IMPERFECTIONS IN

INSURANCE MARKETS

Debabrata Das Ph. D

Reader
Dept. of Commerce
Gauhati University
Objectives
 To highlight the changing face of insurance
industry in India
 To discuss the issues of a perfectly
competitive insurance market
 To understand the Insurance Market
Imperfections
 To have an insight into the information
problem existing in the insurance market
The changing Pace of Insurance
1. Closed Sector to open sector
2. Customization (Flexibility)
3. Insurance marketing to financial planning
4. Single channel to Multiple channels
5. Branding
 Private Players
Company Indian Partner Foreign Insurer Area

Birla Sun Life Aditya Birla Group Sun Life, Canada Life

OM Kotak KotakMahindra finance Old Mutual, South Africa Life

HDFC-Standard Life HDFC Standard Life, UK Life

Royal Sundaram Sundaram Finance Royal Sun, UK Life & Non- Life

ICICI-Prudential ICICI Prudential, UK Life

Max New York Life Max India New York Life, USA Life

Tata-AIG Tata Group AIG, USA Life & Non- Life

ING Vysya Vysya Bank ING Insurance, Netherlands Life

Aviva Dabur CGU Life, UK Life

MetLife India Jammu & Kashmir Bank MetLife, USA Life

Bajaj Allianz Bajaj Auto Allianz Life & Non- Life

AMP Sanmar Sanmar Group AMP, Australia Life

SBI Life Insurance SBI Cardiff, Finance Life

 Private Players in General Insurance
Company Indian Partner Foreign Insurer
Royal Sundaram Sundaram Finance Royal Sun, UK
General Insurance
Reliance general Insurance Reliance Industry --
IFFCO-Tokio General Insurance Indian Farmers Fertilizers The Tokio Marine and Fire Insurance
Co-operative Ltd. (IFFCO)

Tata-AIG General Insurance Tata Group AIG, USA

Bajaj Allianz General Insurance Bajaj Auto Allianz AG
ICICI-Lombard General Insurance ICICI Lombard Canada Ltd., Canada

Choamandalam General Insurance Co. Murugappa Group --

S. Kumars, J&K Bank Undisclosed

Undisclosed Chubb, USA
Undisclosed Yasuda Marine and Fire
Undisclosed Mitsui Marine and Fire
Citibank Undecided
Videocon International Talks with BNP Paribas, AXA,
France
Distribution Network
Direct Selling – Agents
Direct marketing
Financial advisors/consultants
Indirect Selling – Bundled products with commodity

Bundled Products with other financial

services
Partner Selling – Bancassurance
Postal Department
Selling through corporates
 Bancassurance Arrangements
Insurance Company Bancassurance partner

Allianz Bajaj Standard Chartered Bank

Birla Sun Life Citibank

Dabur – CGU Canara Bank/ Lakshmi Vilas Bank, ABN Amro Bank
& American Express Bank

HDFC-Standard Life Union Bank/Indian Bank

ICICI Prudential Life ICICI Bank
ING Vysya life Vysya Bank
LIC Corporation bank, Oriental Bank of Commerce,
Indian Overseas Bank

Met life J & K Bank

SBI-Cardiff Life Insurance SBI

Tata-AIG Life Insurance Citibank

Conditions for a Perfectly Competitive
Insurance Market
 A large number of buyers and sellers
 Sellers’ freedom of entry into and exist from
the market
 Sellers produce identical products
 Buyers and sellers are well informed about
the products and services
Categories of Insurance market
Imperfections
Market
imperfections

Information Free
Market Power Externalities
problems Rider problems

Barriers to Asymmetries Non existent

Positive Negative
Entry/exit Information information

Economics of
Lemons
scale/scope

Price Discrimination Adverse selection

Product
Moral Hazard
Differentiations

Principal agent
problem
Solutions to Asymmetric Information
 Educating/customer about
-Insurance needs product features
-Quality and prices of insurance policies
-Financial health of the insurers
 Establishing stricter system of monitoring salesforce
 Conducting deeper investigations of claims.
The human life value concept (HLV)
HLV- a part of the general theory of human capital
Human Capital - important element of nations wealth
- Investments we made in one self with
an expectation of future benefits.
(Adam Smith)
Gary S. Backer – 1991 Nobel awardee for Economics
HLV – Capitalised monetary worth of the earning
capacity resulting from the economic forces that
we incorporated within our being
- arises out of its relations to other lives
- first applied in 1880, by Jakob L Green, President,
Connecticut Mutual Life Insurance Co.
- Subject to loss through (1) Premature death (2) Incapacity (3)
retirement and (4) Unemployment
HLV is a function of its purpose and
value to others
General standpoint – Present value of an

individuals future net

earnings-self maintenance
costs
Dependents standpoint - value of the benefits the
dependents can expect
Organizations standpoint – value of services to the firm
THANK YOU