ImpactofPrivatelifeinsurancecompaniesonLICinIndia

SECTIONI
1.1IntroductiontoTopic/Rationale: Insurance is the largest sector in India, which employs the largest number of manpower. This sector has huge potential. Life insurance differentiatesitselffromtheotherinvestmentoptionsbyaddinganextra factor of protection to investments apart from money. Life insurance competes with other investments in two ways. Life insurance cash values can bethoughtofasaseparateassetclass,withdistinctiveriskandreturn characteristics that might make it appropriate as a savings vehicle for retirement, education or other goals. Life insurance can also be purchased as aninvestment for heir or forcharity; the life insurance death benefit is an alternative to the values at death available from other investments, suchasstocks,bondsorrealestate. Insurance is one major sector which has been on a continuous growthcurvesincetherevivaloftheIndianeconomy.Takingintoaccount the huge population and growing per capita income besides several other drivingfactors,ahugeopportunityisinstorefortheinsurancecompanies in India. According to the latest research findings, nearly 80% of Indian population is without life insurance covered while health insurance and nonlife insurance continues to be below international standards. And this part of the population is also subjected to weak social security and pensionsystemswithhardlyanyoldageincomesecurity. Insurance in India is primarily used as a means to improve personal finances andforincometaxplanning;Indians haveatendencytoinvestin properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small45%. This in itself is an indicatorthatgrowthpotentialfortheinsurancesectorisimmense.

VIVAIMS,Virar(W.)

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Insurance constitutes an important and increasing proportion of the grossfinancialsavingsoftheIndianhouseholds. The private sector, in life as well as the nonlife segments, gained moremarketsharethanthepublicsectorplayersinrecentyears.Thisgain wasmoreprominentinthelifeinsurancesector.

Thefactorsthathavedrivenchangeinclude:

Increasinggrossfinancialhouseholdsavings

DeregulationintheIndianinsurancemarket

Increaseindependencyratio

However,dearthofnewproductsisamajorchallengefacingtheindustry. Withanannualgrowthrateof1520%andthelargestnumberoflife insurance policies in force, the potential of the Indian insurance industry is huge. Till date, only 20% of the total insurable population of India is covered under various life insurance schemes, the penetration rates of health and other nonlife insurances in India is also well below the international level. These facts indicate the of immense growth potential oftheinsurancesector.

VIVAIMS,Virar(W.)

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

The year 1999 saw a revolution in the Indian insurance sector, as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority(IRDA)Bill,lifting allentryrestrictions forprivateplayers and allowing foreign players to enter the market with some limits on direct foreignownership. With the opening up of the Insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative distribution channels, innovative products,create moreconsumerawarenessabout theirproducts andofferthematcompetitiveprice. Innovative products, smart marketing, and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. Indians, who had always seen life insurance as a tax saving device, are now suddenly turning to the private sectorandsnappingupthenewinnovativeproductsonoffer.

VIVAIMS,Virar(W.)

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

1.2Objectivesofthestudy:

Thepurposeofthestudyistounderstand:

ImpactofprivatelifeinsurancecompaniesonLIC. Entryofprivateplayersfollowingthederegulation. Historical growth trends & growth drivers of Insurance & its subsectorsinIndiaandoutlooktill2011. Marketsizeoflifeinsurancesectorsince2004till2008. Marketforecastoflifeinsurancesectorbetween2008and2011. Keyissues&challenges,majortrends&opportunities. Government's initiatives to promote & regulate the insurance market. Competitivelandscapeandmarketshareoftopplayers. Dearthofinnovative&buyerfriendlyinsuranceproducts. Tofindoutmajorplayersinthisindustry.

VIVAIMS,Virar(W.)

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

1.3ResearchMethodology:

To carry out the research effectively the understated research methodologyshallbeadoptedforthepurpose. 1.3.1PreliminaryInvestigation

All literatures, tapes and films on the proposed study available from library /websites shall beexaminedtogetacquainted withthetopic of study. The conceptual literature concerning the concepts and theories of Insuranceshallbereviewed.

1.3.2 ResearchDesignandHypothesis

Taking into account the objective of the study, the nature of research

shall be Exploratory Research. The Research Methodology is detailedasunder. Thehypothesisofthestudyshallbeasunder. Ho:NullHypothesis=ImpactofPrivatePlayersonLICisNegative.

1.3.3 PeriodoftheStudy The proposed study shall cover the period from 01.01.2004 to31.01.2008.

VIVAIMS,Virar(W.)

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

1.4

Sampling

1.4.1SamplingUniverse The Sampling universe shall consist of LIC & All private PlayersintheLifeinsuranceIndustry.

1.4.2 SamplingTechnique Samplingtechnique tobeusedfortheproposedstudyshallbe JudgmentSampling.

1.4.3 SampleSize Here in this project we are considering all Life Insurance companies(LIC&PrivateSectorCompanies).

1.5 Data
VIVAIMS,Virar(W.) 6

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

1.5.1TypeofData PrimaryData The primary data is to be collected by interviewing people whohavelife insurancepolicy as wellasbyaskingquestionsto the executives from a few Life Insurance Companies who are active in the market and also through interactions with Insurance agents. We are taking views of near about 75 100 people to achieve the goal behindtheconductofproject. SecondaryData The secondary data is collected through books from library, literature review and websites (Internet), guidelines of various acts andotherresearchpapers. 1.5.2DataSources Thedatafortheproposedstudyshallbesourcedfrom, PublicationandnewsLettersofIRDA. Inhouse publications and Newsletters of Insurance companies includedinSample. Business newspapers & magazines such as Economic Times, BusinessToday,etc. Websites of the Life Insurance companies, Regulatory Authority &otherFinancialWebsitessuchas,
www.irda.com www.bimaonline.com

www.indiainfoline.com www.cygnusindia.com www.moneycontrol.com www.outlookmoney.com VIVAIMS,Virar(W.) 7

ImpactofPrivatelifeinsurancecompaniesonLICinIndia www.google.com www.investmentservices.com

1.5.3Methodsofdatacollection
QuestionnaireMethodshallbeusedforthepurposeofdatacollection Questionnaire is a set of questions logically arranged presented to the

respondentstoanswer. QuantitativeandQualitativeDatacollectionmethods The Quantitative data collection methods rely on random sampling and structured data collection instruments that fit diverse experiences into predetermined response categories. They produce results that are easy to summarize, compare, and generalize. Quantitativeresearchisconcernedwithtestinghypothesesderivedfromtheory and/orbeingabletoestimatethesizeofaphenomenonofinterest. Dependingonthe researchquestion,participantsmayberandomlyassignedtodifferenttreatments.Ifthis is not feasible, the researcher may collect data on participant and situational characteristics inordertostatisticallycontrolfortheirinfluenceonthedependent,or outcome,variable.Iftheintentistogeneralizefromtheresearchparticipantstoalarger population,theresearcherwillemployprobabilitysamplingtoselectparticipants.

VIVAIMS,Virar(W.)

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

1.6Tools&TechniquesofAnalysis

Thecomparisonofalllifeinsurancecompaniesshallbemade. The performance of all Private Players shall be compared with the performanceoftheLICtotesttheHypothesis. Thestatedcomparisonsshallbepresentedusingtables&graphs. Trendanalysisshallbeusedtosatisfythereasonbehindtheconductof proposedproject. 1.7ScopeandLimitationsoftheStudy 1.7.1Scopeofproposedstudy

The performance evaluation of Life insurance Companies operating in India will be done and while doing this we will focus on performance ofLIC. The proposed study will get benefited by information available from Lifeinsurancecompanies. 1.7.2 Thelimitationsofproposedstudy

The proposed study shall cover the period year 2004 to year 2008 thus the findings of the study shall be applicable for the conditions prevailingduringthatperiod.

The proposed study concentrates only on the Life Insurance sector not on other segments of the Insurance industry. Thus, the findings of proposedstudycannotbetakenforgeneralization.
VIVAIMS,Virar(W.) 9

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

1.8ExpectedContributionfromtheStudy: Theexpectedcontributionsfromtheproposedstudyareasunder, For the individual the proposed study may act as supplementary tool formakingdecisionwithrespecttobuyingLifeInsurance. The proposed study may aid the Life Insurance Companies in refinementoftheirworkingpattern. The proposed study shall aid Govt. & other insurance sector policy making bodies in their initiatives towards the growth and development ofIndianInsuranceIndustry. The proposed study shall assist academicians and other research studentsintheirresearchwhich,aresimilartotheproposedstudy. 1.9Directionforfutureresearch

In the future, longer period may be considered for evaluating performanceofLifeInsuranceSectorinIndia. A comparative study on performance of Indian Life Insurance Sector andLifeInsuranceSectoroutsideIndiamaybeconductedinfuture. A comparative study on Life insurance Sector and other segments of InsuranceSectorinIndiamaybeconductedinfuture.

VIVAIMS,Virar(W.)

10

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

SECTIONII
2.1INTRODUCTIONTOINSURANCE

Insurance is defined as a cooperative device to spread the loss caused by a particularriskoveranumberofpersonswhoareexposedtoitandwhoagreetoensure themselvesagainstthatrisk.Riskisuncertaintyofafinancialloss.Theinsuranceisalso defined as a social device to accumulate funds to meet the uncertain losses arising throughacertainrisktoapersoninjuredagainsttherisk. AccordingtotheU.S.LifeOfficeManagementInc.(LOMC),"LifeInsurance providesasumofmoneyifthepersonwhoisinsureddieswhilstthepolicyisineffect." Lifeinsurancehascomealongwayfromtheearlierdayswhenitwasoriginally conceivedasariskcoveringmediumforshortperiodsoftime,coveringtemporaryrisk situations, such as sea voyages. As life insurance became more established, it was realized whatausefultoolitwasforanumberofsituations thatincludes temporary needs/threats,savings,investment,retirementetc.

VIVAIMS,Virar(W.)

11

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.2ORIGINANDGROWTHOFINSURANCESECTOR Insurance in modern form originated in the Mediterranean during the 13th century.TheearliestreferencestoinsurancehavebeenfoundinBabylonia,theGreeks and the Romans. Marine insurance is the oldest form of insurance followed by life insuranceandfireinsurance.LifeinsuranceactivityinitsmodernformstartedinIndiain 1818 to provide for English widows when oriental life Insurance Company was incorporatedatCalcutta,followedbyBombayLifeAssuranceCompanyin1823and TritronInsuranceCompanyforGeneralInsurancein1850.Insuranceregulationformally beganinIndiathroughthepassingoftwoacts,theLifeInsurancecompaniesActof1912 andtheProvidentFundActof1912.Howeverthefirstcomprehensivelegislationwas introduced with the Insurance Act of 1938 that provided strict state control over insurancebusinessinthecountry.Afterindependence,thebusinessofIndiaInsurance grew at afaster place as competition amongstthe Indiancompanies intensified. The decisionofnationalizationoflifeinsurancebusinesstookplacein1956when245India and foreign insurance provident societies were first merged and then nationalized. It pavedthewaytowardstheestablishmentofLifeInsurancewastoraisethemuchneeded fundsforrapidindustrializationandselfrelianceinheavyindustries.GeneralInsurance followedsuitand1968;theInsuranceActwasamendedtoallowforsocialcontrolover thegeneralinsurancebusiness.Subsequentlyin1973,nonlifeinsurancebusinesswas nationalized and the General Insurance Business (Nationalization) Act, 1972 was promulgated.

VIVAIMS,Virar(W.)

12

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.3LIFEINSURANCEININDIA: A.IndianInsurancefromCustomersperspective IndianInsuranceconsumersarelikeIndianVoters,theyaresoftbutwhentimeis rightandripe,theydemandandseeknecessarychanges.DetariffofmanyInsurance Products are the reflection of changing aspirations and growing demand of Indian consumers. Forhistoricalyears,Indianconsumerswereatreceivingend.InsuranceProduct wasunderwrittenandwaspracticallyforcedontoconsumersonaTakeitAsitbasis. AllthatgotchangedwithpassageofIRDAactin1999.Newinsurancecompanieshave comeintoexistenceleadingtoopencompetitionandhencebetterproductsforcustomers. IndiancustomershavebecomeverysensitivetoCoverage/Premiumaswellas theProducts(readRiskSolution),thatisgiventothem.Therearenotreadytoacceptany product,nomatterevenifthatiscomingfromthemarketleader,shouldthatproductis notservingthepurpose.AcaseinpointisULIPProduct/GroupLifeandCreditLifein LifeInsurancesegmentandTravel/FamilyFloaterHealthandLiabilityInsuranceinthe NonlifesegmentarenewageAvatar.Thenewproductsareconstantlybeingdemanded byIndianconsumers,whichisputtinghugepressuresonInsurancecompanies (Read RiskUnderwriters)andBrokerstorespond. CustomersarelookingatInsuranceforcoveringPureRisknowwhichIhave coveredinmynextsection.Anothergoodreasonwhyweareseeingquickchangesinthe buying behaviorofInsurance frommere Investment to riskmitigation is thecost of ReplacementofGoods(ROG)orCostofServices(COS).ThecaseinpointisHealth Insurance. The cost of Medical / Hospital and Doctors bills are rising in a meteoric manneryoy,thusanindividualoracompanyneedtocoverthecompositerisksooner thanlater.SoonlikeWesternWorld,youngIndianswillstartagingandtheHealthand MedicalCostwillbethehighestcosttheywouldbearexceptperhapsthepurchaseof House/FlatorCondominium.

VIVAIMS,Virar(W.)

13

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

B.IndianInsurancefromUnderwritersperspective Insurance companies in India are clearly divided into 2 part (again a British Legacy)a)TheLifeInsurance,coveringtheLifeofanindividualorgroup.Anything thatdoesnotfallintothiscategoryfallsintob)NonlifeInsurance.Thereisalsoa3rd grouporthesocalledagrayarea,wherebothLifeandNonlifeInsuranceCompanies competenow.ItisHealthInsurance&CreditInsurance. UnderwritersofInsurancecompanieshavetraditionallyruledthemarketbefore liberalization,sinceitwasSellersMarket.LICforLifeInsuranceand4sistersfromNon LifeCompanies(AllGovt.owned)servedthemarketforover3decades.Itisamazingto see,howmuchtheIndianInsurancecanvashaschangednow.Inflat6yearsofactive liberalization,wenowhavemorethan30InsuranceCompanies,competingandworking hardovertimetogarner,biggershareofgrowingUSD20.00billionmarkets.Interesting tosee,thatthelionshareofthemarketisstillwiththepastleaderonlyi.e.LifeInsurance CorporationofIndiaLtd.(LIC).However,theprivateplayersviz.ICICIPrudentialand BajajAllianzLifeiscatchingin,withtheirdoubledigitsgrowthyearonyearintheLife segment. Their aggression in terms of better products & better distribution model (Bancassurance&Web)isgivingthemthedesiredresults. WeareawarethattheInsurancepenetrationinIndiaisperhapstheleastamongst developedcountriesandworst,wedontrankgoodvisvisdevelopingcountrieseither. OneestimatesuggeststhatPakistan/ChinaandDubaihavebetterInsurancepenetration Per Capita compared to India. There are many reasons for the same. Traditionally Insurance was bought and sold in India for Investment / Tax Saving purposes only. RemembermyopeningstatementDeath/IllnessandFirecomestothyneighborand notme.So,Insurancewasneverlookedasatooltoconserve,preserveorcreatewealth. ItwasjustaninvestmenttoolwhichwasdoublingforTaxdeductionalso.Thecreditfor changing mindset goes to tireless education by insurance companies coupled with effectivecampaignbyIRDA.InsuranceCompanies,BrokersandIRDAhavetakenthe challenge of explaining and educating Indian consumers about the benefits oftaking adequateRiskCovers,ratherthandependinguponaChancethatnothingwillhappen.

VIVAIMS,Virar(W.)

14

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

IgnoranceaboutInsurance,thusleadingtoSelfInsurancehascomeoffAge, duetobrilliantsalesandmarketingefforts.Innovative&Pricesensitiveproductsare comingouteveryday,addressinggenuineinsuranceneeds;hencewehaveseenarapid riseinInsurancepenetration,inlastcoupleofyears,acrossthelength&breathofIndia, which is indeed good news. Still, a lot has to be done by underwriters (Insurance companies)toreachthemassesandruralIndia.Marketdemandsinnovativeandbetter productsin: a) b) c) d) e) f) MotorInsurance RuralInsurance LossofJob/IncomeInsurance CreditInsurance InsuranceforOldage,includingPreexistingdisease InsurancePoliciestobeprintedthroughWeb

VIVAIMS,Virar(W.)

15

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

C.IndianInsurancefromAgents/BrokersPerspective AgentsorBrokersarebackboneofInsuranceIndustryacrosstheworldandIndia isnoexception.AgentandBrokersaretheFeetonStreetbesidesEyesandEars(also knownasgroundlevelunderwriters)forInsurancecompanies.Notonlytheyeducate about insurance products but also deliver the Insurance policy, they explain the Coverage/Inclusions/Exclusionstotheendconsumers.Traditionally,Agentsdida greatjob,butnowCorporateAgents/Brokershavetakenthemantleofspreadingthe wordofInsurancearound, BrokersareworkinghandinhandwithInsurancecompaniestopresentsolutions askedbyHighEndConsumers&Corporate.Indianeconomyischangingfast,thusthere isahugedemandofnewInsuranceproductstomanagetheglobalexposureofIndian companies.ThegrowthofIndianIT/ITescompanies,expansionofFinancialServices and double digit growth in Aviation, Mining, Manufacturing and Exports have put pressureonintermediaries likeDirectBrokersandReInsuranceBrokerstocomeout withbetter&AptRiskCovers(ARC). InsuranceBrokersjustcantgiveplainvanilla,offtheshelfsolutionsbecauseone is representing customer unlike the Agent who works for an Insurance company. Producers / Staff working with Insurance Brokers will have to keep abreast with changing times of Indian Insurance Market. The Brokers must remain engaged in learningprocessofnewsolutionsandwillhavetomaintainagoodrelationship with UnderwritersandAccountManagersofallInsurancecompaniestoensureRealtime Service. NewchangesareseenparticularlyinthedistributionsideofInsurance.Agents and Brokers are becoming much savvier to reach Endcustomers by using latest IT enabledMarketingandManagementtoolsviz: a) b) c) d) e) f) DirectMarketing(DM)Mailers CobrandMarketing TeleMarketing WebBasedMarketing EmailMarketing& DatabaseMarketing

TheInsurancedistributionisnomoreoldFeetonStreet(FOS),AgencyModel buthasbecomesophisticatedandeffective,therebyreducingCostofAcquisition(COA).

VIVAIMS,Virar(W.)

16

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Bancassurancesegment Thebancassurancesegmenthasbeengrowingconsistentlypaceandiscompeting with the traditional sale of insurance by agents owing to the keenness of banks to augment other income (feebased income). Global insurance consulting firm, Watson WyattWorldwidein'IndiaBancassuranceBenchmarkingStudy200607',hadsaidthat bothlifeandgeneralinsurerswerebullishaboutprospectsofinsurancepenetrationinthe ruralmarkets.Accordingtothestudy,about30percentofthelifeinsurershaveindicated thatbytheyear2010,ruralinsurancebusinesswillconstitutebetween1620percentof theirtotalbancassurancenewbusinesspremium. Bankers and insurers are both upbeat about the future of the bancassurance segmentanditisexpectedtocontributeabout50percentormoreinthelifeinsurance segmentbytheyear2010.Ithasalsocontributedsignificantlytothebusinessofmajor insurancecompanieslikeLifeInsuranceCorporation(LIC)andSBILife. Thegrowthinthebancassuranceforinsurancecompanieswhollydependsonthe numberofbankbranchesthatactivelydispensetheseproducts.Accordingtoindustry sources,privateandforeignbanksarebiggestmobilisersofinsurancepremiumdespite publicsectorbankshavingawiderreach.InAugust2008,bancassuranceaccountedfor 35percentofthepremiumcollectedbyprivateplayers.In200607,thatfigurewas about17percent.

VIVAIMS,Virar(W.)

17

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Ruralinsurance The Indian rural market offers tremendous growth opportunities for insurance companies.Accordingtoasurvey'IndiaInvestIncomesandSavingsSurvey2007'by IIMSDataworks(aNoidabasedretailfinanceresearchfirm),58percentofIndia's 105.4millioninsuredpeoplewerefromtheruralareas.Yet,urbanIndiawasaheadin termsofpenetration(47percent),orthenumberofpolicyholderscomparedwiththe totalpopulation.ThismeantthatalmostoneoutofeverytwopaidworkersinurbanIndia wasinsured,whileitwasonly27percentinruralareas. WithincreasedIRDAfocusonthesector,growthrateintheruralsectorhasbeen pickingup.RelianceLifeInsurancerecordedagrowthof150percentinruralpolicies against140percentgrowthinurbanpolicies,in200708. According to international consultancy firm Celent's report'Selling Life InsuranceinRuralIndiaIndia'sruralmarketrevenuesareexpectedtogrowasmuchas fourtimestoreachUS$2.9billionby2015.Over70crorepeopleresideintheruralareas ofthecountrywithinsurancepenetrationrateaslowasthreepercentprovidingahuge opportunityforlifeinsurancefirms. Ananalysisofdatafromsevenlifeinsurersfor200708revealsthatinsurance firmshaveexceededtheirindividualtargetslaiddownbyIRDAinruralIndia.ICICI PrudentialLife,forinstance,covered117,000customersinruralareasin200708,as againstitstargetof25,000.SBILifesold22percentagainstitsexpectedtargetof18per cent.LifeInsuranceCorporationofIndia(LIC)hassetatargetoffourmillionpoliciesin ruralareasin200809.

VIVAIMS,Virar(W.)

18

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Itwasrevealedthatabout74percentofthenationalpopulationfallsunderrural categoryandthereishugescopeforexploringthismarket.Accordingtohim,overall about500,000policieshavebeensoldtotheruralsectorsofar."Weplantorampupthe scaleto100hubsandspokesbytheendofthisyearbylaunchingourservicesinother states like Gujarat, Maharashtra," he added. Kotak Life Insurance is adding 3 new branches in Ambala, Karnal and Hissar to take the total number of branches to 17, according to Yog Raj Sharma, national sales head (Tied channel), Kotak Life Insurance."WearerampingupourdistributionsignificantlytoreachuptotheTehsil levelandplantolaunchbranchesintheruralareastoincreaseourpresentmarketshare of20percentinnorthernstates.Withnewbranchescomingup,wewillbeabletotake our services to other semiurban and small towns like Kalka, Pinjore, Ramgarh etc. OverallKotakLifeInsurancesold25billionnewpremiumpoliciestillSeptemberend andrecordedagrowthrateof114percentinthefirstyearpremiumincome. Globalcompanies The booming domestic insurance market along with saturation of markets in manydevelopedeconomieshasmadetheIndiaaveryattractivedestinationforglobal insurancemajors.MajorglobalnamesalreadyhavingapresenceintheIndianmarket thoughJVswithIndianfirmsincludingFrenchlifeinsurancecompanySogecap,US basedAmericanInt.Group(AIG)Max,TokioMarineandFireofJapan,CardiffSAof France,andUKbasedPrudential,IAGwhichhastiedupwithSBILife. Some of the other major joint venture companies in this industry are Bajaj Allianz,INGVysya,AMPSanmarAssuranceLimited,HDFCStandard,BirlaSunlife, Aviva Life Insurance, Kotak Mahindra Old Mutual, Met Life, Royal Sundaram, and ICICILombardamongothers.

VIVAIMS,Virar(W.)

19

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

ManymorearetosoonentertheIndianmarket:

ThelatestentranthasbeenQBEHoldings(AAP)PtyLimited,awhollyowned subsidiary of QBE, Australia which has tied up with Raheja QBE General InsuranceCompanyLimited,ajointventuregeneralinsurancecompanypromoted byPrismCementsLimited,India.

UShealthinsurers,Aetna(a158yearoldcompanywithtotalrevenuesforthe calendar year2007atUS$27.6billionandnetincomeatUS$1.8billion, is interestedinsettingupstandalonehealthinsurancecompanies.

CIGNA,anotherUSbasedcompany(ahealthinsurer,anditalsoprovideslife, accident, health andexpatriate employee benefits insurancecoverageina few international markets) is interested in setting up standalone health insurance company.

UKbased company, Bupa, is also interested in setting up standalone health insurancecompany. American company Ace, a leading global commercial property and casualty insurancegroup,islookingatenteringthelifeandnonlifesectors. USbased Travelers Group (Travelers is a big underwriter of property and casualtyinsuranceintheUSandreportedanetwrittenpremiumofUS$21.1 billion in 2006 is interested in the nonlife sectors. It is planning to sign an agreementwithIndianengineeringmajorL&T.

VIVAIMS,Virar(W.)

20

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Majorinvestments

RelianceCapitalisplanningUS$432.26millionasinvestmentforitsinsurance businessoverthenextthreetofiveyears. MaxNewYorkLifeInsurancehasannouncedastrategicbusinessalliancewith AEGIONInsuranceBrokingwherein,thelatterwouldsellMaxVijayinKerala andTamilNadu.Underthefirstofitskinddistributioninitiative,AEGIONwill distribute'MaxVijay'throughafleetofMarutivans,whichwouldbeusedas mobilefinancialservicedistributionoffices.

The largest insurer in the country would also be investing another US$ 3.67 billioningovernmentsecurities.ThiswouldtakeLICstotalinvestmentsinthe remainingperiodofthecurrentfiscaltoaroundUS$10.19billion,overandabove the US$20.87 billion it has already invested in the first eight months of the currentfinancialyear.

BhartiAXAGeneralInsurance(aJVbetweentheBhartiEnterprisesandAXA)is planningtoinvestUS$152.92millionspreadoverthenextfiveyears. Rankedamongthetopfivelifeinsurancecompanies,BirlaSunLifeInsuranceis planningUS$274.30millionasinvestmentforfurtherexpansion.Itispresently thefastestgrowinglifeinsurerin200809,witha187percentgrowthinnew businessduringthefirstquarter.

In the first quarter of 200809, insurance companies have invested US$ 3.18 billioninequities,whichisfourtimesofwhatwasinvestedayearago.

VIVAIMS,Virar(W.)

21

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

GovernmentInitiatives TheGovernmenthastakenmanyproactivestepstogiveaboosttothissector:

The Insurance Regulatory and Development Authority (IRDA) will announce guidelinesformergersandacquisitions(M&A)intheinsurancesectorbytheend ofMarch2009.Theregulatorisformulatingtheguidelinesinconsultationwith theInstituteofActuaries,IRDAChairman,MrJHariNarayan.IRDAhascleared 288newinsuranceproductsthisyear(2008).

EarlierinDecember2008,IRDAhasallowedinsurerstoacquireupto20percent debtandequityinaninfrastructurerelatedcompany,comparedwith10percent earlier.AccordingtoIRDA,themoveisaimedatenhancingtheflowofinsurance funds to meet the present needs of infrastructure financing. Relaxing the investmentnormsfurther,IRDAhasallowedinsurerstoinvestanadditional5per centindebtinstrumentsofinfrastructureandhousingcompanies,overandabove the20percentceiling,withapriorboardapproval.Thecountry'slargestinsurer, LIC,alreadyholdsover10percentinahostofcompanies,whichislikelyto increasefurther.

IRDAhasconstitutedapanelthatwillmonitortheroleofTPAsandevaluatetheir performance in current health insurance market and make suitable recommendations clarifying their utility to the future growth of the health insuranceindustry.

Governmentisplanningtoeaserestrictionsonforeigninvestmentsininsurance, bankingandpensions,andallowforeigndirectinvestment(FDI)investmentof49 percentfromthepresent26percent.

IRDAhasremovedadministeredpricingmechanism,i.e.,detariffinginrespect of fire and engineering along with motor insurance of general insurance for premium,effectivefromJanuary1,2007.

The control rates on fire, engineering and workmen's compensation insurance classeshavebeenremovedfromSeptember1,2007.

VIVAIMS,Virar(W.)

22

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Severalstatesaggressivelyofferingpublichealthinsuranceschemestotheirrural poor.A hostofprivate players arerushingwiththeir offerings, sensing huge opportunityinthissegmentsomestategovernmentshavealsotakenadynamic roleinthissector.

In an arrangement with the regional rural banks (RRBs), the West Bengal government is planning to extend insurance facilities to farmers in the 6070 years'agebracketthroughatieupwithIFFCOTOKIOGeneralInsurance.

The Haryana State Cooperative Supply and Marketing Federation Limited (HAFED) facilitated weatherbased insurance coverage to contracting farmers throughAIC.50percentofthepremiumforthisinsurance,whichisUS$5.863 /acre,waspaidbyHAFED.25farmershaving145acresavailedthisopportunity in2008.

The Government of Andhra Pradesh after piloting the 'Arogya Sri' health insuranceschemeinthreedistrictsplanstoissuehealthcardsto18millionBPL (belowthepovertyline)families.Asaresult,about60millionoftheState's80 millionpeoplewillhaveinsurancecover.

The Karnataka Government has partnered with the private sector to provide coverageatalowcostintheYeshaswiniInsuranceschemetoprovideformajor surgical operations, including those pertaining to preexisting conditions, to Indianfarmers.

VIVAIMS,Virar(W.)

23

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.4LIFEINSURERSININDIA: Sr.no. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NameoftheCompany BajajAllianzLifeInsuranceCompanyLimited BirlaSunLifeInsuranceCo.Ltd HDFCStandardLifeInsuranceCo.Ltd ICICIPrudentialLifeInsuranceCo.Ltd. INGVysyaLifeInsuranceCompanyLtd. LifeInsuranceCorporationofIndia MaxNewYorkLifeInsuranceCo.Ltd MetLifeIndiaInsuranceCompanyLtd. KotakMahindraOldMutualLifeInsuranceLimited SBILifeInsuranceCo.Ltd TataAIGLifeInsuranceCompanyLimited RelianceLifeInsuranceCompanyLimited. AvivaLifeInsuranceCo.IndiaPvt.Ltd. SaharaIndiaLifeInsuranceCo,Ltd. ShriramLifeInsuranceCo,Ltd. BhartiAXALifeInsuranceCompanyLtd. FutureGeneraliLifeInsuranceCompanyLtd. IDBIFortisLifeInsuranceCompanyLtd. CanaraHSBCOBCLifeInsuranceCo.Ltd AEGONReligareLifeInsuranceCompanyLimited. DLFPramericaLifeInsuranceCo.Ltd. StarUnionDaiichiLifeInsuranceComp.Ltd. TableNo.1

VIVAIMS,Virar(W.)

24

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.5LifeinsuranceSalesMaturityModel

Phase1 Lowsalesmotivation Poorsalesskills Onlyproductpackagedselling Minimalresults Millionsoflostopportunities Nosalesculture Phase2 Toughermanagementandtoughertargets Hardselltechniques Resultsimprove,butstillunderachieving Proactiveproductpushstrategy Dissonantdistributionstrategies Poorqualityleads,lowconversionandpersistency Growingcustomerdissatisfaction

VIVAIMS,Virar(W.)

25

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Phase3 Proactivecustomerpullstrategy

Allstaffskilledtoneedselloropportunityspot

Motivationalsalesleadership Staffbuyin Resultsandqualitysoar Newdistributionchannelsexplored Customerperceptionsimprove Phase4 Salesbehavioursconstantlyexhibited Continuousbusinessgrowth Customerfocusedstructuresandprocesses Innovativeleadershipkeepsmotivationhigh Fullyharmoniseddistributionstrategy Highlevelsofrepeatbusiness Customersbecomeadvocates

VIVAIMS,Virar(W.)

26

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.6 PREMIUM COLLECTED BY LIC & PRIVATE LIFE INSURANCE COMPANIES Rupeesinlacs
2004 Name of the Company January February March April May June July August September October November December Life Insurance Corporation of India 121254.23 159,078 491,544 72,305 119,601 109,567 155,547 127,452 98,749 117,356 100,149 130,841 Private sector 21,994 30,717 75,464 15,519 23,126 25,834 31,059 30,571 33,627 35,317 37,971 50,794 2005 Name of the Company January February March April May June July August September October November December Life Insurance Corporation of India 109529.61 170017.8 634300.3 72304.62 100429.3 129508.54 164736.8 190987.6 152949.92 175130.4 211064.22 219823.62 Private sector 47106.55 52363.58 178713.7 15518.93 41320.25 46599.73 43803.06 61217.15 74958.12 68836.3 73019.96 109151.71 2006 Name of the Company January February March April May June July August September October November December Life Insurance Corporation of India 218829.09 218829 681052 135524 282781 660452.29 323992 455372 485388 547101 631337 303433 Private sector 104089.69 104102.7 280168 64020 104475.4 126343.47 111957 91566 124479 115523.5 146922.21 177120 2007 April May 2135 2919 838.03 1445.89

Name of the Company Life Insurance Corporation of India Private sector

January February March 2867 2453 12362 1733.75 2005.63 5098.8

June 3532 1655

July August September October November December 5604 6021 2554 3140 3501 5254 1732.71 2046.25 2664 2313.28 2573.34 3688.34

Name of the Company Life Insurance Corporation of India Private sector

2008 January February March April May 5103 5101 13457 1245 2923 3728.93 3732.05 7547.43 1528.89 2407.5

June July August September October November December 3354 3273 3564 4731.43 2784 3347 4,236.51 2764.72 2585.05 2676.62 3313.91 2300.43 2306.61 2724.49

TableNo.2

VIVAIMS,Virar(W.)

27

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Quarterlypremiumcollectedduringtheyear2004

94.7%

FigureA

92.0%

FigureB

VIVAIMS,Virar(W.)

28

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

91.0% LIC

FigureC

89.0% LIC

FigureD

VIVAIMS,Virar(W.)

29

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Quarterlypremiumcollectedduringtheyear2005

FigureE

FigureF

VIVAIMS,Virar(W.)

30

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

FigureG

FigureH

VIVAIMS,Virar(W.)

31

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Quarterlypremiumcollectedduringtheyear2006

FigureI

FigureJ

VIVAIMS,Virar(W.)

32

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

FigureK

FigureL

VIVAIMS,Virar(W.)

33

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Quarterlypremiumcollectedduringtheyear2007

FigureM

FigureN

VIVAIMS,Virar(W.)

34

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

FigureO

FigureP Quarterlypremiumcollectedduringtheyear2008

VIVAIMS,Virar(W.)

35

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

FigureQ

FigureR

VIVAIMS,Virar(W.)

36

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

FigureS

FigureT

VIVAIMS,Virar(W.)

37

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.7 INSURANCE HELP FOR ECONOMIC GROWTH IN THE FOLLOWING WAYS:

1. Insurance accomplishes the task of stabilizing the financial condition of individuals,familiesandinstitutionsbyindemnifyingthemfromlosses.

2. Greater private expenditure on insurance reduces government expenditures on socialinsuranceprogrammes.Thishelpsthegovernmenttoconcentrateonsocial securityprogrammesofonlysociallychallenged.

3. Insurance facilitates trade and commerce by insuring them against unforeseen liabilities.Mostventurecapitalistsareencouragedtotakemorethanusualrisk only if tangible assets and life of the venturing entrepreneurs are adequately insured.

4. Insurancehelptomobilizesavingsbyreducingtransactioncostsbetweensavers andfundusers,inliquiditytransformationsforprofitablematuritiesandtaking advantageoftheabilityforsizetransformationtoachieveeconomiesofscale.

5. Insuranceenablesfinancialriskstobemanagedmoreefficiently.

6. Insuranceallocatescapitalefficiently.

VIVAIMS,Virar(W.)

38

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.8INSURANCESECTORHURDLES: Theinsuranceindustryhasbeengrowingbetween15and20percent,butitlags farbehinditsglobalcounterparts.Thiswasduetothefollowingreasons.: 1. Insurancecompaniescreateproductsandgoouttofindcustomers.Theydonot createproductsthatthemarketwants. 2. Insuranceawarenessamongthegeneralpublicislow. 3. TermInsurancePlantsarenotpromoted. 4. Unitlinkedassurancesarenotavailable. 5. Insurancecoversareexpensive.Inefficientmanagementandlowinvestmentyield are responsible for the high premium charged byIndian Insurance companies Investmentrestrictionshavebeenresponsiblefor10wyields. 6. ReturnsfromInsuranceProductsarelow. 7. Thereisadearthofinnovativeandbuyerfriendlyinsuranceproducts. 8. Most agents and development officers are interested only in producing new businessservicing existingcustomers satisfactorily has notbeenapriority for themtheobviousreasontothisisthatincentivesarethemtheobviousreasonto this is that incentives are based on new business generation and not on satisfactoryservingofexistingcustomersitissurprisetonotethatmorethan10% ofLICpoliciesaresurrenderedorgetlapsedeveryyear. 9. There is no market research worth the name and computerization is woefully inadequate.

VIVAIMS,Virar(W.)

39

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.9GLOBALIZATIONOFINSURANCESECTORISSUES:

ThethreekeyissuesthatimpingeonliberalizationofinsuranceinIndiaare:why liberalizewhatmarketstructuretohavefinallyandwhatistheroleforregulator.:

1. ReasonforopeninguptheInsuranceIndustry:

Aninsurancepolicyprotectsthebuyeratsomecostagainstfinanciallossarising fromaspecifiedarisk.Differentsituationanddifferentpeoplerequiredifferentmixof riskcostcombinations.Insurancecompanytherebyoffersschemesofdifferentkinds. Among the emerging economies, India is one of the least insured countries, but the potentialforfurthergrowthisphenomenal.Thedemandforinsuranceislikelytoincrease withrisingpercapitalincomes,risingliteracyratesandincreaseoftheservicesectors. AfterKoreanandTaiwaneseinsurancesectorswereliberalized,theKoreanmarkethas grown3timesfasterthanGDPandTaiwantherateofgrowthhasbeenalmost4times than that of its GDP. Further, opening of the sector to private firms will foster competition,innovationandvarietyofproducts.Itwillalsogenerategreaterawareness ontheneedforbuyinginsuranceasaserviceandnotmerelyfortaxexemption,whichis currentlydone.

VIVAIMS,Virar(W.)

40

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2. MarketStructure: Whatistheappropriatemarketstructureforinsurancemarkets? Shoulditbemonopoly(stateorregulated)orshouldtherebeunlimitedprivate entryorshouldthereonlybeafewregulatedplayers? Theanswerisquiteobvious. Whentraditionalpublicsectorbusinesseslikebanking,power,telecom,airlines andevenpostalserviceshavebeenallowedprivateentry,whymustinsuranceremaina statemonopoly? Statemonopolyhadlittleincentivestoofferawiderangeofproductswithmore complexandextensiveriskcategorization,bettertechnologyandbettercustomerservice includingfastersettlements.Keepinginviewtherecommendationsofinsurancereforms committeethatalimitednumberofhighcapitalprivatecompaniesbelicensed,andno firmbeallowedtooperatebothinlifeandnonlifeinsurance,IRDAhasgrantedlicenses tothreeprivatecompaniesonOctober24,2000RelianceFireandGeneralInsurance, HDFCStandardLifeInsuranceandRoyalSundaramAllianceInsurance,tosetupthe shopandtogetintobusiness.

VIVAIMS,Virar(W.)

41

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3. RoleofIRDA

IRDAsprimaryfunctionistoprotectconsumerinterests.Thismeansensuring proper disclosure, keeping prices affordable but also insisting on some mandatory products,andmostimportantlymakingsurethatconsumersgetpaidbyinsurers.Further, ensuringthesolvencyofinsurersisaveryimportantfunctionofregulatoryauthority. IRDAhasevolvedasetofoperationalguidelinestodealwithmaintainingthesolvency of insurers. Growth of insurance business entails better education and production to customers, creating better incentives for agents and intermediaries. It has evolved guidelinesontheentryandfunctionsofsuchintermediaries.Licensingofagentsand brokersarerequiredtochecktheirindulgenceinactivitiessuchastwisting,fraudulent practices,rebatingandmisappropriationoffunds.

VIVAIMS,Virar(W.)

42

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.10INSURANCESECTOREMERGINGAREAS: SomeoftheemergingareasforinsurancesectorinIndiaatthetimeofliberalisationare: 1. DemandforPensionPlans: TworelativelymoderntrendsaffectlifeinsurancebusinessinIndiasignificantly. Thefirstoneisthejointfamilysystemwhichworkedlikeaninsurancearrangement. Withmoreandmorenuclearfamiliesbecomingtherule,thereitagreaterdemandforlife insurance cover the second trend is that elderly are increasingly having to fend for themselves.In1990,Indiahadabout54millionpeopleabovetheageof60.Thisnumber isexpectedtoincreaseto100millionby2004,andtoalmost10%ofthetotalpopulation by2010.Thusfutureseniorcitizenslooktowardsplanningfortheirownoldageandthe needforpensionsandannuities.Thesetwotrendsportendalargeandgrowingmarketfor lifeinsuranceinIndia.

2. SeparatenessofBankingandInsurance: Thereislotofspeculationwhetherbanksshouldbeallowedtooperateinthe insurance sectors. The reasons for allowing banks are competition would enhance efficiency and benefit consumers, publicmen enjoy a One Stop Financial Service Paradigm,bankscouldrecoupsomeofthelostbusinesstosecuritiesfirmsandthere would be synergies in operating insurance and banking. The reasons against are it would create unhealthy concentration of market power, it would expose banks to additionalandunnecessaryrisksandbankswouldhaveunfairadvantagessincetheyhave detailedinformationontheircustomersfinancialposition.Thisdebateisforfromsettled andwearelikelytoseesomerestructuringinoperationsofbankingandinsurance.

VIVAIMS,Virar(W.)

43

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3. RoleofInformationTechnology: The Business of selling life insurance requires assessing the profile of the customerandassigningtherightpolicy.Thisprocessisfacilitatedbyadatabaseandis completelydrivenbyinformationtechnology.Ifitusesthisnetworkofdatabasetooffer theirproducts,itwouldhavebetterutilizedthisvastlyunderutilizedcapacity.

4. UsingPostalNetwork: Anotherimportantfactorisallowingtheexistingnetworkof1,50,000branch officesofpostandtelegraphtoselllifeinsurancesandrelatedfinancialproducts.Already postalbanksgeneratemoredepositsthanallcommercialbanksandhencetheirrolecan hardlybeoveremphasized. Postoffices canalsoactasavenuesoragents ofnonlife insurancecompanies.Howevertheycannotbeexpectedtounderwriterisks.

5. CreatingInsuranceawareness: Itistheneedofhourtocreateinsuranceawarenessamongthegeneralpublic.It willrequireawholelotofeffortsonthesupplyanddistributionside.

6. InnovativeProducts: Insurance companies should offer innovative products to tap huge amount of resourcesforthedevelopmentalactivities.Indevelopedeconomies,insuranceproducts aresoldFocusofinsuranceindustryischangingtowardsprovidingamixofprotection/ riskcoverandlongterminvestmentopportunities.

VIVAIMS,Virar(W.)

44

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2.11CodeofbestPracticeforIndianLifeinsurers

PositioninsomecountriesAbackground Industryassociationsinseveralcountrieshave'codesofconduct'formembers. Thescopeandcoverageofthesecodesvarywidely. InMalaysiathecodeoutlinesthenatureofthebusiness,statestheprinciplesand goesontodescribethedetailsinonecodewithsubsections. InGreatBritaintheABIhavesomecodesforLifeandGeneralInsurers.

Inlifeinsurancetheseinclude:

Statement of Longterm Insurance practice, Mortgage Endowment Policy Reviews,Pensions, MaturitiesStatementofGoodPractice, WithProfitsBondsBestPracticeGuides, StatementofBestpracticeforcriticalInsuranceCover, Income Protection Insurance, LongTerm Care Insurance, Underwriting HIV/Aids,Genetic Testing, Medical Information and Insurance and Corporate Governance Guidelines.

VIVAIMS,Virar(W.)

45

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

InSouthAfricatheLOAwhichisseventyyearsold,hasacodewithnolessthan 24chaptersconsistingofcodesforvariousproductsandfeaturesoftheindustry.These areinthenatureofcodesofgoodpracticeinrespectofsay,disabilityInsurance,medical requirements, medical Report forms and fees, dread disease benefits, HIV Protocol, 'replacement (cancel and rewrite)', Policy quotations, Commissions, Shortterm investmentproducts,Complaintsresolutionetc.Overseveraldecadestheyhaveevolved averycomprehensivesystemofselfregulationonmarketconductforalmostallaspects ofbusinessincludingcompetition.InsomeareastheCodesarestronglyrecommended andinsomeothersthecodesaremandatoryattractingpenalties.Forexamplecodeson medicalreports,medicalexaminations,feestodoctorsetc.,arerecommendatory,while violationofcodeon'replacement'(cancelandreissue)wouldattractactionthroughthe Tribunal(grievanceprocessingmachinery).Codeonquotationsisalsomandatorywith provisionsforreferringerrantcasestotheDisciplinaryCommitteeoftheAssociation.

CurrentstatusatthelifeinsuranceCouncil,India AdulyconstitutedsubcommitteeforMarketConductheldmeetingsonJuly19, 2005andFebruary1,2006.Afterextensivedeliberationsatthesubcommitteeandatthe CouncilithasbeendecidedtoadoptaCodeofBestPracticesthatbroadlyfollowsin spiritthemodelusedbytheLOAofSouthAfrica. TheCodeofBestPracticewouldcompriseofamaindocumentthe'ApexCode of Best Practices' and several subordinate documents that would contain codes for variousactivities,productsandprocessesrelatedtothelifeinsurancebusinessinIndia. Thedocumentthe'ApexCodeofBest'Practicescontainstheoverallobjective, thesevenguidingprinciples,etc,andalsolaysdowntheprocessfordisciplinaryand remedialactions. The ApexCodeofBestPractices will, overtime, developmany subordinate codes/chaptersthatwilldealwithspecificactivitiesandproductsinthelifeinsurance businessinIndia.ItishopedthatinduecoursetheCouncilinconsultationwithmembers willputinplacecodesofpracticeforallsignificantactivities.

VIVAIMS,Virar(W.)

46

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

ThediagramgivenbelowillustratesthestructureoftheApexCodeofConduct anditssubordinatecodes. Code Of BestPractice ForIndianLifeInsurers

VIVAIMS,Virar(W.)

47

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

CodeofBestPracticeSTATEMENTOFPURPOSE

LifeInsuranceBusinessisbasedonthetwinprinciplesoftrustandrisksharing. Itisveryimportantthatsuchabusinessisoperatedandadministeredwiththe highestdegreeofintegrityandethics. Itshouldbetheendeavorofeachconstituentofthelifeinsurancesectortodohis/ herutmosttogainandmaintaintheconfidenceofpolicyownersandmembersof publicintheintegrityandfinancialstrengthofthesector. Lifeinsurersshallatalltimesensurethattheirbusinessismanagedinasound mannertoensuresafetyofpolicyowners'savingswhilegivingfairreturns. Lifeinsurersshallrenderefficientandpromptservicetopolicyownersandassist andadvisethemwherenecessarywithaviewtoredeemingtheactualandimplied promisesmadewhensellingtheproduct. MembersoftheLifeInsuranceCouncilagreetofollow'goodbusinesspractices' and'ethicalconduct'atalltimesacrossallactivities.TheCodedoesnotattemptto define 'good business practice' or'ethical conduct' in the belief that Members wouldrecognizeabreachwhentheyseeone.

LifeInsuranceCouncil,astatutoryorganizationunderSection64oftheInsurance Act1938functionsasanindustrybodyforthecommonbenefit.Ithasaroletoplayin developingthemarketonhealthylinesandaimstoactasabodycomplementingthe effortsofIRDA.Oneofthekeycomponentstoadesirableframeworkwouldbethe'code ofbestpractice'adoptedandadheredtobythemembers.

VIVAIMS,Virar(W.)

48

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

PartI CodeofbestpracticeGUIDELINES

VIVAIMS,Virar(W.)

49

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

50

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

51

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

52

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

SECTIONIII DATAANALYSISANDINTERPRETATIONS

3.1 METHOD OF DATA COLLECTION IN DETAIL THE PROCESS FOLLOWED

Forthisparticularprojectthequestionnairemethodofdatacollectionwasfollowed.The samplesizeselectedwas100individuals. Followingisthequestionnaireusedforthepurposeofsurvey.

Note:Duringthesurveyitwasobservedthatsomeoftheindividualswerereluctantabout divulgingtheirpersonaldetails.Thereforesomeofthesurveyedindividualsfilledintheir personaldetails.Hencethesequestionnaireswerefilledontheconditionofanonymity.

VIVAIMS,Virar(W.)

53

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3.1.1PRIMARYDATACOLLECTION ImpactofPrivateLifeInsurancecompaniesonLICinIndia Name: Age: Gender:MaleFemale

1. EmploymentStatus:

EmployedBusinessStudentSelfEmployedProfessional Retired

2. IncomeLevel: 01.51.52.52.53.53.54.54.5above

3. DoyouhaveaLifeInsurancePolicy:

YesNo 4. ForyouRISKmeanswhat?

EarlyDeathLivingtoolongDisabilitySicknessUnemployment

VIVAIMS,Virar(W.)

54

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

5. WhyLifeInsurance?

FamilyProtection TaxBenefit Safeguardagainstunpredictablerisk Essentialfortheconservationofbusiness Toenhancestheexistingstd.ofliving. Tolivefinanciallysolventlives.

6. WhataccordingtoyouistherighttimeforbuyingLifeinsurance?

Whenyouareabouttogetmarried Justwhenyouarejoinedanewjob Whenyouarefinanciallystable Atthetimeofbirthofyourchild Alloftheabove

7. HowmanyLifeinsurancepoliciesdoyouhave?(Individual) 1234>4

8. Haveyouboughtpolicyforfamilymembers?Ifyes,howmany? 234>4 9. Outoftotalno.ofpolicieshowmanyarefromLIC? 1234>4

VIVAIMS,Virar(W.) 55

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

10. HaveyoutakenInsurancefrommorethanOneCompany? Yesno

11. Fromwhichcompanydidyoubuythepolicy? LIC

Private

12. Howdidyoucometoknowaboutthecompany? MediaFriends,Relatives,etcCorporateAgentsOthers

13. Whomadeyoutobuyaninsurancepolicy?

Youcontactedanagentorcompany Anagentapproachedyou Bancassurance Staffpolicy

14. Areyousatisfiedwithyourcompany?

Yesno

15. Why?

Service Scheme Returns Security Convenience others

VIVAIMS,Virar(W.)

56

ImpactofPrivatelifeinsurancecompaniesonLICinIndia 3.1.2 METHOD OF DATA COMPILATION, TABULATION AND GRAPHICAL PRESENTATIONS.

ResultofSurvey Q.No.1

Herewehaveconsidereddifferentprofessionofpeople,fromemployedpersonto retired person. The basic reason behind including retired people is they are very consciousaboutlifeoftheirgrandchildren.Peoplefrombusinessclassbuylifeinsurance toprotecttheirbusinessafterthem.

VIVAIMS,Virar(W.)

57

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Q.No.2

Income level of people plays an important role in decision making process. Peoplefromlowincomeclasstakepolicywithlowersumassuredaswellastheyprefer monthlypremiumplanwhichisconvenientforthem.Whiledoingsurveywecometo knowthatpeoplefromeveryincomelevelarereadytobuylifeinsurance. Q.No.3

Fromabovegraphwecaneasilysaythatpeopleareverymuchconsciusabout theiraswellastheirfamilieslife.Becauseoutof100peopleeveryonehaveinsuredtheir life.Todaywhatevermaybeyourincomelevel,youmusthavelifeinsurancepolicyto safeguardfuture.

VIVAIMS,Virar(W.)

58

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Q.No.4

Accordingto45%peopleriskmeansearlydeath.Ontheotherhand21%people thinkdisabilityisthebiggestrisk.Only9%peoplegaveprioritytolivingtoolongasa risk.Buttheonethingissurethatnoonewantstotakerisk. Q.No.5

Answertothisquestionistheoutcomeoffearinthemindofpeople.Whatever may be the reason but intension is to safeguard the future. 34% people told Family protectionisthereasonbehindtakinglifeinsurance.27%givesprioritytoTaxbenefit. Ontheotherhandonly4%peopletakeinsuranceforsecuringtheirBusiness.

VIVAIMS,Virar(W.)

59

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Q.No.6

Financialstabilityisfirstpriorityfor33%people.21%peoplethinkwehaveto buy life insurance policy when we join a new job. 19% people thought all of the mentionedperiodaretheperfectonetobuythelifeinsurance.Accordingto15%people wehavetobuypolicywhenwegetmarry. Q.No.7

Accordingtooursurveymostofthepeoplehaveatleast1lifeinsurancepolicy for whatever reasonitmaybe.Ontheotherhand39%peoplehave2lifeinsurance policiesonthebasisoftheirincomelevel.Asweknowinoursurveyonly14%people areabovetheincomelevelof3.5lacs.&thatswhyonly11%peoplehave4&more than4policies.

VIVAIMS,Virar(W.)

60

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Q.No.8

Thereare31%peoplewhohaveatleast2lifeinsurancepoliciesfortheirfamily members.Aswediscussedearlierbecauseofincomelevelonly12%peoplehavemore than4policiesfortheirfamilymembers.onanavg.25%peoplehave3to4policiesfor theirfamilymembers. Q.No.9

FromthisquestionwecometoknowaboutthemarketleadershipofLIC.Here only19%peopledonthavepolicyofLICbutremaining81%arethecustomerofLIC. Wewillcometoknowabouttheirsatisfactioninlastquestion.Here15%peoplehave morethan4policiesofLIC.

VIVAIMS,Virar(W.)

61

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Q.No.10

63%peoplearebrandloyalcustomerofLIC.ThisisbecauseofgoodwillofLIC inthemarket.OneofthecustomersofLICtoldmethat,formeLICmeanssecurity. Outof37%peoplewhohavepoliciesofmorethanonecompanyalsohaveatleastone policyofLIC. Q.No.11

ThisiswhatthemarketleadershipofLIC.Outof100people69arecustomersof LIC. People who belong to another group also have policy of LIC. But because of BancassuranceandStaffpolicyschemestheyboughtpoliciesfromprivatecompanies.

VIVAIMS,Virar(W.)

62

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Q.No.12

Agentsarethebiggestsourceofinformationforpeoplewhohaveboughtorwho arereadytobuypolicyinnearfuture.35%peoplegetinformationfromtheirfriends& relativeswhomightbethesatisfiedcustomersofthelifeinsurancecompanies. Q.No.13

Outof100people42boughtpoliciesjustbecauseofanagent.Thebancassurance isthenewemergingsourceofdistributionforlifeinsurancecompanies.Ontheother hand21%peoplegotpoliciesbecauseoftheirrespectiveemployers.

VIVAIMS,Virar(W.)

63

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Q.No.14

Herewecometoknowaboutthesatisfactionlevelofpeople.79%peopleare satisfied from their respective insurance provider. 21% are dissatisfied with their insuranceprovider.Wewillcometoknowaboutreasonsinnextquestion.Butmostof thedissatisfiedcustomersarebelongstotheprivatelifeinsurers. Q.No.15

24%peoplearesatisfiedwithserviceprovidedbytheirinsurers.23%peoplewho gaveprioritytosecuritywhiledecidingtheirsatisfactionlevel.21%thinksreturnisthe mostimportantforthem.Butoverallresultispeopleareverymuchattractedtowardsthe LIC.BecauseofitsgoodwillaswellassecuritywhichwalkstogetherwithLIC.

VIVAIMS,Virar(W.)

64

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

OUTCOMEOFTHESURVEY

'Prevention of Loss', 'Assured Returns' and 'Long term Investment' are the

importantfactorsinfluencingIndiansinoptingforLifeInsurance.

MostoftheIndiansareoftheopinionthatprivateinsurancecompanieswouldbe

abletoperformwellinthelongrun.

MostoftheIndiansareinterestedin'Moneyback'policiesthanothers

MostofthemareinterestedininsuringforanamountofRs.12lakhs

Thereissignificantrelationshipexistingbetweenmonthlyhouseholdincomeand

amountinsured

Basedonthemonthlyhouseholdincome,Indiansprefertotheirinvestmentneeds

likebankdeposit,postofficeschemes,realestate,insurance,gold,chitfunds, sharesetc.

AgentsaremostlyresponsibleforsellinginsuranceproductsinIndia.

VIVAIMS,Virar(W.)

65

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3.1.3SECONDARYDATACOLLECTION TrendanalysisonNo.ofpoliciessoldduringtheyear
Rupeesinlacs
2004 Name of the Company January February March April May June July August September October November Life Insurance Corporation of India 2,426,681 2,570,814 7,626,360 582,443 1,447,911 1,601,565 1,857,036 1,534,241 1,158,657 1,334,175 1,350,365 Private sector 155,018 207,079 370,412 90,002 111,600 132,278 164,713 145,801 164,927 159,205 164,734 2005 January February March April May June July August September October November 1985187 2291877 7061742 689055 1178458 1519183 2103597 2377463 1761737 1486448 1917171 221,211 269,267 465,956 131,377 167,649 198,128 207,147 276,985 299,224 274,315 286,010 2006 January February March April May June July August September October November 2652055 2618422 10710726 640678 1354986 2229150 1601261 2005783 2003977 2064711 2562726 351950 419811 893889 257386 330853 465794 439953 416665 542234 502955 600606 2007 January February March April May June July August September October November 3182337 4554043 13067283 1589684 2098138 2601082 3076500 4720753 1809233 1997899 2219465 731347 884983 2021005 421819 673317 800592 814085 926997 1241552 873844 998967 2008 January February March April May June July August September October November 3234209 3126604 8075748 1076867 1661862 2080817 2785235 2436070 2442202 2245317 2579091 1363954 1520978 2372965 727327 950827 1038669 1146900 1178676 1300708 1090093 1140060 December 1,772,934 234,281

Name of the Company Life Insurance Corporation of India Private sector

December 2576392 384,759

Name of the Company Life Insurance Corporation of India Private sector

December 2962357 754663

Name of the Company Life Insurance Corporation of India Private sector

December 3063284 1296937

Name of the Company Life Insurance Corporation of India Private sector

December 3253158 1404662

VIVAIMS,Virar(W.)

66

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

67

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

68

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

TrendanalysisonPremiumcollectedduringtheyear
Rupeesinlacs
Name of the Company January February March Life Insurance Corporation of India 121254.23 159,078 491,544 Private sector 21,994 30,717 75,464 April 72,305 15,519 2004 May June July August September October November December 119,601 109,567 155,547 127,452 98,749 117,356 100,149 130,841 23,126 25,834 31,059 30,571 33,627 35,317 37,971 50,794

2005 Name of the Company January February March April May June July August September October November December Life Insurance Corporation of India 109529.61 170017.8 634300.3 72304.62 100429.3 129508.54 164736.8 190987.6 152949.92 175130.4 211064.22 219823.62 Private sector 47106.55 52363.58 178713.7 15518.93 41320.25 46599.73 43803.06 61217.15 74958.12 68836.3 73019.96 109151.71 2006 April May June July 135524 282781 660452.29 323992 64020 104475.4 126343.47 111957 2007 May 2919 1445.89 2008 May 2923 2407.5

Name of the Company January February March Life Insurance Corporation of India 218829.09 218829 681052 Private sector 104089.69 104102.7 280168

August September October November December 455372 485388 547101 631337 303433 91566 124479 115523.5 146922.21 177120

Name of the Company Life Insurance Corporation of India Private sector

January February March 2867 2453 12362 1733.75 2005.63 5098.8

April 2135 838.03

June 3532 1655

July August September October November December 5604 6021 2554 3140 3501 5254 1732.71 2046.25 2664 2313.28 2573.34 3688.34

Name of the Company Life Insurance Corporation of India Private sector

January February March April 5103 5101 13457 1245 3728.93 3732.05 7547.43 1528.89

June July August September October November December 3354 3273 3564 4731.43 2784 3347 4,236.51 2764.72 2585.05 2676.62 3313.91 2300.43 2306.61 2724.49

VIVAIMS,Virar(W.)

69

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

70

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

71

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

VIVAIMS,Virar(W.)

72

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3.2CURRENTSCENARIO TheinsurancesectorisoneofthemostpromisingsectorsinIndia.Themarket sizewentuptoUS$47.89billionin2007,fromUS$21.71billionin2000,increasingat therateof120percent.Between2000and2007,overallpremiumssustainedanaverage growthrateof11.96percent.Thiswasoneofthemoststeadygrowthpatternswitnessed amongstemergingeconomiesinAsianaswellasglobalmarkets.Increasingfromjust onecompanyadecadeago,thereare22lifeinsurersinthecountrypresently.Infact, according toInsurance Regulatory &Development Authority(IRDA),thenumber of registeredgeneralinsurershasgoneupto21.Asamajorportionofthebusinesscomes fromurbanmarkets,thenextstepforthesefirmswouldbetotapsemiurbanandrural markets. Further,thecountry'sinsurancesectorislikelytogrow17percentinthecurrent financialyeariftheeconomycontinuestoexpandatthepaceasitdidintheSeptember quarterof2008.Indiaseconomygrewat7.6percentintheJulySeptemberperiod."If GDP grows 7.6 per cent, premiums would grow 17 per cent. Life insurers, which constitutethebulkoftheIndianinsurancemarket,grewtheirbusinessby23.3percentto US$18.94billionin200708,whilegeneralinsurerspostedgrowthofabout14percent in premium income to US$ 6.07 billion, according to IRDA data. Higher per capita income,domesticsavingsandavailabilityofmoreinstrumentsforparkingsurplusfunds havefacilitatedgrowthintheactivitiesoffinancialservices. With the largest number of life insurance policies in force in the world, the penetrationofinsuranceinIndiaasapercentageofgrossdomesticproduct(GDP)stood at4.8percent,asonFebruary2008,against1.2percentin19992000.Ofthis,life insuranceaccountedfor4.1percentandnonlifeinsurancefor0.6percent.Also,asper industry estimates, out of 78 per cent Indian households that are aware about life insurance,only24percentownapolicy.

VIVAIMS,Virar(W.)

73

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

AcombinedICICIPrudentialLifeInsuranceandIMRBsurvey,conductedin three metrosDelhi, Mumbai and Chennaitakes into account households having averagemonthlyincomeofUS$816.51permonth.Suchhouseholdsonanaveragehave two policies. Further, 79 per cent people prefer life insurance over other tax saving instrumentslikepostofficesavings,EquityLinkedSavingSchemesandfixeddeposits. Theinsurancegiant,LIC,hasalreadymoppedupoverUS$407.68millionending December2008anditisexpectingtogarneraroundUS$50.9billion,fromitsnewly launchedproduct,JeevanAstha,depictingatrendwherepeopleareputtingmoneyinsafe andlongterminvestmentsalongwiththeaddedlifecover.StateownedLifeInsurance Corporation of India, the countrys largest life insurer, is also leading the way in expansionplans.Thecorporationisplanningtorecruit10,000employeesandaround 250,000insuranceagentsacrossthecountrythisyear.

VIVAIMS,Virar(W.)

74

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3.3Growthofprivateinsurancecompanies SBILifeInsuranceisplanningtoraisethenumberofbranchesto250branches thisfinancialyear.Further,ICICIPrudentialLifeInsurancehasstatedthatinthelasttwo years,thecompanyhadexpandedthedistributionnetworkbyincreasingthenumberof branches toover2,090from177.AegonReligareLifeInsurance,initsfirstyear of operationsisactivelyscalinguptoopen51branches,ofwhich48arealreadyoperational across39cities.MaxNewYorkLifeInsuranceisplanningtoincreasethenumberof branchestoatleast250everyyeargoingforward.ThiswillexpandMaxNewYork Lifes distribution networkfrom 311offices in Juneend2008toalmost 900agency officesand700ruralofficesbyFY2012. A report 'Insurance Sector Futuristic Growth'released in August 2008, by ASSOCHAMrevealedthatbolsteredbyintensemarketingstrategies,privateinsurance playershaverapidlyincreasedtheirmarketshare.Theshareofstateownedinsurance companieslikeGeneralInsuranceCorporation(GIC),LifeInsuranceCorporation(LIC) andothersisabout70percentcurrently.Itisestimatedthatitsgrowthratecouldeven exceed 140 per cent. Stateowned insurance companies are now coming out with variations and new policies now that IRDA has given approval for launch of new products. Private insurance companies however, have a larger number of policies on offer,withmorecompetitivepremiumamountsandmaturityperiods.Theprivatesector insuranceplayershavenowalsomadeinroadsintotheruralmarketswhich,tillrecently, weredominatedbythestateownedcompanies. Private insurance companies with innovated customized policies for different sectionssuchasofferinglifecoveralongwithinvestmentopportunitieswithalongterm perspectiveorawomenorientedpolicytargetingtheincreaseinthenumberofworking womenhasledtoademandforlifeinsurancepolicies,whichinturnhashelpedwomen throughamicroentrepreneurshipinitiativeofferingthemmoreflexibility.

VIVAIMS,Virar(W.)

75

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Children'sproductssuchasICICIPrudentialLife's'SmartKid',BirlaSunLife's 'Children'sDreamPlan',orHDFCStandard'Life'sYoungStarPlus',areonaconsistent growthpath.Accordingtoindustryestimates,currently,2030percentofbusinessof manycompaniescomesfromchildrenspecificinsurancepoliciesalone. APricewaterhouseCoopersreport,'HealthcareinIndia:Emergingmarketreport 2007'statedthatvaluedcurrentlyatUS$34billion,theIndianhealthcaresectorislikely togrowtoaroundUS$40billionby2012.Thehealthinsurancesectorwhichisoffered by both life and general insurers is growing currently at 50 per cent and is being promotedbytheIRDA.HealthinsuranceisexpectedtogrowtoUS$5.75billionby 2010,accordingtoastudybytheNewDelhibasedPHDChamberofCommerceand Industry. Onlyaminiscule10percentoftheIndianpopulationhassomekindofhealth insurance,thereforethereisahugepotentialmarketforhealthinsurance.Ajointreport byMcKinseyandCIIhasestimatedthenumberofpotentialinsurablelivesataround315 million.In200607,therapidlyburgeoningIndianhealthinsurancebusinessgrew40per centtotouchUS$812million.Insomestates,thegovernmentispartneringwiththe privatesectortooffercoverageatlowcosts. LifeInsuranceCorporation(LIC)hasnowenteredthehealthinsurancemarket andhasmobilizedpremiumincomeofUS$21.23millioninthelasttwomonthsof2007 08.BirlaSunLifeonJanuary7,2008alsoannounceditsplanstoenterintotheUS$ 40.75billionhealthinsurancebusinesswiththelaunchoftwoplansnationally.ICICI PrudentialLifeonJanuary5,2008launchedHealthSaver,tohelpconsumersmeettheir currenthealthcareexpensesandalsoinvestforfuturehealthcareexpenses.

VIVAIMS,Virar(W.)

76

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

TheRoadAhead IthasstatedthatIndia'sinsurancesectorislikelytoreachUS$46.25billionby 2010.ThetotalinsurancebusinesswillreachalevelofUS$46.25billioninthenexttwo yearsfromthecurrentlevelofUS$1.15billion.Privateinsurancebusinessislikelyto seea140percentgrowthrateduetotheaggressivemarketingtechniquesusedbythem. Conversely,stateownedinsurancecompanieswouldseea3540percentgrowthrate.

VIVAIMS,Virar(W.)

77

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

SECTION IV CONCLUSIONS AND SUGGESTIONS

4.1RESEARCHFINDINGS ThenewentrantscannotcompetewiththestateownedLIConpricealone.Dueto itssize,LICoperatesatverylowcostsandtheirpremiaonpoliciesthatofferpure protectionareonaparwithcomparableschemesacrosstheglobe. Whatsthenew? 1. Insurance companies willprobably offeris higher returns than theannualized 910%onecanhopetoearnfromLICspolicies.ThiswillputpressureonLICto offermoreattractivereturns. 2. Consumers can alsoexpect product innovations. For instance, at present, LIC providescoverforpermanentdisabilityandwhatthenewcompaniescouldoffer istemporarydisabilityinsuranceaswell.

3. Apartfromthebasicterminsurance,mostinsuranceproductsworldwidearesold as longterm investment opportunities with the protection component being clearlyspeltoutinthescheme.

4. LICspoliciesarenotflexibleaccordingtothecustomersneeds.Newentrants haveplannedtoofferuniversallifeandvariablelifeinsuranceproductsthatallow theholderflexibilityindecidinghowhispremiaaresplitbetweenprotectionand savings.Newproductswouldalsoenableproductcombinationsthatallowgreater customisation.

VIVAIMS,Virar(W.)

78

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

5. Privateinsurerswouldcompetefuriouslyontheserviceplatform.Thesewould notonlyincludefasterclaimssettlementandotheraftersalesservicebutthere agentswouldbetrainedinpresalesinteractiontousherinacustomeroriented approach.Theywouldbebetterqualifiedinassistingclientsinfinancialplanning.

6. Foreigncompanieswouldalsousesuperiorsoftware(likeAPEX)thatwillgive themanedgeovertheinhouseLICsoftware.Thistechnologywillhelpprivate insurers in product development and customizing products to suit individual needs.

7. Theforeignplayerswillprobablyintroducealotofinnovationandcompetition onSurrendervalue.LICpayssurrendervalueonlyafterthreeyearsbutprivate insurancecompaniesarelikelytooffersopsbywayofbetterandtimelysurrender valuetoclients.

8. Access to insurance too will probably become more widespread. Role of intermediarieswoulddecreaseandsaleofinsurancethroughdirectchannelsand bankswouldincrease.Simpleproductsliketerminsurancemightbesoldthrough thetelephoneordirectmailtohighnetworthclients.

9. InreactiontoforeignplayersstrategiesonemightexpectLICtoreactanddrop itspremiaandupgradeitsservices.

VIVAIMS,Virar(W.)

79

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

4.2CHALLENGESINFRONTOFLIC:

1.Increasingcustomerintimacy

2.Minimizingriskandmaximizingsecurity

3.Integratingdisparateapplications

4.Simplifyingandglobalizing

5.Maximizingemployeeproductivity

6. Reducingcostandincreasingagility

VIVAIMS,Virar(W.)

80

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

4.3SOLUTIONSTOLICTOFACETHECHALLENGES
1. INCREASECUSTOMERINTIMACY Byconvergingvoice,data,wirelessandvideoontooneStandardizedandsecurenetwork Enablecustomerstotransactanywhere,anytime Getarealtimeunderstandingofcustomerbehavior Integratethelatesttechnologiestodelivernewservices

MultichannelcustomerserviceManagement Employeeshavea360degreeviewofcustomer,enablingconsistent,highquality serviceacrossallchannelsandimprovingcrosssellandupsellCustomerscanchoose their preferred service channels (branches, Call centre, ATMs, kiosks, email, mobile phone,fax,instantmessageandSMS)andaccessrichservicesfromanywhere. ImproveserviceandROIby: Aligningserviceswiththerightchannels Coordinating efforts across channels to reduce cost using integrated reporting to manageservicequality,performanceandcompliance INNOVATIVEBRANCH Addresscustomerpainpoints Reducewaitingtimeswithselfserviceoptions(e.g.IPenabledkiosks) Put customers in touch with the right person immediately with Video conferencingandotherchannelsavailableinbranch Takeservicestowheretheyreneeded(mobilebranch/specialists)
81

VIVAIMS,Virar(W.)

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Improveserviceandsales MarketdirecttocustomersinbranchusingIPTVandflexiblewebtechnologies Usethesametechnologiestokeepstaffuptodate Senseandrespond Capturingdataassociatedwithauniquecustomeroremployee Analyzingittodeveloppolicies Storingpolicydecisionsandapplyingthematnextopportunity

Respondtocustomerneedsviarich,realtimeinteractionsincluding:

Persontoperson Persontomachine(invitetochat) Machinetoperson(offeratATMorIVR) Machinetomachine(SMSalerts) Createaconnectedandrelevantcustomerexperience Fullycapturecustomerneedsandinterests Improveretentionandgrowrevenue

VIVAIMS,Virar(W.)

82

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

2. MINIMIZERISK&MAXIMIZESECURITY Safeguardimportantcustomerandenterprisedata Protectbusinesscontinuity Stayaheadofcomplexandeverchangingregulation Achieveoperationalexcellence

Businesscontinuityanddisasterrecoveryplanning Intheeventofdisaster,youcan: Seamlesslyswitchoperationstoabackupsite Sustaincriticalnetworkfunctions,includingcommunications,applicationsand useraccess Enableemployeestoworkfromanywherewithsecureaccesstoallthenetwork resourcestheyneed

Technologysolutions Unifiedcommunication Wirelessandmobility Businesssecurity Applicationloadbalancing&offloadservices Storagefabricservices Servervirtualization&provision Networkarchitectureplanning

VIVAIMS,Virar(W.)

83

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Complianceandriskmanagement Takeawholeorganizationapproachtoriskandgaincompetitiveadvantage Automate data management (e.g. email and data archiving) to improve operationalefficiencyandsecurity Providecomprehensivecompliancereportingtomanagers Reducecostandtimetocompliance Simplymeet

VIVAIMS,Virar(W.)

84

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3. INTEGRATEDISPARATEAPPLICATIONS Byembeddingintelligentapplicationcapabilitiesintoyournetwork Takeawholeorg.,wholecustomerapproach Reducecomplexity Getmoreoutofenterprisedataandimproveservices Drivemorecrosssellandupsellopportunities Freeresourcesfornewproductdevelopmentandspeedtimetomarket

Enterpriseapplicationintegration Integratefrontofficeandbackofficeapplicationsto: Enableserviceinnovation(e.g.bysharingfrontofficedealingroominformation withbackofficecorebankingsystem) Improvesalesandservices

Technologysolutions Applicationintegration Applicationsecurity Applicationvisibility Applicationoptimization Networkarchitectureplanning

VIVAIMS,Virar(W.)

85

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

4. SIMPLIFY&GLOBALIZE Withanintelligentnetworkinfrastructurethatisflexible,scalableandefficient Simplifyandintegratediversesystemsanddatacenters Efficientlyandsecurelyintegratepartners Leveragelowercostcapabilityoffshoreandcompeteglobally

DatacentreandbranchserverconsolidationTechnologysolutions Businesssecurity Applicationoptimization Applicationdeliveryacceleration Applicationloadbalancing&offloadservices Computeservices Storagefabricservices Servervirtualization&provision NetworkarchitectureplanningDomorewithless Simplifyprovisioningandmanagementofservers ConsolidatedatacentreresourceswithCiscosvirtualSAN Optimizethewayservicesaredeliveredacrossresources Managethemostdemandingmergersoracquisitions Rapidlysetuporintegratenewsites Usestandardizedarchitecturesfordifferentdomainareas Getaroadmap Knowwhereyoureheadedwithanarchitecturalvisionbasedonbusinessneeds Reducerecurringcosts(hardware,software,communicationandoperations)

VIVAIMS,Virar(W.)

86

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

5. Maximizeemployeeproductivity Unlockproductivitygainsandimprovecustomerservice Introduceconsistentcommunication,learningandknowledgemanagement Enableemployeestoworkandcollaborateanywhere,anytime AcceleratenewproductdevelopmentOperationalefficiency

Technologysolutions Unifiedcommunication Wireless&mobility Knowledgemanagement Networkarchitectureplanning

Amoreflexible,productiveworkforce Virtualcontactcentreagentscanworkremotely,increasingefficiency Knowledgeworkerscansimplyconnectfromhome,officeorotherlocation Mobileagents,financialadvisersandotherspecialistscanaccessnetworkvia wirelessnotebooks,tabletPCsandhandhelddevices.

VIVAIMS,Virar(W.)

87

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

6. Reducecost&increaseagilitybystandardizing,simplifyingandintegrating networks,servicesandapplications Lowertotalcostofownership Reducecomplexity Createamoreefficientandproductiveorganization Freeresourcestoinnovate,delivervaluetoyourcustomeranddrivegrowth Gainacompetitiveadvantage

OneOrg.OneArchitecture The one bank, one architecture endtoend solution is designed to help you reducecostandincreaseagilityacrossallthebusinessdomainsdiscussedsofar Whateverbusinessmodelsyourpeopleorcompetitorscomeupwithnext,our solutionhelpsyoubereadytodeploythemfast

VIVAIMS,Virar(W.)

88

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

4.4ForecastingInsuranceMarketinIndia(20082011) Withahugepopulationbaseandlargeuntappedmarket,insuranceindustryisa bigopportunityareainIndiafornationalaswellasforeigninvestors.Indiaisthefifth largest life insurance market in the emerging insurance economies globally and is growingat3234%annually.Thisimpressivegrowthinthemarkethasbeendrivenby liberalization,withnewplayerssignificantlyenhancingproductawarenessandpromoting consumereducationandinformation.Thestronggrowthpotentialofthecountryhasalso madeinternationalplayerstolookattheIndianinsurancemarket.Moreover,saturationof insurance markets in many developed economies has made the Indian market more attractiveforinternationalinsuranceplayers. TotallifeinsurancepremiuminIndiaisprojectedtogrowRs1,230,000Croreby 201011. TotalnonlifeinsurancepremiumisexpectedtoincreaseataCAGRof25%for theperiodspanningfrom200809to201011. Withtheentryofseverallowcostairlines,alongwithfleetexpansionbyexisting onesandincreasingcorporateaircraftownership,theIndianaviationinsurance marketisallsettoboominabigwayincomingyears. Homeinsurancesegmentissettoachievea100%growthasfinancialinstitutions havemadehomeinsuranceobligatoryforhousingloanapprovals. Healthinsuranceispoisedtobecomethesecondlargestbusinessfornonlife insurersaftermotorinsuranceinnextthreeyears. AboominglifeinsurancemarkethaspropelledtheIndianlifeinsuranceagents intothe'top10countrylist'intermsofmembershiptotheMillionDollarRound Table (MDRT) an exclusive club for the highest performing life insurance agents.

VIVAIMS,Virar(W.)

89

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

4.5CONCLUSION: Theneedsofthenationanditspeoplehavefinallyprevailedandprivatizationof insuranceisnowarealitytowardsfurtherliberalizationoftheIndianeconomy.Withthe openingupoftheindustryafterreforms,privatesectoroperatorsincollaborationwith theiroverseaspartnersarelikelytobringinamoreprofessionalandfocusedapproach. Hence, in this millennium, insurance industry is likely to play an important role in changingtheeconomiclandscapeofthecountry.Howeverthesuccessoftheinsurance industrywillprimarilydependuponmeetingtherisingexpectationsoftheconsumers whowillbetherealkingintheliberalizedInsurancemarketinfuture. Themarketpotentialforprivateinsurancecompaniesisfoundtobegreaterinthe longrunasmostoftheIndians areoftheopinionthat,private insurancecompanies wouldbeabletoperformwellinthefuture.Theprivateandforeigninsurancecompanies havetoimmediatestepsinappointingmorenumberofagentsand/oradvisorsinaddition totheemployeesasithasbeenfoundoutthatagentsarethebestchanneltoreachthe generalpublicregardingsellingofinsuranceproducts.Theprivateandforeigninsurance companieshavetoconcentrateonthefactorslike'PreventionofLoss','AssuredReturns' and'LongtermInvestment'.TheycanalsofocusonaninsuranceamountofRs.12 lakhs with 'money back policies'. Hence, the market has potential. The private and foreigninsurancecompaniesthataretakingimmediatestepscantapit. LICgetsachievementinvariousfields.WecanseethatLICgetssuccessinnew business.Numbersofpolicies areincreased. WecanseeLIC'sincomefromvarious fields.OverallLIChasdoingprofitablebusiness.ButitisonlyLIC'sownbusiness.Butit isnotcomparedwithother'sinsuranceinstitute.Soitisnotcompleted. Hence,inthismillennium,insuranceindustryislikelytoplayanimportantrolein changingtheeconomiclandscapeofthecountry.Howeverthesuccessoftheinsurance industrywillprimarilydependuponmeetingtherisingexpectationsoftheconsumers whowillbetherealkingintheliberalizedInsurancemarketinfuture.

VIVAIMS,Virar(W.)

90

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

Thus the Hypothesis that

Impact of Private Players

is found to be TRUE.

on LIC is Negative

4.6 SUGGESTIONS TO LIC TO GET COMPETITIVE EDGE OVER THE COMPETITORS:

1.Postsalesservice: TheLICmustnotconsideritastheendoftheserviceprovidingtheconsumerhas takenoncethepolicy.Thefunctionsofaninsurancecompanyincludetheprovisionof thePostsalesservicestotheconsumer.Amongtheservicesrenderedbytheinsurance companyistheserviceofprocessingandreleaseofclaims.Theinsurancecompanyneeds toverifytheaccuracyofthefactspresentedinrelationtotheinsuranceclaimandthe documentsproducedinsupportthereof.

2.Deliverypoints: Thedeliverypointscanbethebranchesthattheinsurancecompanyhasatthe discretionoftheoftheconsumerslocation.Thedeliverypointscanalsobemobilized withthepresenceoftheinsuranceagents.Theagentscancoverawideareaandgetin contactwiththeconsumerstoprovidetheservicetohim.

VIVAIMS,Virar(W.)

91

ImpactofPrivatelifeinsurancecompaniesonLICinIndia

3.Customereducationandtraining: Thecustomereducationandtrainingisveryimportantfortheinsurancecompany. Theagentsplayavitalroleinthiscontext.Thecustomercanbeeducatedonvarious benefitsthatcanbeaccruedinhisfuturelifebytakingapolicy.Thisiswheretheagents communicationskillscomeintothepicture.Theinsurancecompanyhastoplayanactive roleinenablingtheagentstoimpartthebestcustomereducationthroughappropriate traininggiventotheagents.

4.Customercomplaintmanagement: Customercomplaintsmanagementwithregardstodelayindischargeofclaims mustbeeffectivelyhandledbytheinsurancecompanytohavecompetitiveedgeoverits competitors.Thecomplaintmanagementwillhelpthecompanytogettheconsumers closertotheorganizationastheconsumersfeelthattheirgrievancesaretakencareof.

5.Paymentoptions: Theinsurancecompanycanofferpaymentoptionstotheconsumerswithregards topaymentofpremiumthemodeofpaymentandtheperiodwithinwhichthepremium amounthastobepaid.

VIVAIMS,Virar(W.)

92