Professional Documents
Culture Documents
SESSION
Present Scenario of
Life Insurance
Industry
2
AGENDA
Snapshot of Indian Life Insurance Industry
33
Snapshot of Indian Life Insurance Industry
Life Insurance Industry was liberalized in the year 1999-2000.
LIC, Reliance Life Insurance and Sahara Life Insurance company are the
three companies who do not have JV’s.
All the major international players are present in the Indian Insurance
market.
44
Snapshot of Indian Life Insurance Industry
FY 09-10
Number of players 1 16 18 22 23
6
Source: IRDA, Life Insurance Council
Individual
Non-Single
Premium in
Rs. Crore
Renewal premiums
17,951 80,427 1,07,639 1,34,785 1,51,812 +8 times
(Rs. Cr)
Total Premium (Rs. Cr) 26,250 1,56,076 2,01,351 2,21,791 2,61,025 +10 times
Expenses of management
3,171 12,259 14,704 15,533 17,535 +5 times
– Commission (Rs.Cr)
Expenses of Management-
3,756 13,585 20,299 25,724 23,815 +6 times
operating expenses (Rs.Cr)
11
Source: IRDA, Life Insurance Council
Snapshot of Indian Life Insurance Industry
FY 09-10
Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 (provisional)
New Business Policies (In Cr) 1.69 4.61 5.08 5.09 5.32
The industry services largest number of life insurance policies in the world
12
Source: IRDA, Life Insurance Council
Snapshot of Indian Life Insurance Industry
FY 09-10
Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 (provisional)
14
12
% of premium to GDP
10
8
6
4
2
0
USA UK Germany Japan India Russia Brazil China
Countries
India has largest number of in-force policies in the world (IRDA Annual report).
14
Source: IRDA report 2008-09
AGENDA
Snapshot of Indian Life Insurance Industry
15
15
Components of Cost with Life
Insurance Companies
Fixed Cost
Operating Cost
Fixed Cost
It is same for Term & Whole Life Policies
Its not related to size of Policy
It depends on No. of Life Insurance
policies sold in this year
Amount of Whole Life policies sold
Amount of Term policies sold
Operating Expenses
Manpower related expenses
Capital Expenses
Material Cost consists of other expenses
Manpower related expenses
Cost of Manpower =
(Total cost of agents and employees /
Total number of agents and employees)
Total Cost of Agents = ( Direct Commissions +
Contributions to Benefit plans+ Agent Welfare )
Total Cost of Employees = ( Salaries Paid +
Contributions to benefit plans + Travel
Expenses + Employee Welfare + Incentives +
Rewards & Trips )
Capital Expenses
(Rent for Space utilized for Office + Equipment
rent + Infrastructure cost + Depreciation cost )
It is calculated as capital expense per employee.
Material Expenses
Expenses related to selling new policies and
servicing existing policies.
New Softwares technology used
New Infrastructure
Mailers
Need for Capital
•Financing of new business.
Longer the term of the policy, lower is the premium and therefore percent
commission is higher. For shorter term policies the percent commission is lower
as premium is higher. This ensures that the absolute commission is reasonable.
28
Source: IRDA
Expenses of Life Insurance Companies
FY 09-10
FY 99-
Parameter FY 06-07 FY 07-08 FY 08-09 (provisional
00
)
Commission as
12.0
% of total 7.85 7.30 7.00 6.71
premium 8
29
Source: IRDA, Life Insurance Council
Commission will further come down due to following factors:-
30
Source: IRDA
AGENDA
Snapshot of Indian Life Insurance Industry
31
31
Embedded Value [EV]
• EV is a measure of how much a life insurance
company is worth. It is one of the determinants of the
market[fair] value of the life insurance company
• EV is made up of four components:
– Value of Business (VOB)
– Free Surplus
– Mark to Market Adjustment
– Expense Gap Adjustment
• The other determinant of market value is the appraisal
value which is defined as :
Value Of Business (VOB)
• VOB is defined as the present value of the
Statutory Distributable Earnings of the in-force
business as on the valuation date
• The key drivers of VOB are :
Sales – Determines size of In-Force
Mode of Premium Payment
Lapses
Changes in Statutory Reserves
Investment Earning Rate
Required Solvency Margin
• Discount Rate or Cost of Capital
Free Surplus :
Rs.300 Million
A. Expense loading built into the premium income
37
37
38
TRENDS IN TYPES OF POLICIES SOLD
Term Plan
Endowment Plan
Money Back Plan
Whole Life Plan
Retirement Plan
ULIP Plan
Universal Life Plan
Universal Life Insurance
Universal life insurance is new form of life insurance
that gives you advantage of paying flexible
premiums.
The amount of premiums you pay can increase or
decrease the benefit value, making it easier to fit
into your monthly budget.
But the payout on a universal life policy isn’t
guaranteed.
If you don’t pay enough in premiums over the
course of the policy, it may not provide a payout at
all.
Advantages of Universal Life Insurance:
* Your universal life plan will let you adjust your benefits
if your needs change.
* The value of a universal life policy can be used as
collateral for a non-taxable loan.
* Universal life offers you the flexibility to pay either a
smaller or larger premium — depending on your
circumstances. This can be an important feature if your
household income fluctuates.
IRDA is keeping Checks on
Universal Life Policies
After tightening the norms for unit-linked insurance
plans, or Ulips, the Insurance Regulatory and
Development Authority (Irda) is set to shift its focus to
universal life insurance policies.
Universal life insurance policies, like Ulips, combine
investment and insurance. One part of the premium for
such policies goes to buy life insurance and another gets
invested in bonds or equities.
“Universal life policies can be dangerous without a
separate set of regulations. The customers can be
exposed to very high risks unless stringent regulations are
imposed on these investment-cum-insurance products,”
IRDA is keeping Checks on Universal
Life Policies
Typically, the product has two elements—investment and insurance.
The investment amount earns interest, but as the cost of insurance
increases every year with the policyholder getting older, more money
flows from the investment account to the insurance account of the
policyholder.
As the policy holder gets older, more money is used for the insurance
cover and less and less money gets invested. In such a situation, the
premium goes up, and if the policyholder is not able to pay the higher
premium to keep the policy alive, it lapses and the customer loses the
money.
Secure Dreams of Max New York Life Insurance Co. Ltd.
A few Indian life insurers launched universal life insurance
policies in 2009 after Irda capped Ulip charges:
Building institutions for development of self
regulation for better market conduct
Development professionalism and organizing
research for industry to develop on scientific
lines
Ensuring profitability and return to stakeholders
by cost competitive policies.
Buyer Behavior of Indian
Consumer
4 Becoming a parent 6%
5 Getting married 6%
6 Peace of mind 6%
8 In case of death 3%
64
Source: IRDA, Life Insurance Council
Other Reasons to buy Life Insurance
• To protect your wealth
• Show your love to your family
• Show that you are responsible person
• Our health is deteriorating everyday
• To practice the habit of forced savings
• For funding the Trust
• Funding a business operation
• Funding the Partnership in Business
• For Charity purpose
Reasons for not buying Life
Insurance
Reasons for not buying life Insurance
• You are never going to die.
• Nobody is going to care when you die.
• You don't want to talk about death.
• I am going to be old when I die.
• You don't love your kids.
• Life Insurance agent is very annoying.
• You enjoy your cigarettes and drinks too much.
Reasons for not buying Life Insurance
• You are afraid the company will go under
before you can cash in.
• You are just selfish.
• Your Children are filthy rich.
• You feel your relatives will take care of your
family.
• Its wastage of money.
• Paper work is very boring.
Product Suitability Matrix
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