Industry Analysis – Life Insurance sector

Bajaj Allianz Life Insurance

Birla Sun Life Insurance

Vikas Mohata
Section: Finance 1
SS08-10
What is Insurance and How Insurance Work?

According to the U.S. Life Office Management Association Inc. (LOMA), life insurance is
defined as follows: “Life insurance provides a some of money if the person who is
insured dies whilst the policy is in effect”.

The story so far...

Almost 4,500 years ago, in the ancient land of Babylonia, traders used to
bear risk of the caravan trade by giving loans that had to be later repaid with
interest when the goods arrived safely. In 2100 BC, the Code of Hammurabi
granted legal status to the practice. That, perhaps, was how insurance made
its beginning. In 2100 BC, the Code of Hammurabi granted legal status to the
practice. That, perhaps, was how insurance made its beginning.

The first step…

Insurance as we know it today owes its existence to 17th century England. In
fact, it began taking shape in 1688 at a rather interesting place called Lloyd's
Coffee House in London, where merchants, ship-owners and underwriters met
to discuss and transact business. By the end of the 18th century, Lloyd's had
brewed enough business to become one of the first modern insurance
companies.
 
Classification of Insurance:

Insurance business can be divided into two broad categories,

i. Life, and
ii. Non-life.

Introduction - Insurance in India:

Insurance in India can be traced back to the Vedas. For instance,
yogakshema, the name of Life Insurance Corporation of India's corporate
headquarters, is derived from the Rig Veda. The term suggests that a form of
"community insurance" was prevalent around 1000 BC and practiced by the
Aryans.
Burial societies of the kind found in ancient Rome were formed in the
Buddhist period to help families build houses, protect widows and children.
Bombay Mutual Assurance Society, the first Indian life assurance society, was
formed in 1870.
Milestone of Indian life insurance industry:-

The business of life insurance in India in its existing form started in India in the year 1818 with the
establishment of the Oriental Life Insurance Company in Calcutta. Some of the important
milestones in the life insurance business in India are:

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

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

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a
capital contribution of Rs. 5 crore from the Government of India.
Need for Life Insurance:

iii. Temporary needs/ threats

v. Regular Savings

vii. Investment

ix. Retirement

Comparison of life insurance to other saving instrument:

13.Protection

2. Liquidity

3. Tax relief

4. Money when you need it

• Regulatory Issues

• Need for Global Integration

• Multinationals' interest

• Privatization: Start Up Strategy

• Repositioning by Nationalized Sector

• Positive implication:-
12.The liberalization of life insurance will benefit the industry in the
following ways.
13.The general public will also be benefited from liberalization of life
insurance sector.
14.The employee will also benefit from liberalization life insurance sector.

• Negative implication

• Future Possibilities (Next 5-10 Years)

• MARKETING PERSPECTIVE
1. Distribution perspective (The key differentiator)
2. Distribution Scenario in the Indian Market
• Measuring Risk

3) Actual and Expected Experience Monitoring

4) Risk Based Capital (RBC)/Ratios/ Target
5) Scenario Analysis
6) Stress Testing
7) Cash Flow Testing (CFT)
8) Cash Flow Matching (CFM)
9) Duration and Convexity Analysis
10)Performance Attribution/Exchanges by Source

• Risk management scenario in India

 PEST ANALYSIS

3. POLITICAL FACTORS AFFECTING LIFE INSURANCE INDUSTRY

f) Prohibition for Investment

g) Manner and conditions of investment
h) Insurance business in rural / social sector
i) Capital requirement
j) Renewal of registration
k) Requirements as to Capital
l) Power to investigation or inspection
m) Role of the government
n) Government’s objectives for liberalization of insurance
o) Investment of Assets
p) Tax Policy and Insurance sector
q) Investment Decisions mandated by Government
2. ECONOMICAL FACTORS AFFECTING LIFE INSURANCE INDUSTRY

d) Adequacy of capital
e) Increased Economical Activity
f) Interest Rates
g) Inflation rate
h) Market related factors
3. SOCIO-CULTURAL FACTORS AFFECTING LIFE INSURANCE
INDUSTRY

c) Population
d) Life style
e) Educational level
f) Level of earning
g) Societal benefits

4. TECNOLOGICAL FACTORS AFFECTING LIFE INSURANCE

INDUSTRY

• Impact on distribution channels

 PORTER’S FIVE-FORCE ANALYSIS

1. The rivalry among competing sellers in the industry.

2. The potential entry of new competitors.
3. The market attempts of companies in other industries to win customers over to their
own substitute products.
4. The competitive pressures stemming from supplier-seller collaboration and
bargaining.
5. The competitive pressures stemming from seller-buyer collaboration and bargaining.

• OT ANALYSIS
- Opportunities
- Threats

• KEY STRATEGY TO SUCCESS

- Porter Generic Strategies
- Marginal Different Product
- Designing New Strategies
- Move towards Rural Market
- MOTIVATION OF SALES FORCE
 BAJAJ ALLIANZ LIFE INSURANCE COMPANY LTD

Strength
• Strong Brand value of both Bajaj and Allianz as Private Players
• Pan India presence
• Huge basket of product range which are suitable to all age and
income groups.
• Strong promoters, best people with domain knowledge and Strong
IT infrastructure.
 
Weakness
•Lack of skilled / trained sales persons
 
Opportunity
• Fast growing middle class income group in India
• Changing perception of consumers in India towards Insurance
• Large scale viable rural market
 
Threat
• Banks’ offering more structured Financial products
• Low customer confidence on the private players.
 BIRLA SUN LIFE INSURANCE COMPANY LTD

Strength
• Strong capital and reserve base
• Diversification of Funds
• Innovative products to cater to different needs of different
customers
 
Weakness
• Poor retention percentage of tied up agents
• Lack of skilled / trained sales persons
• Less coverage in Rural Areas
 
 
Opportunity
• Fast growing middle class income group in India
• Changing perception of consumers in India towards Insurance
• Large scale viable rural market
 
 
Threat
• Banks’ offering more structured Financial products
• Low customer confidence on the private players.
External Factor Evaluation (EFE) Matrix
 Competitive Profile Matrix (CPM)

Note: Bajaj Allianz’s market share is 32% as compared to Birla Sun life’s 8.5% among private insurer.
Thank You