Risk & insurance

1. Insurance sector
reforms,
Malhotra committee
1993,
Players in Indian
insurance sector ,
Issues in Life
Insurance in India
PRESENTED BY
32-MBA-2012
34-MBA-2012
35-MBA-2012
36-MBA-2012
39-MBA-2012
40-MBA-2012
42-MBA-2012

2. What is insurance ?
Insurance = Collective bearing of Risk

Basic Human trait is to be averse to the idea of
risk taking.

Insurance, whether life or non-life, provides
people with a reasonable degree of security
and assurance that they will be protected in the
event of a calamity or failure of any sort.

3. How does it help economy ?

A robust insurance sector is a boon to a
country’s economy.

The sector facilitates long-term funds for
infrastructure development and simultaneously
strengthens the risk-taking ability of the country.

India’s rapid economic growth and
development over the past decade is
considered to be very significant on the global
canvas.

4. How well it is doing in India?

Indian insurance sector is poised to mark great
progress in the years the come.

Over the past few years, many foreign insurance
companies have ventured into the Indian
landscape in order to harness the immense
untapped latent potential of this industry.

Moreover, the favorable regulatory environment
ensures stability and fair play in the entire market

5. 
Indian life insurance sector collected new business
premiums worth Rs 11,742.7 crore for April-May 2013,
according to data from IRDA.

Life insurers collected Rs 1,07,010.7 crore (US$ 17.5
billion) worth of new premiums for the financial year
ended March 31, 2013.

Meanwhile, the general insurance industry grew by
19.6 per cent in April-May period of FY14, wherein
the non-life insurers collected premium worth Rs
13,552.46 crore (US$ 2.21 billion).

6. Road ahead for insurance
sector

Industry body CII projects the growth rate for
Indian insurance industry in 2013-14 at around 5
per cent.

It also projects that 60 per cent of non-life
insurance companies would record an average
growth of more than 10 per cent.

Increasing the FDI limit from 26 per cent to 49 per
cent in the sector is being viewed as a major
factor to push the insurance density in India.

7. Growth and
Development of
Insurance in India
ORIGIN OF INSURANCE ?
VARIOUS DEVELOPMENTS OVER THE PERIOD OF TIME ?

8. The early years

Organized business began in India in 1818.

First legislation of the British Government in 1870 did not touch
the Indian Insurance.

Subsequent enactment of 1909 also did not cover Indian
Insurance.

Life Insurance Companies Act 1912 . Till that time Companies Act
1866 covered all insurance companies.

The first Indian Insurance Act 1912 was modelled on Insurance
Companies Act of 1870 modified by the replacing Act of 1909.

Then UK enacted Assurance Companies Act in 1946, which was
applicable to the entire insurance industry. The earlier Act
insisted on deposits, where as the later stipulated capital of £

9. 
Still discrimination between Indian and British Companies continued.
Indian Companies had to place a deposit with the Government
where as the British companies were exempted from this
requirement.

Resentment among Indian Companies.

In 1928 this was sought to be corrected.

Many companies were started and failed.

All India Life Offices Association – a collective Body of Indian
Companies was started in 1928.

Sen Committee made recommendations.

Reviewed by NN Sarcar Committee and finally Bill piloted in 1937,
became an act in 1938 and came into force with July 1st 1939. This
was the first comprehensive legislation.

10. Major points of the Indian
Insurance Act of 1938

Compulsory Registration of Insurance Companies

Filing of return on financial statements.

Norms for investment of net life funds- Indian and
foreign

Prescribed securities for investment

Compulsory licensing of agents

Rebating made an offence

Maximum rate of commission payable were
prescribed

11. 
Standardization of premium for life insurance and
compulsory approval of premium rates by actuaries.

Standardization of policy forms and primary documents

Amount of security deposits to be placed with the
government.

Creation of Dept of Insurance in the government

Many further amendments carried out during 1938-45.
Many unscrupulous companies started operating.
Therefore Sir Cowasji Jehangir Commission was appointed
in 1945.

The bill was taken up after independence

12. Developments after
independence

On January 19, 1956, Life Insurance was nationalized mainly
with the aim of offering insurance to the needy sections of the
society.

Life Insurance Corporation of India came into being on
September 1,1956 with initial capital of Rs. 5 crores and seed
capital. This was to be increased to Rs. 100 crores.

In 1968, the Insurance Act was substantially amended to bring
in social control of General Insurance. GIC came into being in
1972 based on General Insurance Business (Nationalization)
Act 1971- merging 107 companies into one or other of the 4
major subsidiaries of GIC- i.e. National Insurance Co., New
India Assurance Co., Oriental Insurance Co., United India
Insurance Co.

13. Malhotra committee 1993

Indian Economy was undergoing a pace of
liberalization, which led to the opening up
of the financial sector to private players.

It was felt that this should also include the
insurance sector.

Hence a Committee was formed under the
chairmanship of the retired RBI governor
R.N Malhotra to study the insurance sector
and propose the necessary modifications.

14. 
The committee broadly touched on
 Regulation
of the insurance business
 Restructuring
of the existing insurance
 Liberalization
of insurance industry for global
organizations
integration

15. Terms of reference Of Malhotra
Committee

To examine the structure of Insurance industry-its
existing framework and its strengths and weaknesses
with the objective of creating an efficient and viable
insurance industry- providing efficient services and
mobilizing financial resources for development.

To make suitable recommendations for changes in its
structure

To make suggestions for improvement of LIC and
GIC

16. 
To review and make suggestions for
improvement of the regulations to be in tune
with the requirements.

To review and make recommendations on the
roles of surveyors, intermediaries and other
ancillaries of the insurance sector.

To make recommendations for the health and
long term development of the insurance sector.

17. Malhotra Committee Major
Recommendations :On liberalization

Pvt sector to be allowed to enter business.
- competition will improve customer service
- improve quality and price of products
-better inroads into the market
- Other wings like Banks and MFs were also exposed
- Public desired competition
- Public sector was already well established. No fear
of competition.


No composite co- separate for life and general
No of entrants to be controlled

18. 
Minimum paid up capital Rs. 100 crores. Could
be lower for state level co-op Institutions.

Promoters equity not to exceed 40% or to be
brought within that level.

Promoters equity not to go below 26%.

No singe holder other than promoter to have
more than 1% share.

For pension funds the net worth should be Rs 50
cr.

19. 
Obligation to do business in rural areas and for weaker
sections of the community

Selective entry to foreign companies- to float an Indian co
as joint venture.

Industry to develop and improve effective customer
service and claims management

Income tax concessions to individual pension schemes.

Privatization of LIC and GIC:

Establishment of an Insurance Regulatory Authority on the
lines of SEBI.

20. Malhotra Committee Major
Recommendations

Insurance Regulatory Authority : IRDA was
established by enactment of the IRDA Bill in 1999.

Comprised of a Govt nominee and a member
each from Life insurance and general Insurance
industries.

Primary task to frame suitable regulations

Control opening of offices , licensing of
intermediaries etc.

Also to develop insurance industry and train and
develop professionalism.

21. 
Monitoring the activities of Tariff Advisory
Committee , divesting GIC of its authority to
transact non-life business and designating it as
Reinsurer.

IRDA started with N Rangachary as the first chair
person, with 4 full time directors , 2 part time
directors and with a 25 member advisory council.

22. Mission of IRDA

To protect the interest of and ensure fair treatment to policy
holders

To ensure speedy and orderly growth of insurance industry

To set, promote and monitor high standards

To ensure that insurance customers receive correct
information

To ensure speedy settlement of genuine claims

To promote fairness, transparency and orderly conduct in
financial markets

To take suitable actions where failures are observed

To bring about optimum self regulation

23. Work carried out by IRDA

Under the regulations by IRDA, only Indian Co.s
registered under Indian Co.s Act 1956 are eligible to be
registered.

Hence foreign co.s have to have Indian partners- joint
ventures.

Foreign co.s can have 29% equity in the joint ventures.

Before permitting a foreign co. verification is done of
the foreign co through local regulator of the country in
which it is registered. Local co is also required to
produce an income tax clearance.

Foreign Direct Investment (FDI) is now riased to 49%

24. 
After liberalization many private insurance co.s
have started operations in India.

Now private insurance co.s have a market share
of approximately 12%.

They make impressive strides in the pension
markets.

25. Top ten insurance players

1 |Life Insurance Corporation of India (LIC)

Corporate Office – Mumbai, Maharashtra | Employees - 115900+ |

Business – Financial services | Establishment – 1956 |

Website – www.licindia.in

Details – Best Insurance Company in India dominating the market
since then it established in market. In other word, It is the synonyms
of Insurance in India, most important they have best settlement
ratio.

26. 
2 | SBI Life Insurance
Corporate Office – Mumbai, Maharashtra |
Employees – 7300+ |
Business – Insurance | Establishment – 2001 |
Website -www.sbilife.co.in
Details -State bank of India life insurance is a joint
venture between BNP Paribas Cardif holding
74:26 ratios. It has great hold in Indian market as
far as concern of Finance and banking sector,
best in insurance sector after LIC.

27. 
3 | Birla Sunlife Insurance
Corporate Office – | Employees – 133000+ |
Business – Financial services | Establishment –
2000 |
Website -www.birlasunlife.com
Details - It is finacial and Insurance company, a
Joint venture of Aditya Birla and Sun life
Insurace. Company offers life insurance
products including health, wealth and retiral
plans.

28. 
4 | Reliance Life Insurance (RLIC)
Corporate Office – Navi Mumbai,Maharashtra
| Employees – 1000+ |
Business – Insurance | Establishment – 2001 |
Website -www.reliancelife.com
Details – Company is group company of
Reliance, among of top insurance company
in India. In year 2011 Nippon life insurance,
Japan acquired 26% share in this company.

29. 
5 | ICICI Prudential Life Insurance
Corporate Office – United Kingdom |
Employees – 15000+ |
Business – Life Insurance | Establishment –
2000 |
Website -www.iciciprulife.com
Details – ICICI prudential is a joint venture
between ICICI and prudential Plc, United
kingdom. ICICI Prudential offers wide range
of Insurance Products including health,
wealth, life insurance, medical insurance
and retiral solutions.

30. 
6 | Tata AIG Life Insurance
Corporate Office – Mumbai, Maharashtra |
Employees – — |
Business – Insurance | Establishment – 2001 |
Website -www.tataaiginsurance.in
Details – Tata AIG is a joint venture between Tata
and AIG, It is flagship company of Tata group.
Started insurance business in year 2001, company
launched many insurance products such as
Motor, travel, health and accidental insurance.

31. 
7 | ING Vysya Life Insurance
Corporate Office – Bangalore, Karnataka |
Employees – 7800+ |
Business – Insurance | Establishment – 2001 |
Website -www.inglife.co.in
Details – ING vysya is a insurance company
offers insurance policies and retiral plans. It
has been serving in more than 200 cities in
India and almost 10 lacs customer base.

32. 
8 | Bajaj Allianz Life Insurance
Corporate Office – Pune | Employees – 1000+ |
Business – Insurance | Establishment – 2001 |
Website -www.bajajallianz.com
Details – It is a private Insurance company offers
many insurance plan & policies including ULIP,
pension plans and term Insurance.

33. 
9 | Max Life Insurance
Corporate Office – New Delhi | Employees –
8000+ |
Business – Financial Services | Establishment –
2000 |
Website -www.maxlifeinsurance.com
Details – Max life insurance is another private
company offers Insurance plans for everyone.

34. 
10 | HDFC Standard Life Insurance
Corporate Office – Mumbai, Maharashtra |
Employees – 15500+ |
Business – Insurance | Establishment – 2000 |
Website -www.hdfclife.com
Details – Group company of giant Housing
development finance corporation, it is joint
venture with Standard life Insurance.

35. Issues of life insurance in India

Need to raise FDI in insurance

High expense ratio/ operating cost

Need to strengthen core product
proposition

Delayed break even for private insurance
companies

Lack of professional agency channel

Promotion of banc assurance

Other global insurance issues

36. Need to raise FDI in insurance

Importance of FDI in the insurance sector is well recognized
by the experts and also referred at many forums over the
last years.

The sector is highly capital intensive, since its development
period is too long.

It requires capital infusion at regular intervals and
particularly in India the need for capital infusion is highly
necessary to reduce fixed cost and to cover India’s the
vast geographic spread.

But at present, the FDI in the insurance sector is restricted to
26% which is a huge deterrent to growth in the industry.

37. High expense ratio/ operating
cost

Both expense ratio and operating ratio is very high in the Indian insurance
sector, especially for the private players.

In FY 09, the private sector life insurance segment had an expense ratio
(operating expenses & commission expenses) of 30.6%.

It is observed that the CAGR of operating expenses for LICI is 13.06 % (03-04
to 9-10) while this is 42.29 % for other private players

Public sector companies have been in existence for a couple of decades
and hence, have managed to reduce their expenses over time.

However, experts on insurance field (Seth, 2010) believed that the
expenses ratio should be around 10-15% from long term sustainability &
profitability perspectives.

A high expense ratio directly impacts profitability. Since the insurance
industry is still at a nascent stage, many companies are yet to break down
& rising expenses can further delay this process.

38. Need to strengthen core product
proposition

Although the life insurance sector has shown
rapid growth over the last few years, low margin
single premium products & potentially volatile
ULIPs have accounted for most of the growth.

These products are proven to be easily sold, but
merely focusing on these could weaken the
growth and long term profitability for India’s life
insurers.

39. Delayed break even for private
insurance companies

Breakeven point is achieved in the insurance industry when the new
business premium is equal to the renewal premium.

However, as the Indian industry is growing, the volume of new premiums
is much more than the renewal premiums.

Globally, life insurance Company’s break even is six to eight years but in
India, it has not achieved & it may take another couple of years due to
recent financial crisis in the world.

Other reasons for delayed breakeven are the high operating expenses
like management costs, real estate prices, salaries, distribution expenses
and technology expenses which are higher than what was accounted
for in the original business plans of insurers.

Moreover, the capital –intensive nature of the life insurance segment
has extended this process by a couple of years.

40. Lack of professional agency
channel

In the distribution of products, agency channel accounts
nearly 80-85% of new business.

The agency force in India has also grown rapidly but the
overall inactivity and attrition rates are quite high which are
estimated to be 50-55% which are significantly higher than
the global benchmarks of about 25%.

It is reported (McKinsey Global Survey, 2011) that proper
strategies are not implemented while selecting the agency
forces in a life insurance market in India.

Lack of professional agency channel and other alternative
channels of insurance business hinders the growth of Indian
insurance market.

41. Promotion of banc assurance

It is further observed from the survey of existing literature that customers
prefer banc assurance channel next to agency channel.

Given the highest penetration of banking products, banc assurance
could be the single most important channel for insurers to rapidly
acquire new customers.

However, cross-sell rates in Indian banking are significantly lower than
those in developed markets.

In developed economics like Spain, Italy & France, between 12 & 24%
of a bank’s customer would have brought insurance through the bank.
In India, this number is estimated to be less than 0.5% for Public sector
banks, 1 to 2 % in private sector banks and 2to 4 % for foreign banks .

A lot of factors are responsible for such low rate of banc assurance
namely high variance in selling skills, low operational flexibility in respect
to develop sell culture, low technological capabilities , lack of process
integration etc.

42. Other global insurance issues

There are several important issues on which IRDA is working
on.

The convergence of the Indian Accounting Standards with
the IFRS , the settlement of norms which will relate to the
issuance of IPOs and M&As, the establishment of amore
robust system to collect and disseminate appropriate
insurance related data and several other initiatives are the
main issues of global insurance issues.

43. CONTRIBUTION TO GROWTH

Currently, the insurance sector size is estimated at Rs.500
billion.

On account of intense marketing strategies adopted by
private insurance players, the market share of state owned
insurance companies like GIC, LIC and others have come
down to 70% in last 4-5 years from over 97%.

The private insurance players despite the sector is still
regulated has been offering rate of return (RoR) to its policy
holders which is estimated at about 35% as against 20%
of domestic insurance companies.

44. 
LIC and GIC have limited number of policies to offer to their
subscribers

Private insurance companies offer many policies and the
premium amount as well as the maturity period is much
competitive as against those of government insurance
companies.

The private sector insurance players have started exploring
the rural markets in which until recently, the state owned
companies had the monopoly.

India’s life insurance premium, as a percentage of GDP is
1.8%

45. FUTURE OF THE SECTOR

Indian insurance sector is likely to register unprecedented
growth of 200% and attain a size of Rs. 2000 billion by 200910

A private sector insurance business will achieve a growth
rate of 140% as a result of aggressive marketing technique
being adopted by them against 35-40% growth rate of
state owned insurance companies.

In rural markets, the share of private insurance players
would increase substantially as these have been able to
generate a faith among their rural consumers.

46. Thank you…!!