I n s u ra n c e S e c t o r

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TYPES OF INSURANCE

Life General

BRIEF JOURNEY OF INSURANCE SECTOR IN INDIA

LIFE INSURANCE IN INDIA

1818 - Establishment of the Oriental Life Insurance Company in Calcutta. 1829 - Madras Equitable begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act. The Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance.

LIFE INSURANCE IN INDIA

The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted. With a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.

LIFE INSURANCE IN INDIA

An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies 245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

GENERAL INSURANCE IN INDIA

General Insurance came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.

GENERAL INSURANCE IN INDIA

General insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commenced business on January 1st 1973.

 Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%.

 In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002. Today there are 27 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.

PRESENT LANDSCAPE OF INSURANCE IN INDIA

Indias insurance penetration & density indicate tremendous potential for growth
Insurance penetration and insurance density are the two widely used parameters for the assessment of the potential and performance of the insurance industry. Insurance penetration is defined as the ratio of premium underwritten to the GDP. Insurance density is defined as the ratio of premium underwritten to total population.

Indias insurance penetration & density indicate tremendous potential for growth
Life insurance penetration in India had consistently gone up from 2.15% in 2001 to 4.6% in 2009. However, decline has been observed in last few years and the Life insurance penetration currently stands at 3.17%. General Insurance penetration has shown minor growth from 0.55% in 2001 to 0.78% at present.

Indias insurance penetration & density indicate tremendous potential for growth
Life insurance density in India had consistently gone up from $ 9.1 in 2001 to $ 42.7 at present. The peak was $ 55.7 in 2010 General Insurance density has shown growth from $ 2.4 in 2001 to $ 10.5 at present.

Indias insurance penetration & density indicate tremendous potential for growth

Insurance Sector is significant contributor to the Indian economy.

Insurance industry contributes to 4% of Indias GDP. Insurance accounts for 24.2% of the total household financial savings. As on 31st March 2012 Insurance industry has 2.5 lac direct employees and 23.5 lac individual insurance advisors.

Regulatory changes play a critical role in the Insurance business.

Insurance is a tightly regulated industry with policy changes having a visible impact on the business in short as well as long run. For Example, change in regulations governing the sales of ULIPs negatively impacted the Life insurance business. Life insurance premiums registered a growth of -1.6% in FY 12 as compared to 9.9% in FY 11.

EMERGING TRENDS & CHALLENGES IN THE INSURANCE SECTOR.

Changing Socio-Economic trends and diverse consumer needs necessitate product customization and innovation More number of working women, payouts coinciding with requirements in childrens life events. Examples - ULIPs, Hyundais job loss protection in US and Indias WBCIS.

Transition from traditional model to a multi channel distribution model.

Continuous growth in bancassurance. Despite late start, bancassurance accounts for 25 to 30 % of premiums collected by private insurance companies.

E Commerce is acting as a great facilitator but yet to gain full fledged momentum.

10.2% of Indias population has access to internet. Internet as a medium is being effectively used to create awareness and sell simple insurance products like Motor and Health insurance. However, complex insurance products which need personalized advice have not shown any sales through this channel. Use of social media is in nascent stage.

Micro-Insurance: An Essential tool to achieve financial inclusion.

Micro insurance is designed for low income people and is characterized by low premiums and margins. The product is suitable in for people in rural areas. Urban poor can also benefit. Currently the product is distributed by microfinance companies. Insurers are exploring options for distribution with NGOs and small and big retailers in rural areas.

Health and Motor insurance will lead non life segment; Property insurance has huge potential.

Private insurance companies to play a major role in future.

If FDI in insurance increases to 49% the sector is expected to many new foreign entrants. (Bill is pending in Rajya Sabha). Regulatory reforms, foreign collaborations, quality services and better growth strategies will see the share of private sector companies continue to increase.

Life insurance industry is at the threshold of new growth phase.

High inflationary environment erodes the intrinsic value of insurance policy thereby reducing demand. Steps taken by GOI to moderate inflation will have a positive impact on the growth in insurance sector.

Regulatory changes will ensure risk management and improve transparency and supervision.

IRDA has given new guideline for insures to withdraw old products and introduce new products from October 2013. New steps have been taken by IRDA to improve solvency, increase transparency, increase accountability and protect consumer interests in the long run.

Embracing new technology will enable new growth.

CONCLUSION.

 Growth in the insurance sector will be driven by factors such as Customer demographics, Macro environment, Regulatory changes and Adoption of new technology. Product innovation and customization will be one of the key strategies. Alternative distribution channels will emerge. Micro insurance will help in increasing penetration. Prudent investment and stronger risk management will become more prevalent. Favorable changes in macro economic environment are needed for new phase of growth. Regulatory changes will improve solvency and corporate governance.

Many Thanks.