A COMPREHENSIVE PROJECT ON Impact of Foreign Direct Investment in life Insurance Industry

Prepared by Pratik Panchal (117010592953) Ajay Vaja (117010592077

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INSURANCE REGULATION IN INDIA

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Insurance in India started without any regulations in the

nineteenth century 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).

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Contd.
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Insurance in India used to be tightly regulated and

monopolized by state-run insurers. The Insurance Regulatory and Development Authority (IRDA) Act of 1999 was passed The insurance business was opened on two fronts Firstly, domestic private-sector companies were permitted to enter both life and non-life insurance business

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Regulation contd
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Secondly, foreign Companies were allowed to participate,

albeit with a cap on shareholding at 26% Since its inception IRDA has been taking steps to promote insurance sector and also protect interest of people A number of reforms have been introduced by IRDA regarding regulation of agents,deciding about premium, marketing strategies etc

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INSURANCE IN INDIA
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Insurance in India remains at an early stage of development It can be postulated that by 2014 the penetration of life

insurance in India will increase to 4.4% and that of non-life insurance to 0.9% Indian insurance market is the 19th largest globally and ranks 5th in Asia The public sector Insurance companies have continued to dominate the insurance market Enjoying over 90 per cent of the market share. In fact, the LIC, which is the only public sector life insurer, enjoys over 98 per cent of the market share in Life insurance
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Type of Business

NOS OF PUBLIC SECTOR COMPANIES

NOS OF PRIVATE SECTOR COMPANIES

TOTAL

Life insurance

01

12

13

General insurance Reinsurance

06

08

14

01

01

Total

08

20
6

28
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Market Share of Life and non-Life Insurance Sectors

INSURANCE SECTOR 2002-2003 PRIVATE SECTOR PUBLIC SECTOR PRIVATE SECTOR PUBLIC SECTOR 2001-2002

LIFE INSURANCE

0.54 99.46

1.99 98.01

3.68

8.64

GENERAL INSURANCE

96.32

91.36

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Contd..
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The Indian insurance market it accounts for only 2.5%

of premiums in Asia, it has the potential to become one of the biggest insurance markets in the region India is among the most promising emerging insurance markets in the world

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FDI IN INSURANCE

India is the third most attractive foreign

direct investment destination in the world The present figure of FDI in insurance sector is 26% The proposal to hike that figure to 49% India received approximately US$25 billion worth of FDI in 2007-2008; that number increased to US$27 billion in 2008-2009 While no target has been fixed for the financial year 2009-10, so far FDI inflows for April and May 2009 have surpassed US$4.4 billion

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History of Life Insurance in India

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In India, insurance has a deep-rooted history. It finds mention in

the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra).

The writings talk in terms of pooling of resources that could be

re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance.

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Regulatory Framework for Life Insurance in India

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Deposits Every insurer should, in respect of the insurance business carried on by him in India, deposit with the Reserve Bank of India (RBI) for and on behalf of the Central Government of India the following amounts, either in cash or in approved securities estimated at the market value of the securities on the day of deposit, or partly in cash and partly in approved securities. Investments Every insurer is required to invest and keep invested certain amount of assets as determined under the Insurance Act. The funds of the policyholders cannot be invested (directly or indirectly) outside India.
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List of Life Insurance Companies in India

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Bajaj Allianz Life Insurance Company Limited Birla Sun Life Insurance Co. Ltd HDFC Standard Life Insurance Co. Ltd

ICICI Prudential Life Insurance Co. Ltd

ING Vysya Life Insurance Company Ltd. Life Insurance Corporation of India Max Life Insurance Co. Ltd Met Life India Insurance Company Ltd. Kotak Mahindra Old Mutual Life Insurance Limited SBI Life Insurance Co. Ltd
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Literature review
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(Love and Lage-Hidalgo, 2000)

Labor cost which is one of the main components of the cost function also influences FDI. Some studies find very little or negative relationship between wages and FDI, Some studies suggest that higher wages do not always discourage FDI in some markets and therefore there is a positive relationship between wages and FDI. As higher labour costs leads to higher productivity which gives better quality goods. De Mooij and Ederveen (2003) Both international and local economists have great interest on the effects of taxes on FDI. It is an obvious fact that higher taxes dishearten foreign investors. Highlights that the influence of taxes on FDI varies considerably by the type of taxes, amount of FDI activity and the treatment of taxes in the host and parent economies. Multinationals face tax restrictions in both the host and home countries which are another important issue. Different economies have different ways of acknowledging the double taxation issue that complicates the usual influence of taxes on FDI.

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Research methodology
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OBJECTIVE OF THE RESERCH

Primary Objective:
To analyze Impact of Foreign Direct Investment in life Insurance Industry.

Secondary Objective
To understand the role of FDI in growth of economy. To analyses the rate of growth FDI in insurance sector. To know the impact of FDI inflow on profitability of Insurance companies.

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Continue..
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RESEARCH DESIGN Exploratory research design to prepare the report. RESEARCH SAMPLE Research sample is Life Insurance industrys three companies.
1. ICICI Prudential Life Insurance. 2. HDFC Standard Life Insurance Company Limited 3. Bajaj Allianz life insurance Company limited

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Continue
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SOURCES OF DATA:

Secondary Source Annual balance sheets ,document charts, management information system

SAMPLING PLAN: Probability Sampling Methods DATA COLLECTION : Balance sheet of company for 2007-2011 Top three private companies five year financial data. 1. ICICI Prudential Life Insurance. 2. HDFC Standard Life Insurance Company Limited Bajaj Allianz life insurance Company limited Data Type: Secondary data. Data sources: Balance sheet of company.

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Limitation of study
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Only three companies have been selected.

Time available is a constraint.

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SUGGESTIONS
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To begin with, India needs to further liberalize investment

regulations on insurers to strike a proper balance between insurance solvency and investment flexibility Furthermore, both the life and non-life insurance sectors would benefit from less invasive regulations In addition, price structures need to reflect product risk. Obsolete regulations on insurance prices will have to be replaced by riskdifferentiated pricing structures There is huge untapped potential, for example, in the largely undeveloped private pension market. At the moment, less than 11% of the working population in India is eligible for participation in any formal old-age retirement scheme. Private insurers will have a key role to play in serving the large number of informal sector workers.
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Analysis of Data
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Finding of Correlation
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THANK YOU

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