of life,
annuity and pension categories was Rs.1677831.45 lakh (58.04%), Rs.69437.82
lakh (2.40%) and Rs.1143339.44 lakh (39.55%) respectively. In case of the
private insurers, Rs.652038.07 lakh (88.58%), Rs.4568.66 lakh (0.62%),
Rs.78565.47 lakh (10.67%) and Rs.897.90 lakh (0.12%) respectively was
underwritten in the four segments.

Unit linked and conventional premium:

Analysis of the statistics in terms of linked and non-linked premium indicates
that 49.46% of the business was underwritten in the non-linked category, and
50.54% in the linked category, i.e., Rs.1793702.35 lakh and Rs.1832976.45 lakh
respectively. In case of LIC, the linked and non-linked premium was 41.38% and
58.62% respectively, as against which for the private insurers taken together
this stood at 86.53% and 13.47% respectively. During the corresponding period
of the previous year, linked and non-linked premium indicates that 54.74% of
the business was underwritten in the non-linked category, and 45.26% in the
linked category, i.e., Rs.752509.54 lakh and Rs.622185.30 lakh respectively. In
case of LIC, the linked and non-linked premium was 33.96% and 66.04%
respectively, as against which for the private insurers taken together this stood
at 77.02% and 22.98% respectively. Growth momentum continues in October
2006 with 25.3 percent

All-round growth :
The month of October 2006 has been the month of extraordinary growth for
the nonlife insurers with the growth rate high at 25.3 percent. This achieved
rate is only slightly below that of September of 25.8 percent. As against the
monthly renewals of Rs.1772 crore in October last year, the premium income
scaled in 2006 is Rs.2220 crore. The established players have recorded an
accretion of Rs.151 crore at a growth rate of 11.3 percent. The new players
have had an accretion of Rs.297 crore at a growth rate of 63 percent. Among
the former, New India leads with an accretion of Rs.60 crore followed by
Oriental with Rs.56 crore. But the stellar performances in the month have
come from ICICI Lombard that has produced a massive accretion of Rs.167
crore with Reliance adding Rs.56 crore to its meager renewal premium of Rs.12
crore.
The new players have continued to maintain a strong grip on their market
share that stands at 35 percent. Two points of interest to the market have
emerged. One is that the monthly accretion of ICICI Lombard at Rs.167 crore is
higher than the combined accretion achieved by all the established players of
Rs.151 crore. This performance should stand out as of interest to the market.
The second point of market interest is that for the first time, the October
monthly premium of ICICI Lombard at Rs.310 crore has exceeded the monthly
premium performances of National Insurance and UIIC that have accomplished
premiums of Rs.305 crores and Rs.257 crore respectively. The established
players do seem to be coming under increasing pressure by the new players
with their relentless high growth rates and premium productions.

41 per cent growth in life insurance industry in 2006 :

New Delhi: Life insurance sector grew by 41 per cent in 2005-06 due to better
performance of country's largest life insurer, LIC, and private players like Bajaj
Allianz and ICICI Prudential.
The 15 life insurance companies together collected Rs 35,898 crore in the fiscal
ended March this year, compared to Rs 25,343 crore in the previous fiscal,
according to data compiled by regulator IRDA.
Life Insurance Corporation's premium income rose more than 28 per cent to Rs
25,645 crore after it sold 3.16 crore policies as against Rs 19,972 crore
collected a year ago. However, LIC's market share dipped by 6.63 per cent to
71.44 per cent from 78.07 per cent in the year ago period due to stiff
competition and aggressive marketing of private life insurers.
The 14 private players were able to steadily increase their market share from
21.93 per cent to 28.56 per cent in a year's time by collecting Rs 10,252 crore
during the period under review.

Private sector life insurance business jumps 90% :

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 200607. 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 mobilization 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 comapnies. Bajaj Allianz Life
insurance has added 20 lakh policies while ICICI Prudential has expanded over
19 lakh policies during the year.
Building a Vibrant Insurance Market in India :
India's insurance industry is an example of the positive effects of competition
and new investors in the marketplace. As we know, India opened its insurance
market to the private sector in 1999 when parliament passed a new law
establishing an independent regulatory body to oversee the insurance market.
The law opened the door for participation of private insurance companies and
a limited participation of foreign insurance companies through joint ventures
with Indian companies. The law also charged insurance companies to make
available insurance products and services to the huge segment of the
population that are vulnerable and not necessarily part of the formal economy.
The results of the liberalization are there for everyone to see. The insurance
markets -both life and non-life -- have grown impressively. IRDA is working on
a regulatory framework that helps level the playing field for all types of
insurance companies, irrespective of their ownership. Since 1999, IRDA has
licensed 22 new private Indian insurance companies, an overwhelming number
of which have global insurance companies as their partners. To date, the
industry has attracted foreign direct investment of $235 million.
In 2006, Indian insurance companies mobilized over $29 billion, nearly four
times as much as in 1999 ($8 billion). In other countries, this kind of capital
mobilization provides crucial resources for investment in infrastructure,
corporate businesses, long-term bonds, and municipal projects. Once India
does more to free insurance companies to invest in such important sectors, it
too can gain benefit from this long-term financial resource. Other
improvements are occurring as well. New insurance products such as product
liability insurance, professional liability insurance, small/medium size
enterprise insurance, weather insurance, and group health insurance for the
poor have been launched. Private insurance companies are also using banks,
microfinance institutions and cooperatives to increase their market share and
compete with well-entrenched stateowned insurance companies.
The marketplace is getting competitive, but the market share of private
insurance companies remains very low in the 10-15 percent range. The heavy
hand of government still dominates the market, with price controls, limits on
ownership, and other restraints. We have seen what happens in India when a
market is truly opened up. We saw it in the IT sector, we saw it in the telecom
sector, and we are seeing it in the aviation sector. Why can't insurance be
next? India's insurance market remains very small compared with some of the
major emerging markets. South Africa and South Korea, with a fraction
(onetwentieth) of India's population, do at least twice as much insurance
business as Indian companies did in 2004. This is a major missed opportunity
for India's economy. A vibrant insurance market can support the economy by
providing long-term capital -- equity and debt -- to the private sector. For
example, in the U.S. over two-thirds of financial assets of insurance companies
are in corporate bonds and equities, municipal securities and commercial
mortgages.
Insurance also shields households and businesses from irrecoverable loss, such
as from major natural disasters, illness and death. In India, 80 percent of health
care is privately provided, yet only 10 percent of the population has access to
health insurance. Therefore, many individual households have to pay the full
out-of-pocket costs for health treatment. What will expand the insurance
industry and help it contribute to the economy? Major policy and institutional
issues have to be addressed and changed.

Insurance is a capital-intensive industry. It is also a long-gestation business.

India's insurance industry needs capital, and a major source of capital would be
from foreign investors, who are now limited to 26 percent ownership. India
needs to raise the cap on Foreign Direct Investment (FDI) to attract capital for
the industry. For some time there has been an understanding that the FDI cap
will be raised to 49 percent, and many companies entered the Indian market
with this expectation. Failure to follow through in raising the cap is increasingly
seen by investors as a breach of faith. This promise needs to be delivered, not
5 years from now, but soon, if India wishes to regain its credibility in the eyes
of foreign investors. Increasing the cap on FDI will both enhance the growth of
the insurance industry and improve global confidence in India as a business
and investment destination.
The cap should be raised above 50 percent within a short period so that
foreign investors would have management control commensurate with their
investment and the flow of FDI to the sector will increase. Leading foreign
companies bring more than capital to the insurance industry. They also bring
generations of successful experience in managing and growing the industry.
The benefit of the long-term capital that the insurance industry mobilizes is
also being lost as a source of long-term capital. In India, over 60 percent of the
insurance industry's financial assets are locked in government securities.
Investment guidelines for insurance companies prescribed by the regulator
must be changed to allow and promote access to insurance funds by the
corporate sector and infrastructure projects.
There is also a strong case for raising the FDI cap for reinsurance and auxiliary
insurance services, such as brokerage and actuarial services.
Major lines of non-life insurance business such as fire and car continue to be
governed by a pricing regime that is administered and not risk-based. This
distorts the market and makes it inefficient. It has prevented the emergence of
a culture of underwriting in insurance companies. The IRDA needs to dismantle
this regime to make these segments of the market truly competitive.
The IRDA should also seek to create a regulatory regime that promotes the
most efficient use of capital, eliminates avoidable micro-management of
business practices, allows companies to price their products prudentially, and
levels the playing field between private and state-owned insurance companies.
When markets are competitive and responsive to consumer demand and
preference, it is the consumer that benefits in terms of lower cost and
increased ability to manage risks.
Health is an area that is underserved by the insurance industry. India as an
economy has high health spending but poor health outcomes. With no pooled
risk sharing from insurance policies and a health care system that is primarily
private, the cost to individuals becomes a major economic burden. For this
reason, many microfinance institutions are finding that a primary use of micro
loans to the poor is to pay medical bills.
The current minimum capital requirement of $22 million capital for setting up
a health insurance company is a significant barrier to entry, particularly when
FDI is restricted to 26 percent. The lack of data from both health providers and
from existing claims makes risk-based pricing of health insurance products
difficult. The absence of an appropriate regulatory framework that enforces a
minimum level of service and hygiene standards is an important reason the
health insurance market in India is so underdeveloped. It is not surprising that
not a single health insurance company is among the 22 new private insurance
companies licensed since 1999. Clearly, the IRDA and the Ministry of Health
need to work in tandem to solve these problems.
Another area where the insurance industry is not doing its job is helping
mitigate the risks for personal and business loss from natural catastrophes. In
the past decade, India and China accounted for one-fourth of the global
economic losses from natural disasters. Insurance availability in India for
natural catastrophes is almost negligible. As we have seen with the Indian
Ocean tsunami, the absence of a "safety net" for property lost in a disaster has
led to substantial personal loss and slowed economic recovery.

Insurance Sector Reforms in India: Challenges and Opportunities :

Insurance in India started without any regulations in the nineteenth century. It
was a typical story of a colonial era: a few British insurance companies
dominating the market serving mostly large urban centers. After the
independence, the Life Insurance Company was nationalized in 1956, and then
the general insurance business was nationalized in 1972. Only in 1999 private
insurance companies were allowed back into the business of insurance with a
maximum of 26 per cent of foreign holding (World Bank Economic Review
2000). The entry of the State Bank of India with its proposal of bank assurance
brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and
Development Authority bill was passed to protect the interest of the
policyholders from private and foreign players. The following companies are
entitled to do insurance business in India.
The private insurance joint ventures have collected the premium of Rs.1019.09
crore with the investment of just Rs.3,000 crore in three years of liberalization.
The private insurance players have significantly improving their market share
when compared to 50 years Old Corporation (i.e. LIC). As per the figures
compiled by IRDA, the Life Insurance Industry recorded a total premium
underwritten of Rs. 10,707.96 crore for the period under review. Of this,
private players contributed to Rs.1, 019.09 crore, accounting for 10 percent.
Life Insurance Corporation of India (LIC), the public sector giant, continued to
lead with a premium collection of Rs.9,688.87 crore, translating into a market
share of 90 per cent. In terms of number of policies and schemes sold, private
sector accounted for only 3.77per cent as compared to 96.23 per cent share of
LIC (The Economic Times, 21March¶04).
he ICICI Prudential topped among the private players in terms of premium
collection. It recorded a premium of Rs. 364.9 crore and a market share of 25
per cent, followed by Birla Sun Life with a premium under- written Rs.170
crore and a market share of 15 percent, HDFC Standard with 132.7 crore and
Max New York Life with Rs.76.8 crore with a market share of approximately 15
per cent each. Unlike their counterpart in the life insurance business, private
non-life insurance companies have not yet started addressing the retail
market. All is set to change in the coming years. Like in the banking sector,
nonlife insurance companies will soon have no choice but to focus on
individual buyers.
The latest series of bomb attacks, attack on parliament, attack on Ayodhya,
attacks of the Maoists, nature calamities like tsunami, floods and drought,
ragging are prevailed in the country and need not to say about the farmer who
has been insecure about rains, seeds, crops and suitable price for his crop. In
developed countries, the owners have insured even pet dogs. Whereas in India
about 80 percent of human beings and major natural resources have not been
insured in globalization era.
It is, therefore, an urgent need to explore the challenges and opportunities
faced by the insurance sector in India.

India’s Insurance Industry Likely To Jump By 500% In 2010:

ASSOCHAM :
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has
projected about 500% hike in the size of domestic insurance business which
will grow to US$ 60 billion by 2010 from the current size of around US$ 10
billion as the growing competitive age is developing a larger appetite among
people for wider insurance coverage.
The projections of the Chamber are based on feedback that it received from its
various constituents, engaged in the insurance business, highlighting that
India¶s life insurance premium as a percentage of GDP is currently estimated
at 1.8% against 5.2% in US, 6.5% in UK and about 8% in South Korea.
Releasing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said
that rural and semi-urban India will contribute US $35 billion to the Indian
insurance industry by 2010, including US $20 billion by way of life insurance
and the rest US $15 billion through non-life insurance schemes. ³A large part of
rural India is still untapped due to poor distribution, large distances and high
costs relative to returns. Urban sector insurance is estimated to reach US $25
billion by 2010, life insurance US $15 billion and non-life insurance US $10
billion´, added Mr. Dhoot.
ASSOCHAM findings reveals that in the coming years the corporate segment,
as a whole will not be a big growth area for insurance companies. This is
because penetration is already good and companies receive good services. In
both volumes and profitability therefore, the scope for expansion is modest.
ASSOCHAM has suggested that insurer¶s strategy should be to stimulate
demand in areas that are currently not served at all. Insurance companies
mostly focus on manufacturing sector; however, the services sector is taking a
large and growing share of India¶s GDP. This offers immense opportunities for
expansion opportunities.
To understand the prospects for insurance companies in rural India, it is very
important to understand the requirements of India's villagers, their daily lives,
their peculiar needs and their occupational structures. There are farmers,
craftsmen, milkmen, weavers, casual labours, construction workers and
shopkeepers and so on. More often than not, they are into more than one
profession.
The rural market offers tremendous growth opportunities for insurance
companies and insurers should develop viable and cost-effective distribution
channels; build consumer awareness and confidence. The Paper found that
there are a total 124 million rural households. Nearly 20% of all farmers in rural
India own a Kissan Credit cards. The 25 million credit cards used till date offer a
huge data base and opportunity for insurance companies. An extensive rural
agent network for sale of insurance products could be established. The agent
can play a major role in creating awareness, motivating purchase and
rendering insurance services.
There should be nothing to stop insurance companies from trying to pursue
their own unique policies and target whatever needs that they want to target
in rural India. ASSOCHAM suggests that insurance needs to be packaged in
such a form that it appears as an acceptable investment to the rural people. In
the near future, when we¶ll see more innovations in agriculture in the form of
corporatization or a more professional approach from the farmers¶ side,
insurance will definitely be one option that the rural Indian is going to accept.
ASSOCHAM believes that insurers should enter into tie-ups or understandings
with government agencies to ensure the success of the insurance schemes.
The need of the hour is to have innovative policies that have explicit benefits
for the people to observe, understand and measure.

Indian Insurance Industry: New Avenues for Growth 2012 :

Description: With an annual growth rate of 15-20% and the largest number of
life insurance policies in force, the potential of the Indian insurance industry is
huge. Total value of the Indian insurance market (2004-05) was estimated at
Rs. 450 billion (US$10 billion). According to government sources, the insurance
and banking services¶ contribution to the country's gross domestic product
(GDP) is 7% out of which the gross premium collection forms a significant part.
The funds available with the state-owned Life Insurance Corporation (LIC) for
investments are 8% of GDP. Till date, only 20% of the total insurable
population of India is covered under various life insurance schemes, the
penetration rates of health and other non-life insurances in India is also well
below the international level. These facts indicate the of immense growth
potential of the insurance sector.
The year 1999 saw a revolution in the Indian insurance sector, as major
structural changes took place with the ending of government monopoly and
the passage of the Insurance Regulatory and Development Authority (IRDA)
Bill, lifting all entry restrictions for private players and allowing foreign players
to enter the market with some limits on direct foreign ownership. Though, the
existing rule says that a foreign partner can hold 26% equity in an insurance
company, a proposal to increase this limit to 49% is pending with the
government. Since opening up of the insurance sector in 1999, foreign
investments of Rs. 8.7 billion have poured into the Indian market and 21
private companies have been granted licenses.
Innovative products, smart marketing, and aggressive distribution have
enabled fledgling private insurance companies to sign up Indian customers
faster than anyone expected. Indians, who had 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 life insurance industry in India grew by an impressive 36%, with premium
income from new business at Rs. 253.43 billion during the fiscal year 2004-
2005, braving stiff competition from private insurers. This report, ³Indian
Insurance Industry: New Avenues for Growth 2012´, finds that the market
share of the state behemoth, LIC, has clocked 21.87% growth in business at
Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still
not enough to arrest the fall in its market share, as private players grew by
129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04.
Though the total volume of LIC's business increased in the last fiscal year
(2004-2005) compared to the previous one, its market share came down from
87.04 to 78.07%. The 14 private insurers increased their market share from
about 13% to about 22% in a year's time. The figures for the first two months
of the fiscal year 2005-06 also speak of the growing share of the private
insurers. The share of LIC for this period has further come down to 75 percent,
while the private players have grabbed over 24 percent. There are presently 12
general insurance companies with four public sector companies and eight
private insurers. According to estimates, private insurance companies
collectively have a 10% share of the non-life insurance market. Though the
focus of this market research report is on the potential growth on the Indian
Insurance Sector, it also talks about the market size, market segmentation, and
key developments in the market after 1999.

Market Structure
It is important to understand the market structure of life insurance sector. LIC
as a dominant player has gained an increase of 88%in new business premium
income. Despite of uncertain environment, total premium of Life Insurance
industry increase by 66% to Rs 62,361.34 crore in first six months of the
current fiscal from Rs 39,046.59 crore in same period last fiscal. In 2010, life
insurance companies witnessed new business premium collecting during first
five months. According to LIC‘s recent filing with IRDA the total value of its
investments from policy holders funds, as at June 30 2010, stood at Rs 867,935
crore as agencies Rs. 717,002 crore on June,2009, the value of investments in
equity share has become 183,233 crore. Public sector Life Insurance
Corporation of India (LIC) has clocked a robust 72.53 per cent jump in fresh
premium collection in January 2009 leaving behind major private sector
players, most of whom have posted negative growth in the month as
compared to January 2008. Data released by insurance sector regulator IRDA
shows that the first year premium of the life insurers for the period of
December, 2010 is again predominantly in favors of LIC. Herein mentioned are
some statistics given by IRDA regarding the individual single premium of
several life insurers in December 2011:-
1. Bajaj Allianz - 77.26 crore
2. ING vyasa - 2.58 crore
3. Reliance Life - 80.26 crore
4. SBI life - 248.54 crore
5. Tata AIG - 14.02 crore
6. HDFC standard - 136.72 crore
7. ICICI prudential - 251.97 crore
8. Birla Sunlife - 9.73 crore
9. Aviva - 21.57 crore
10. Max New York - 25.15 crore
11. Met Life - 33.86 crore
12. Shriram Life - 44.90 crore
13. IDBI federal - 21.11 crore
14. Star Union Dai-ichi - 44.98 crore
15. LIC - 1774.43 crore
 Fig: - market split up of private life insurers only excluding LIC
These are some top companies and there premium collected in December
2010 which clearly depicts that LIC has lucrative market dominance and other
private players have a small market share. Such figures explain that LIC is a
dominant entity and can influence competition in market negatively due to the
regulation of the regulatory body and the government.

Review of Literature
This project reviews empirical research conducted in Strategic sectors such as
the banking and the financial sector were reformed. Time had come for the
policymakers to introspect the current policies in the Indian insurance industry
as well. Committees on insurance sector reforms followed suit and it was
found that India had continued to be one of the least insured countries till the
late 20th century. Experts emphasized that customer service, insurance
coverage, allocation of resources needed to be improved within the industry.
Also more innovative products were needed to suit varied customer needs and
to change opinion of people towards insurance, from tax exemption product to
a tool for mitigating risks and increasing savings. Thus it was recommended
that the industry should be opened up to enhance competition and autonomy
be given to insurance companies to improve their performance and enable
them to act as independent companies with economic motives. Thus the life
insurance industry was liberalized with the aim of increasing contribution to
the GDP and to the society.
Life insurance traces its origins in India to the early nineteenth century when
companies in India insured the lives of Europeans living here. Eventually these
companies began to cover Indians as well but required them to pay higher
premiums. Regulations were passed to regulate the Indian insurers (but not
the foreign companies providing insurance services in India) and to allow
collection of information about insurance companies thus facilitating
comparison amongst them. However the legislations became insignificant with
time and the government nationalized the sector by combining all the 154
Indian private insurance companies to give birth to one behemoth the Life
Insurance Corporation of India. Through this the Government strived to put an
end to prevalent malpractices such as poor Servicing standards along with the
appalling management of companies wherein funds were simply being
divested to all types of securities without any valuation of the borrowers. The
Government took over the reins of the industry in its own hands reasoning that
insurance was a cooperative enterprise and should be within the purview of
the state in order to provide improved services to the public at lower costs. It
was also envisioned that the nationalization of this sector would lead to more
effective mobilization of funds to enable capital to be allocated to
development projects. Besides the charter of freedom also pleaded the control
of the state on key industries such as banking and insurance. Thus the industry
was transformed from a competitive one to a highly regulated monopoly.

Hypothesis
1. Age and income has no significant impact on the customer life insurance
investment decision.
2. Occupation and gender are independent of the customer life insurance
investment decision.
3. There is an immense need to focus on product innovation and customers
need based policies for market expansion.
4. LIC is the most trusted and preferred brand among other life insurance
companies.
RESEARCH METHODOLOGY

RESEARCH OBJECTIVES:
1. To compare the performance of LIC and private insurance companies in
India.
2. To find out the performances of LIC and private insurance companies in each
category (size. growth, productivity and efficiency)
3. To compare grievance management of LIC and private insurance companies.
RESEARCH DESIGN :
a. Type of research design : Analytical Research
b. Data collection : Secondary Sources
c. Statistical Tools : Ratio Analysis Bar Graph

RESEARCH PROCESS
In this research my research objective was to compare the performance of LIC
and Private insurance companies. For this purpose I decided the four broad
categories under which I have compared the LIC and Private insurance
companies.
These are:
1. Size
2. Growth
3. Productivity
4. Grievance Handling
Under these Broad Categories I have analyzed 13 factors which are:

1. Size
• Total Premium
• Total Income
• Size of Balance Sheet
• Total number of Policies
• Total number of Branches

2. Growth
• Growth in Premium
• Growth in Income
• Growth in number of Policies • Growth in Market share

3. Productivity
• Business per Branch
• Income per Branch
• New Premium per Branch

4. Grievance Handling
I have used the Secondary data of last five financial years. I have collected data
from the various balance sheet of LIC and other private insurance companies,
web sites and in some cases I personally met some employees of some
insurance companies. I tried to find out most of the information required to
compare the LIC and private insurance companies.
In Analysis I have found all the required data and on the basis of performance
gave the rank to LIC and Private Insurance Companies on each factor and then
points. Now these Points have been multiplied with the weightage of that
factor. And then after the analysis of each factor a consolidated point table has
been prepared to know that which sector is performing better than other. The
Weightage for different categories are:
LIMITATIONS:
1. Could reach to a limited number of documents of different insurance
companies in regard to the management and other policies and resultant
figures so as to identify the exact cause of their lag in performance.
2 . D u e to the limited time could not study all the insurance companies
original documents individually.
3 . Non-Proficiency in technical aspects of insurance companies might have
hindered the best analysis of the findings.

SIGNIFICANCE OF THE STUDY:

The Detailed Study has been done with the purpose of finding out the relative
share of LIC and Private Insurance in India. It is useful for the people associated
with the Insurance Industry and the research associates related to the
Insurance Sector in India. This study will acquaint them with the data of all the
banks complied at one place along with the findings, conclusion and
recommendations.

ANALYSIS AND INTERPRETATION

1. SIZE :
(A) TOTAL PREMIUM :
Average premium of LIC is much more than that of all insurance
companies altogether. LIC¶s average premium of the last five years
is nearly five times the average premium of the all other private
insurance companies.
It can be said that up to that time their were less number of private
players in the field of insurance but then also undoubtedly LIC is
the king.
(B) TOTAL INCOME :
All over income of LIC is much more than than of private players. It
is due to the fact that LIC being a government agency is being
trusted by lot of companies and has large number of shares in big
corporates.

(C) SIZE OF BALANCE SHEET (Rs. In crore)

Total average size of balance sheet of LIC in the last five years is
certainly higher than that of private insurance companies. There is
a huge gap in this value. It is obvious that LIC has bigger balance
sheet as being working in the insurance field for quite large time.
As compared to average balance sheet size of 40,594 crores of
private insurance companies, LIC¶s average balance sheet size goes
to much high as that of 5,39,436.4 crores.

(D) TOTAL NUMBER OF POLICIES :

LIC is an undoubted leader in the field of average number of
policies per year in the last five years. It is seen that private
insurance companies are gaining momentum and are trying to
defeat LIC in case of new insurances. Main reason behind LIC having
such a large number of policies is the trust of a common man. LIC
being a government agency has got a faith of indian mass. People
are not yet prepared to give their savings in the hands of private
players

(E) NUMBER OF BRANCHES :

When the matter of total number of branches comes its very much
obvious that LIC, being the oldest existing insurance company in
India, has the large number of offices in the countryby any single
insurance company. Since the number of private insurance
companies is increasing, with continuous expansion in their
business, now the number of branches of all private players has
crossed the number of branches of LIC

2. GROWTH :

(A) FIRST PREMIUM :

Though LIC has attained more growth in absolute terms i.e. Rs.42649 crores
but private players being so less in number five years back has achieved a
dream come true growth of 1281.76 % which is certainly a matter of pride for
them.

(B) GROWTH IN INCOME :

Here LIC has neither attained more growth in absolute terms i.e. Rs.19887
crores as compared to 25714 crores of private players nor has got more
growth in terms of percentage. this shows that private players are doing
great job in enhancing their business.

(C) INCREASE IN NUMBER OF POLICIES :

% INCREASE IN NUMBER OF POLICIES :
Private players are doing extremely well as they are increasing their
customer base rapidly.

(D) MARKET SHARE :

LIC is still the market leader in insurance industry with 73.9 % share. But we
cannot forget that in last five years market share of LIC has decreased. It was
87.7 % in year 2003-04 which came down to 73.9 % in 2007-08.

3. PRODUCTIVITY :

(A) BUSINESS PER BRANCH :

Avg business per branch of LIC is much higher than that of whole private
insurance companies.
(B) INCOME PER BRANCH :
Average income per branch of LIC is much more than that of private
insurance companies. Its almost six times the total value of all the private
companie
(C) NEW PREMIUM PER BRANCH :
This value tells us about increase in the business of an insurance company in
a period. Here we see that LIC is ahead of private insurance companies in
case of increasing their business.

4. GRIEVANCE HANDLING :

TOTAL NUMBER OF GRIEVANCES :

NUMBER OF GRIEVANCES RESOLVED

% OF GRIEVANCES RESOLVED :
Grievance Handling is one of the major issues in any organization. It plays an
important role in Insurance sector. People do attract towards companies who
handles their grievances.

Here we see that private players are much ahead of LIC when the matter
comes to grievance management. In the last five years LIC has resolved only
25.37 % of cases brought in front of them while the percentage of cases
resolved in case of private players is 69.7 %.

This shows that private players are very serious about their image and are
working hard to provide the solution of the problems of the people as early
as possible.

TOTAL POINTS TABLE:

Questionnaire

1. General Information about the Person a. Name of the person b.

Educational background of the person c. Age of the person d.
Information about policy taken by the person
According to the Question I asked the selected 30 people about their name
and general information about the policy is taken by the respondent
numbers of policy take small and their educational background.

2. Have you taken a life insurance policy? If yes, how many policies have you
taken? In numbers
According to this question I found all the 30 peoples have the insurance
policy. As shown in diagram, 7 peoples have more than 4 numbers of policies
and 8 respondents have only 1 policy.

2. Why did you take them? Is it due to?

Many respondents gave answer for above question that insurance policy is
for effective savings and to meet there future expected expenses.

3. Do you know that insurance aims at covering risk and also a means of
investment?
The above diagram clearly shows that 18 persons said that insurances policy
aims at covering risk as well as the investment purpose.

5. Do you feel that the premiums paid in private life insurance companies are
safe?
The respondent was little bit confuse about the premiums paid to private life
insurance companies is safe or not.

6. Do you think that the safety of the investments made in life insurance
companies and other private insurance companies shall be protected by the
regulatory body, i.e. IRDA

The respondent was aware about the IRDA because of the ads on television
except 3 people.
7. Do you know that different life insurance companies have designed
policies for your different needs like children education, marriage of the
daughter, retirement needs etc.

For the above question I get the positive answers from the respondent
because more than 10 respondents have policies regarding children
education and others respondent also have policies regarding daughter’s
marriage and meet expenses of retirement needs.
8. Do you think that SBI Life Insurance Company is a government owned
company like LIC of India?

The respondent is known that SBI life Insurance Company is government

owned company like LIC of India. But the respondent said the LIC is more
trust insurance company than SBI.

9. Where do you invest your saving?

Many respondents gave very positive and interesting answers to this
question, as shown in diagram about 11 respondents were already invests
their savings in the different insurance policies and 8 respondent invest there
saving in the share market. The other 8 respondents invest their savings in
post office deposits and bank fixed deposits and 1 respondent invest their
savings in real estate.

10. Did you find any difficulty in effecting corrections in policy, viz change of
nomination, address change etc?
The above question shows that the respondent is not satisfied with the
services by the LIC whereas, respondent said the private insurances
companies are very effective in their services to the customer.

Conclusion
The size of the market has grown and the size of the insurable population in
India is indeed vast and the existing player has managed to cover about one-
fourth of it. The opportunities before the players are therefore a plenty in
terms of target audience. The falling interest rates, the collapse of many small-
time financial institutions, the scope for entering related areas like banking and
pensions in a bid for synergy and the promise of e-commerce are some of the
other opportunities knocking at the doors of the insurance majors. There is a
probability of a spurt in employment opportunities. A number of web-sites are
coming up on insurance, a few financial magazines exclusively devoted to
insurance and also a few training institutes being set up hurriedly. Many of the
universities and management institutes have already started or are
contemplating new courses in insurance. Health insurance, which is still in its
infancy, is also likely to get a major boost, ultimately leading to improvement
in the quality of medical treatment and facilities in the country.

Life insurance has today become a mainstay of any market economy

since it offers plenty of scope for garnering large sums of money for long
periods of time. A wellregulated life insurance industry which moves with the
times by offering its customers tailormade products to satisfy their financial
needs is, therefore, essential if we desire to progress towards a worry-free
future.
Suggestion
• The commission needs to advocate competition in market. The commission
needs to enquire in detail about reasons behind such anti-competitive
behavior of life insurance market. The commission needs to advocate the
government to remove such sovereign guarantee to give the life insurance a
free market and level playing field. The opinion given by the commission under
section 49(1) shall not be binding upon the central government in formulating
such policy. Under section 49(3) the commission shall also takes measures for
the promotion of competition advocacy, creating awareness and imparting
training about competition issues.

• The life insurance market will see a healthy competition with the opening up
of developing markets to competition, there is a greater impetus to demand
growth and volumes would start dictating economic sizes and pricing. This
fuels mergers and acquisition and makes survival of small sized firm difficult.
Though life insurance sector had not seen any merger and acquisition as yet
but in the near future, with the growth of the growth of market, such problems
shall come up.

• The commission cannot challenge the regulation for insurance as there is a

separate body called IRDA governing insurance sector, but the commission can
surely bring in picture the adverse effect of such regulation on competition in
market before the consumer as well as the regulatory body to help market get
a level playing field for all players.

• There should be fair effort made by commission to enlarge the distribution

network to provide a level playing field to all players and also discourage
dominance of LIC due to exclusive distribution of network through agents.
• Also, the commission can make a report on how the IRDA regulation and also
ask government to increase FDI cap from 26% to 49% to bring more players in
market which would help more population to be covered from life insurance.