INSURANCE SECTOR IN INDIA : OPPORTUNITIES AND CHALLENGES

Abstract:
Insurance sector in India is one of the booming sectors of the economy and
is growing at the rate of 15-20 percent per annum. Together with banking
services, it contributes to about 7 per cent to the country's GDP.
Government made a paradigm shift in the economic policy by adopting the
process of liberalization, privatization and globalization at the end of
previous decade. Consequently, Insurance Regulatory and Development
Authority (IRDA) has been established under IRDA Act, 1999 to regulate
the insurance business in the country. As a result, private sector has been
allowed entry
both in general and life insurance sector in India or liberalized in March
2000 with the passage of the Insurance Regulatory and Development
Authority (IRDA) Bill. This allowed foreign players to enter the market with
some limits on direct foreign ownership. There is a 26 percent equity cap
for foreign partners in an insurance company and now it has increase limit
to 49 percent. The opening up of the insurance sector has led to rapid
growth of the sector. The potential for growth of insurance
industry in India is immense as nearly 80 per cent of Indian population is
without life insurance cover while health insurance and non-life insurance
continues to be well below international standards.
The insurance sector in India has come up with a full circle from being an
open competitive market to nationalization and back to a liberalized market
again. Tracing the developments in the Indian insurance sector reveals the
360 degree turn witnessed over a period of almost two centuries. The US$
41 billion Indian life insurance industry is considered the fifth largest life
insurance market,
and growing at a rapid pace of 32-34 per cent annually.
Keywords: Regulatory role, Business Growth, Business potential, threat to
public sector insurance companies

1.0 Introduction:
The origin of life insurance in India can be traced back to 1818 with the
establishment of the Oriental Life Insurance Company in Calcutta. It was
conceived as a means to provide for English Widows. In those days a
higher premium was charged for Indian lives than the non-Indian lives as
Indian lives were considered riskier for coverage.The Bombay Mutual Life
Insurance Society that started its business in 1870 was the first company to
charge same premium for both Indian and non-Indian lives. In
1912,insurance regulation formally began with the passing of Life
Insurance Companies Act and the Provident Fund Act. By 1938, there were
176 insurance companies in India. But a number of frauds during 1920s
and 1930s tainted the image of insurance industry in India. In 1938, the first
comprehensive legislation regarding insurance was introduced with the
passing of Insurance Act of 1938 that provided strict State Control over
insurance business.Insurance sector in India grew at a faster pace after
independence. In 1956, Government of India brought together 245 Indian
and foreign insurers and provident societies under one nationalised
monopoly corporation and
formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC
Act, 1956, with a capital contribution of Rs.5 crore.
The (non-life) insurance business/general insurance remained with the
private sector till 1972. There were 107 private companies involved in the
business of general operations and their operations were restricted to
organised trade and industry in large cities. The General Insurance
Business (Nationalisation) Act, 1972 nationalised the general insurance
business in India with effect from
January 1, 1973. The 107 private insurance companies were amalgamated
and grouped into four companies: National Insurance Company, New India
Assurance Company, Oriental Insurance Company and United India
Insurance Company. These were subsidiaries of the General Insurance
Company (GIC).

In 1993, the first step towards insurance sector reforms was initiated with
the formation of Malhotra Committee, headed by former Finance Secretary
and RBI Governor R.N. Malhotra. The committee was formed to evaluate
the Indian insurance industry and recommend its future direction with the
objective of complementing the reforms initiated in the financial sector. The
formation of the
Malhotra Committee in 1993 started reforms in the Indian insurance sector.
The aim of the Malhotra Committee was to assess the functionality of the
Indian insurance sector. This committee was also in charge of
recommending the future path of insurance in India. The Malhotra
Committee attempted to improve various aspects of the insurance
sector,making them more appropriate and effective for the Indian market.
The recommendations of the committee put stress on offering operational
autonomy to the insurance service providers and also suggested forming
an independent regulatory body The Insurance Regulatory and
Development Authority (IRDA) to provide greater autonomy to insurance
companies in order to improve their performance and enable them to act as
independent companies with economic motives.In 1999: The Standing
Committee headed by Murali Deora decided that foreign equity in private
insurance should be limited to 26%. According to the committee
recommendations the IRA Act was renamed the Insurance Regulatory and
Development Authority (IRDA) Act. During the same year Indian Cabinet
cleared IRDA Act. In 2000 President gave consent to the IRDA Act.This
lifted entry restriction for private players and allowed foreign players to
enter the marketwith some limit on direct ownership.
Insurance is a federal subject in India and Insurance industry in India is
governed by nsurance Act, 1938, the Life Insurance Corporation Act, 1956
and General Insurance Business (Nationalization) Act, 1972, Insurance
Regulatory and Development Authority (IRDA) Act, 1999.
2.0 Review of Literature:

While earlier studies on life insurance sector mainly focused upon LIC, it
was only after reforms in this sector that certain studies covering private
players have taken place. Among
early studies, Arora (2002) highlighted that LIC was likely to
face tough competition from private insurers having large
established network and their trained intermediaries throughout
India. Verma (2003) analyzed the various type of products
offered by public sector giant and the new global players in
the private sector. Kumar and Taneja (2004) highlighted the
opportunities and challenges before the insurance industry
in India due to liberalization, globalization and privatization.
Bhattacharya (2005) advocated that bancassurance provided
the best opportunities to tap the large potential in rural and
semi urban areas as banks have a strong network of more
than 40000 branches in these areas. He suggested that the
insurers should focus on Single Premium policies, Unit Linked
Insurance, Pension Market and Health Insurance. Kumar
(2005) highlighted that private insurance players introduced a
wider range of insurance products and set up brand promotion
as part of their new strategy. These new covers had flexibility
and added benefits to suit the needs of customers who were
unsatisfied with the traditional and rigid plans. Kulshrestha and

Kulshrestha (2006) highlighted that demand for life insurance

in rural India was expanding at the annual rate of 18 per cent
as compared to 3.9 per cent in urban areas which provided
good opportunity for life insurers to perform. Naqvi and Ramay(2008)
revealed that job satisfaction and organizational commitment had a
negative effect on turnover intentions, whereas perceived alternative job
opportunities had a significant positive correlation with turnover intentions
and is the major factor associated with turnover intention among its
professionals.
Van Dick et al. (2004) have also identified job satisfaction as a predictor of
turnover intention; however, they argue that it is a mediating variable
between organizational identification and attrition.
Cummins (1999) examined pure technical and cost efficiency of US life
insurers spanning 1988 to 1995 by using Data Envelopment Analysis
approach. The study found that efficiency scores in insurance were
relatively low compared to other financial service industry and brokerage
system was most efficient.
Peter Drucker (1999) admitted that by providing financial protection against
the major eighteenth and nineteenth century risk of dying too soon, life
insurance became the biggest financial industry of that century. 40
Berger et al. (2000) analyzed cost efficiency, revenue efficiency and profit
efficiency of 684 insurers in US by using Thick Frontier Approach and
Stochastic Frontier Approach method for the period 1988 to 1992.The
result showed that conglomeration hypothesis holds for some types while
strategic focus hypothesis dominates others.
Hogan, John D (2001) assumed that the banking industry would quickly
expand into non-banking activities, as synergies could be expected from
the large bank customer information base and frequent contacts with
customers. However, this quick response has not taken place, partly
because of perception of risk in the insurance business. The author also
suggests that banking companies should add insurance products to their

lines of business for sound reasons such as small increment costs

involved, the presence of existing customer relationships, revenue
diversification, absence of interest rate risk in insurance compared with
loans and banks web-based marketing capability.
Carrow Kenneth A.(2001) investigated whether the announcement of a
merger between Citicorp and Travelers abnormally impacted stock prices of
financial and insurance companies. Analysis of abnormal returns
surrounding the merger show that life insurance companies and large
banks experienced significant stock price increases, while the returns of
stocks of smaller banks, health insurers, and property insurers remain
relatively unchanged . Nair-Reichart and Weinhold (2001), Postulate panel
and time series estimators to impose homogeneity assumptions across
countries in the relationship between FDI and growth and they marshal
evidence to show considerable heterogeneity across countries.
3.0 Objectives of the study:
To study growth of Indian Insurance sector.
To study the Role of Regulatory frame work of IRDA.
To study the Market Potential for Insurance Business.
.TO study the emerging challenges and opportunities in insurance sector.
3.0 Research Methodology:
The paper is completely a conceptual one whose basic foundation comes
from various secondary sources like research articles in Journal, published
and unpublished scholarly papers, and books, various international and
local journals, speeches, newspapers and websites. The analysis
part of the paper is based on the statistical data provided by IRDA.
4.0 Significance of the study:
The study has been conducted to review the insurance sectors value and
sustainable growth after its liberalization and to find out the growth of the

insurance sector. Insurance sector has shown a phenomenal growth after

its liberalization and it has increased after the private sectors entry.
Insurance sector in India is the most trusted sector and has insured Indians
lives to protect them from the uncertaintities and sudden disasters.
Insurance sector is working in all the facets of human life. The study
basically talks about the changes in the sector regulations and its impact on
the growth.
5.0 Present Indian Insurance Scenario:
The liberalization, privatization and globalization policies of the nation along
with the revolution in the field of Information Technology and
communication have been advantageous for the insurance sector in India.
* Entry of private players and foreign collaborations: It was on the
recommendation of the Malhotra Committee that private players were
allowed to enter into the insurance market. Today there are almost 22
players who have entered the Indian insurance market besides the giant
Life Insurance Corporation of India (LIC).
Another major development that has taken in the field of general insurance
is the de-linking of the 4 subsidiaries of the General Insurance Corporation
of India (viz. Oriental Insurance Company Ltd., New India Assurance
Company Ltd., National Insurance Company Ltd. and United India
Insurance Company Ltd) from the parent company.
* Marketing strategies and approaches: The entry of private players and
their foreign partners has given domestic players a tough time, because the
opening up of the sector has not brought in only foreign players, but also
professional techniques and technologies. The present scene in India is
such that everyone is trying to put in the best efforts. One can see
strategies being more for survival than growth. But the most important gift
of privatization is the introduction of customer-oriented services. Utmost
care is being taken to maximize customer satisfaction.
. Distribution channels: India with about 200 million middle class household
shows a huge untapped potential for players in the insurance industry.
Saturation of markets in many developed economies has made the Indian

market even more attractive for global insurance majors. The insurance
sector in India has come to a position of very high potential and
competitiveness in the market. The insurance agents still remain the main
source through which insurance products are sold. The concept is very well
established in the country like India but still the increasing use of other
sources is imperative. At present the distribution channels that are available
in the market are - Direct selling, corporate agents, Group selling, Brokers
and cooperative societies, Banc-assurance
Insurance Sector Today: Opportunities and Challenges
Opportunities
As compared to the Western countries, where they have already reached a
stage of saturation, India can exploit some golden opportunities in the
following fields.
1. Mass Marketing
India is a highly populated country and would continue to be so in the near
future. New players may tend to favour the "creamy" layer of the urban
population. But, in doing so, they may well miss a large chunk of the
insurable population. A strong case in point is the current business
composition of the dominant market leader - the Life Insurance Corporation
of India. The lion's share of its new business comes from the rural and
semi-rural markets. In a country of 1 billion people, mass marketing is
always a profitable and cost-effective option for gaining market share. The
rural sector is a perfect case for mass marketing.
Competition in rural areas tends to be "kinder and gentler" than that in
urban areas, which can easily be termed cutthroat. Identifying the right
agents to harness the full potential of the vibrant and dynamic rural markets
will be imperative. Rural insurance should be looked upon as an
opportunity and not an obligation. A smaller bundle of innovative products
in sync with rural needs and perceptions, and an efficient delivery system
are the two aspects that have to be developed in order to penetrate the
rural markets.
2. Job Opportunities

Job opportunities are likely to increase manifold. The liberalization of the

insurance sector promises several new job opportunities for those who are
equipped with degrees in finance. Finance professionals who had
witnessed a slump in the job market would be much relieved.
There will be demand for marketing specialists, finance experts and human
resource professionals. Apart from this, there will be high demand for
professionals in streams like underwriting and claims management, and
actuarial sciences.
3. Inflow of Funds
There could be a huge inflow of funds into the country. Given the industry's
huge requirement of start-up capital, the initial years after opening up are
bound to see a strong inflow of foreign capital. A rise in the equity share of
foreign partners to 49 percent will act as a boost to them.
4. Reinsurance
Huge capacity is likely to be created in the area of reinsurance. Apart from
pure reinsurance activities, which involves providing insurance protection,
there will be a revolution in service-related fields like training, seminars,
workshops, know-how transfer regarding risk assessment and rating, risk
inspections, risk management and devising new policy covers, etc.
5. Marketing Strategies
Also, with more players in the market, there will be significant increase in
advertising, brand building, and this will benefit whole lot of ancillary
industries.
A substantial shift is likely to take place in the distribution of insurance in
India. Many of these changes will echo international trends. Worldwide,
insurance products move along a continuum from pure service products to
pure commodity products. Initially, insurance is seen as a complex product
with a high advice and service component. Buyers prefer a face-to-face
interaction and place a high premium on brand names and reliability.

As products become simpler and awareness increases, they become offthe-shelf, commodity products. Sellers move to remote channels such as
the telephone or direct mail. Various intermediaries, not necessarily
insurance companies, sell insurance. In some countries like Netherlands
and Japan, insurance is marketed using the Post Office's distribution
channels. At this point, buyers look for low price. Brand loyalty could shift
from the insurer to the seller.
6. Bancassurance
In other markets, notably Europe, this has resulted in bank assurance:
banks entering the insurance business. The Netherlands led with financial
services firms providing an entire range of products including bank
accounts, motor, home and life insurance, and pensions. Other European
markets have followed suit. In France, over half of all life insurance sales
are made through banks. In the UK, almost 95% of banks and building
societies are distributing insurance products today.
In India too, banks hope to maximize expensive existing networks by
selling a range of products. Many bankers have shown an inclination to
enter the insurance market by leveraging their strengths in the areas of
brand image, distribution network, face to face contact with the clients and
telemarketing coupled with advanced information technology systems.
Insurers in India should also explore distribution through non-financial
organizations. For example, insurance for consumer items such as
refrigerators can be offered at the point of sale.
7. Information Technology
Worldwide interest in E-commerce and India's predominant position in
Information Technology and software development are also likely to be
major factors in the marketing of insurance products in the immediate
future. The number of Internet account is increasing and the trend has
already been set by some of the leading insurers and insurance brokers
worldwide.
8. Rural Insurance

Rural insurance should be looked upon as an opportunity and a smaller

bundle of innovative products to match with rural needs and perceptions
and an efficient delivery system are critical aspects that have to be
developed in order to penetrate the rural markets. Life Insurance
Corporations (LICs) lion share of new business comes from rural and
semi-urban markets through mass marketing strategies. Identifying the
right agents and the distribution channels to harness the full potential of the
vibrant and dynamic rural markets will be imperative.
9. Working with joint venture partnership.
10. Reducing insurance costs.
Challenges
If one has opportunities, one has to face challenges; it is like two sides of
the same coin. No doubt India has a lot of opportunities coming her way,
but there are a few challenges and threats as well.
The four main challenges facing the industry are product innovation,
distribution, customer service, and investments. Unit-linked personal
insurance products might find greater acceptability with rising customer
awareness about customized, personalized and flexible products. Flexible
products and new technology will play a crucial role in reducing the cost
and, therefore, the price of insurance products. Finding niche markets,
having the right product mix through add-on benefits and riders, effective
branding of products and services and product differentiation will be some
of the challenges faced by new companies.
1. Technology
In today's highly competitive financial services environment, effective
organizations will employ technology in a strategic way so to achieve a
competitive edge. Technology will play an increasing role in aiding design
and administering of products, as well in efforts to build life-long customer
relationships. At the same time, investment in technology will only help as
long as firms find the right people: people with the right attitude, values,
and ethics, commitment to excellence, and focus on customer service. The
critical success factor is a top-down emphasis on exceeding customer

expectations with quality people, excellent products, and legendary service.

As has been seen in other financial services, the entry of private players
ensures that the customer will be the beneficiary in the long run. It will also
result in enlarging the market and extending the reach of insurance across
the country.
2. Competition
Thus, apart from the normal issues facing any new company, many new
Indian private insurance players will need to cope with the challenges of
working with a joint venture partner. They will be competing with large and
well-entrenched government-owned players. They have to overcome
regulatory hurdles, change the attitude of new recruits and satisfy some
very high customer expectations. Also, the players will have to consider the
Indian market as a long-term investment, and maintain clear-cut objectives
and constant monitoring at all levels.
3. Regulatory hurdles
Insurance companies will have to overcome regulatory hurdles and cope
with the joint venture partner as well as satisfy some very high customer
expectations. While government has announced increase in FDI to 49%, it
would be a while before it becomes a reality. Further the new entrants will
have to consider the insurance market as a long term investment and
maintain clear cut objectives and constant monitoring at all levels.
4. claim settlement
5. Customer education and satisfaction.
6. Channels of distribution.
At the same time insurance firms will have to find the right people with the
right attitudes, values and ethics, commitment to excellence and focus on
customer service.
7. Reducing insurance costs.

Flexible products and new technology will play crucial roles in reducing the
cost and therefore the price of insurance products. Finding niche markets
having the right product mix through add-on benefits and riders, effective
branding of products and services and product differentiation from
competitors offerings will be few challenges faced by insurance companies
8. Agent Attrition.
Employee attrition especially in sales force is one of the critical problems
which are faced by Insurance
Companies during these days. In an ideal situation an employee consider
multiple comfort level while
working in a office for e.g. employer's goodwill in the market, remuneration,
future growth, working
condition, co-workers, current role's scope in the market & most important
future stability with the
organization.
7.1 Statistics of Private Leading Life Insurances Companies:
During financial year 2010-11 the weighted new premium of private sector
insurance registered a growth of around 13 percent as compare with
financial year 2009-10. Against this the life insurance corporation registered
the growth of 31 percent. The weighted new premium income written by
private sector life insurers during financial year 2010-11 as per the statistics
realized is IRDA. The life
insurance industry collected a weighted new premium income of Rs. 632
billion. The new business market share of private sector life insurance
decreased to around 55 percent in this period, down around 59 percent in
previous financial year. SBI life maintained its position as the leading
private

sector life insurer with a market share of 10.1 percent in terms of weighted
new premium income. ICICI prudential and Reliance life were second and
third with market share of
9.6 percent and 5.8 percent respectively.
7.2 General Insurance:
According to the data released by IRDA, the general insurance industry
recorded 13.42 per cent growth in gross premium collected during 2010-11.
The industry collected gross premium of US$ 7.84 billion in 2010-11
compared with US$ 6.91 billion in 2009-10.The public sector players
posted 13.85 per cent growth in gross premium in 2010-11. At the same
time, private players recorded a 12.82 per cent increase in gross premium
till March 2011. During April-May 2011, non-life insurers mopped up US$
1.59 billion against US$ 1.34 billion in the previous year, registering an
increase of 19 per cent
according to IRDA data.The four state-run insurers fared better than their
private counterparts, with New India Insurance collecting the maximum
premium of US$ 294.5 million in April and May 2011, compared to US$
253.15 million in the previous year,growing by 16.34 per cent. According to
the IRDA's Summary Reports of Motor Data of Public and Private Sector
Insurers 2009-10, nearly 30 million vehicle policies were issued and a
total premium worth US$ 1.83 billion wascollected.
Top 10 Insurance companies in INDIA
, Best Insurance Policies in India
Insurance is a nascent area in India offering wide potential for worldwide
players. The life insurance premium account to 2.5% of GDP of the nation
and the premiums of general insurance is 0.65% GDP. The sector of
insurance is going through various changes and as the Indian government
permits private companies the scenario received a boost. The insurance
companies in India such as LIC, ICICI Prudential, Bajaj Alliance, and many
more are booming and the top insurance companies are the one that is
doing roaring business in India.

The best insurance policies in India are offered by giant companies, namely
1. Life Insurance Corporation of India (LIC)
LIC is the largest and is popular with over 2048 branches all over India. LIC
still remains the top with new players entering with customized insurance
products. It has gained credibility and consumers trust that it is able to
sustain the insurance business having estimated assets worth Rs.8 trillion.
2. AIG Tata LIC Ltd
AIG Tata offers various insurance plans for everyone, children to senior
citizens. This LIC is a joint venture with the American International Group
and Tata Group.
3. HDFC life Insurance Co. Ltd (Standard)
HDFC Life specializes in providing an array of solutions for individuals and
groups. This is a joint-venture between UK based Standard Life and HDFC
Ltd, the leading finance institution.
4. Birla Life Insurance Co. Ltd (Sun)
Birla is the only and first insurance company initiating insurance business in
association with Business Continuity Plan and helping small companies
grow bigger. This is a life insurance that is collaboration between Sun Life
Financial Inc and Aditya Birla Group.
5. SBI Life Insurance Co. Ltd
SBI Life Insurance makes highest profit and is the life insurance offering
plans matching different segments from urban to rural divisions.
6. ICICI Life Insurance Co. Ltd (Prudential)
ICICI Prudential Life Insurance is India's trusted private sector insurance
company having collaboration with UK based Prudential Group.
7. Bajaj Allianz Life-Insurance Co. Ltd

Bajaj Allianz offers life and general insurances and is the largest insurers in
the world.
8. Kotak Mahindra Old Mutual Life Insurance Limited
Kotak Mahindra is committed to offer investment-based policies identical to
mutual funds and ULIPs, to name a few.
9. Max New York Life Insurance Co. Ltd
Max New York Life Insurance offers outstanding combination covers. It has
ISO: 9001:2000 certifications.
10. Future Generali Life Insurance
Future Generali is offering comprehensive plans for groups and individuals
and is becoming more competitive.
Author is providing the information in this article about the top insurance
companies in India. This article will help you to take a best insurance policy
in India for your safe future.
8.0 Potential of Indian Insurance Industry:
With a huge population base and large untapped
market, insurance industry is a big opportunity area in India
for national as well as foreign investors. India is the fifth
largest life insurance market in the emerging insurance
economies globally and is growing at 32-34% annually. This
impressive growth in the market has been driven by
liberalization, with new player's significantly enhancing
product awareness and promoting consumer education and

information. The strong growth potential of the country has

also made international players to look at the Indian
insurance market. Moreover, saturation of insurance markets
in many developed economies has made the Indian market
more attractive for international insurance players. An
insurance market in many developed countries of the world
has made the Indian insurance market more magnetic in
terms of international insurance players. The available
source of the insurance sectors reflects the following.
Home insurance sector is likely to achieve a 100%
growth since home insurance are made compulsory for
housing loan approvals by the financial institutions.
In the coming three years Health insurance sector is
all set to become the second largest business after motor
insurance.
During the period of 2008-09 to 2010-11 the non
life insurance premium is likely to have a growth of 25%
FDI in insurance hiked to 49 %
The public sector general insurance companies and the GIC will be
permitted to raise capital from the market to meet future capital
requirements

Increase of foreign direct investment (FDI) limit in the insurance sector from
the present 26 per cent to 49 per cent. Alongside, it also cleared
amendments aimed at attracting investments and bringing transparency in
the working of the insurance companies.
The approved amendments include that the foreign equity cap is proposed
to be kept at 49 per cent as provided in the Insurance Laws (Amendment)
Bill, 2008, as against the 26 percent.
This is done to meet the growing capital requirement of insurance
companies. Foreign re-insurers will be permitted to open branches only for
re-insurance business in India and the provisions of Section 27E, which
prohibits an insurer to invest directly or indirectly outside India the funds of
policy holder, would apply to such branches.
To encourage health insurance in India, the capital requirement for a health
insurance company is now proposed at Rs.50 crore (instead of Rs.100
crore for general insurance companies) with a view to reducing the entry
barrier to a priority sector in the insurance space.
The public sector general insurance companies and the GIC will be
permitted to raise capital from the market to meet the future capital
requirements, provided that the governments shareholding would not be
allowed to come below 51 per cent at any point of time.
Sectors of FDI Distribution
Over the last decade, the service sector has been the major winners when
it comes to foreign direct investment with both of them together receiving
over 40% of the total FDI in 2010. They are closely followed by computer
software and hardware, financial and telecom sectors. Service sectors like
finance, banking and insurance are picked by foreign investors because of
the highly educated and vast middle class population that India has. Also,
these are sectors which do not really require a huge expenditure on
infrastructure and production. In other words, these sectors are seen as the
most profitable and relatively of lesser risk by the foreign investors.
.

Future Growth: The Way Ahead

With the entry of competition, the rules of the game are set to change. The
market is already beginning to witness a wide array of products from
players whose number is set to grow. In such a scenario, the differentiators
among the different players are products, pricing, and service. Consumers
are increasingly more aware and are actively managing their financial
affairs. Today, while boundaries between various financial products are
blurring, people are increasingly looking not just at products, but at
integrated financial solutions that can offer stability of returns along with
total profits. To satisfy these myriad needs of customers, insurance
products will need to be customized. Insurance today has emerged as an
attractive and stable investment alternative that offers total protection - Life,
Health and Wealth Protection. Consumers today also seek products that
offering flexible options, preferring products with benefits unbundled and
customizable to suit their diverse needs.
The trend in developed economies where people live longer and retire
earlier is now emerging in India too. With the breakdown of traditional forms
of social security like the joint family system, consumers are now
concerned with the need to provide for a comfortable retirement. This trend
has been further driven by the long-term decline in interest rates, which
makes it all the more necessary to start saving early to ensure long term
wealth creation. Today's consumers are increasingly interested in products
to help build wealth and provide for retirement income.
This all adds up to a major change in the demand for insurance products.
While sales of traditional life insurance products like individual, whole life
and term will remain popular, sales of new products like single premium,
investment linked, retirement products, variable life and annuity products
are also set to rise. Firms will need to constantly innovate in terms of
product development to meet ever-changing consumer needs. However,
product innovations are quickly and easily cloned. Pricing will also not vary
significantly, with most product premiums hovering around a narrow band.
In this competitive scenario, a key difference will be the customer
experience that each life insurance player can offer in terms of quality of
advice on product choice, along with policy servicing, and settlement of

claims. Service should focus on enhancing the customer experience and

maximizing customer convenience. Long-term growth in the business will
depend greatly on the distribution network, where the emphasis must
evolve from merely selling insurance to acting as financial advisors, helping
customers plan their finances depending on life stage and personal
requirements. This calls for a strong focus on training of the distribution
force to act as financial consultants and build a lasting relationship with the
customer. This would help create a sustainable competitive advantage that
cannot be easily matched.
New Developments in Insurance industry
Allstate Corp, the second largest insurer in the US has inaugurated its first
technology and operations centre in Bangalore, India. The centre, an
integral part of Allstate's global value chain, is majorly a technology
services centre serving in the areas of business intelligence, analytics,
testing and mobility.
Metlife India is now PNB Metlife India after Punjab National Bank (PNB)
picked up 30 per cent stake in the life insurance company. Apart from PNB,
MetLife India has two other banks, Karnataka Bank and Jammu and
Kashmir Bank as its distribution partners.
Two of the insurance companies are planning to launch a specialised
health cover for diabetic patients in India. While Apollo Munich has already
filed a diabetic cover policy document with IRDA, Religare Health
Insurance will soon submit documents for a similar cover with the regulator.
Diabetes is an epidemic in India (with around 61 million people having it)
and insurance companies look at this as a good business proposition.
Unlike the existing health covers, which do not cover hospitals admissions
relating to complications of diabetes for up to four years, the proposed
policies will cover diabetics from day one.
With a view to cover more and more Indians under the umbrella of
insurance, public sector general insurers are mulling expanding their
operations to other countries in 2013-14. With a large number of Indians
and Indian businesses in South-east Asia, West Asia and Africa, these
regions are emerging as preferred destinations.

The four general insurers - New India Assurance, United India Insurance,
Oriental Insurance and National Insurance - are considering setting up
more international centres. While Oriental Insurance might hold stake in
proposed reinsurance firm in Nepal, New India is looking to expand in
Canada, Qatar and Myanmar. United India Assurance is also looking at
South East Asia and Middle East for expansion. Moreover, LIC, GIC Re,
four PSU general insurers are already holding stakes in Kenyan Insurance
joint venture (JV).
Conclusions: India is the important emerging insurance markets in the
world . Over the past three years, around 40 companies have expressed
interest in entering the sector and many foreign and Indian companies have
arranged anticipatory alliances. The threat of new players taking over the
market has been overplayed. As is witnessed in other countries where
liberalization took place in recent years, we can safely conclude that
nationalized players will continue to hold strong market share positions, but
there will be enough business for entry to be profitable
n the world. Life insurance will grow very rapidly over the next decades in
India. The major drivers include sound economic fundamentals, a rising
middle-income class, an improving regulatory framework and rising risk
awareness.The fundamental regulatory changes in the insurance sector in
1999 were significant for future growth.
Restriction of 26% on foreign ownership is lift up to 49%, large foreign
insurers is entered the Indian market. State owned insurance companies
still have dominant market positions. Opening up the sector will certainly
mean new products, better packaging and improved customer service.
Both new and existing players will have to explore new distribution and
marketing channels. Potential buyers for most of this insurance lie in the
middle class. New insurers must segment the market carefully to arrive at
appropriate products and pricing. Recognizing the potential, in the past
three years, the nationalized insurers have already begun to target niches
like pensions, women or children.
Competition will surely cause the market to grow beyond current rates,
create a bigger "pie," and offer additional consumer choices through the
introduction of new products, services, and price options. Yet, at the same

time, public and private sector companies will be working together to

ensure healthy growth and development of the sector. Challenges such as
developing a common industry code of conduct, contributing to a common
catastrophe reserve fund, and chalking out agreements between insurers
to settle claims to the benefit of the consumer will require concerted effort
from both sectors.
References:
Ahluwalia, M. S. (2002). Economic Reforms in India since
1991: Has Gradualism Worked? Journal of Economic
Perspectives, 16, (3), 67-88.
Bhat, Ramesh.(1996).Regulation of the private health
sector in India. International Journal of Health Planning
and Management.11:253-74.
Bhat, Ramesh (2005) Insurance Industry in India Structure
performance and future challenges. Vikalpa.30: 3-5
Inderjit, singh and Ashwini kumar (2005) Insurance Sector
Reforms Insurance Regulatory and Development Authority
(IRDA) (2010). Annual Report, IRDA, Mumbai.
Sinha, P.K. and Sahoo,S.C.(1994) Marketing of Life
Insurance in India. Service Marketing Himalaya
Publishing House
Wadhawan, Sahdev. (1987). Health insurance in
India: The case for reform.

International Labour Review 126(4):479-94.

IRDA