INSURANCE SECTOR

Presented by Ravindra Lattoo(44) Neha Sharma(35) Tanay Samanta(57)

CONTENTS
What is Insurance? About Indian Insurance Industry Players in the insurance industry Life insurance scenario in India Non-life insurance scenario in India

Pension plans and reforms

Insurance penetration and density in India Global insurance environment

Recent development in Insurance Industry

Future Projections of Indian Insurance industry

What is Insurance?
Insurance is a contract

whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.

About Indian Insurance Industry

In India, insurance has a deep-rooted history.

Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra) The insurance sector was opened for private participation with the enactment of the Insurance Regulatory and Development Authority Act 1999. Government restricted participation of the foreign joint venture partner throug the FDI route to 26 per cent of the paid-up equity of the insurance company.

Players in the Insurance Industry

Since the opening up of the sector,

the number of participants has gone up from six insurers (including LIC of India, four public-sector general insurers, and the General Insurance Corporation as national reinsurer) in the year 2000 to 48 insurers operating in the life, nonlife, and reinsurance segments (including specialized insurers, namely the Export Credit Guarantee Corporation [ECGC] and Agricultural Insurance Company [AIC]). Three of the general insurance companies, namely Star Health and Alliance Insurance Company, Apollo DKV, and Max Bupa Health Insurance Company Ltd., function as standalone health insurance

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Of the 22 insurance companies that have set up

operations in the life segment post opening up of the sector, 20 are in joint ventures with foreign partners. Of the 18 (including stand alone health insurance companies) insurers who have commenced operations in the non-life segment, 16 are in collaboration with foreign partners. The three standalone health insurance companies have been set up in collaboration with foreign joint venture partners. Thus, as on date, 36 insurance companies in the private sector are operating in the country in collaboration with established foreign insurance

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Factors responsible for growth in Insurance Industry

Reasons for growth in demand

First and foremost, India is a developing economy with remarkable progress in almost every dimension like infrastructure, employment, education, health, income and thus, purchasing power. Rising awareness about protection of tangible and intangible assets and providing security to oneself has become imminent. Few of the factors responsible for growth in demand for insurances in India can be summarized below: Increased competition: Private and public sector companies are battling it out for more insurance buyers by offering newer product variants, higher interest rates, lower processing fees, etc. Growth, and not survival, is the key.

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Growing awareness: Consumers are being made

aware of the need for insurance today. It has become a part of their academic curriculum and work life, where they are constantly being educated about the risks they are exposed to in daily life. Insurance has thus become a necessity. Government initiatives: The biggest leap taken by the Indian government in recent years is the privatization of this sector in 2000, over 150 years after the industry was established. The government is taking further corrective steps to fuel demand growth, such as setting up advisory groups to discuss industry dynamics, supporting plans for launching e-insurance and e-policies, etc. These steps are aimed at making access to insurance easier, even in the remotest parts of India

Life Insurance Scenario in India

In 2009-10, even after the outcome on account of

the financial meltdown, the life insurance segment saw an upward trend. The first-year premium, which is a measure of new business secured, underwritten by the life insurers during 2009-10 was ` 1,09,894.02 crore as compared to ` 87,331.09 crore in 200809,registering a growth of 25.84 per cent. The life insurers underwrote new business of`18,283 crore during the first quarter in the current financial year 2011-12 as against `25,522 crore in the corresponding first quarter in 2010-11, recording a decline of 28.36 per cent.

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Of the new business premium underwritten, LIC

accounted for `13,342 crore (72.98 percent market share) and the private insurers accounted for `4,941 crore (27.02 per cent market share). The market share of these insurers was 73.43 per cent and 26.57 per cent respectively in the corresponding period of 2010-11.

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The life insurance industry procured premium of

`4,897 crore in ULIPS for the first quarter of 201112 as against `13,916 crore in the first quarter of 2010-11, a decline of 64.81 per cent. The industry procured premium of `13,386 crore in traditional business for the quarter ended June 2011 as against `11,606 crore for the quarter ended June 2010 exhibiting a growth of 15.34 per cent.

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About Non-life insurance scenario in India

Non-life insurers in India (excluding specialized

institutions like the Export Credit Guarantee Corporation and Agriculture Insurance Corporation and the standalone health insurance companies) underwrote premiums of ` 34,620 crore in 2009-10, as against ` 30,352 crore in 2008-09. The non-life insurers underwrote a premium of`14,046 crore during the first quarter of the current financial year recording a growth of 22.35 per cent over `11,480 crore underwritten in the same period in 2010-11. The private sector non-life insurers including specialised insurers and health insurers underwrote a premium of `6,020 crore in April-June, 2011 as against `4,725 crore in April-June, 2010, reporting a growth of 27.40 per cent

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The public sector non-life insurers underwrote a

premium of `8,026 crore which was higher by 18.82 per cent (`6,754 crore in the first quarter of 2010-11). The market share of the public and private insurers including specialised insurers and health insurers stood at 57.14 and 42.86 per cent respectively at the end of the quarter (58.81 and 41.19 at the end of June 2010).

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Pension Plans
Pension plans (also referred to as retirement

plans) are offered by insurance companies to help individuals build a retirement corpus. On maturity this corpus is invested for generating a regular income stream, which is referred to as pension or annuity. Pension plans are distinct from life insurance plans, which are taken to cover risk in case of an unfortunate event. Currently, there are a total of 52 pension plans available across the various insurance companies in India. Bajaj Allianz and Tata AIG have the most number of pension plans issued: 6 and 5 respectively.

Pension plans@ Insurance Companies

Insurance Company Number of Pension plans available
Bajaj Allianz Life Insurance Company Tata AIG Life Insurance Company 6 5

HDFC Standard Life Insurance co

ICICI Prudential Life Insurance Shriram Life Insurance Co Birla Sun Life Insurance

5
5 2 2

Life Insurance Corporation India

SBI Life Insurance Co Reliance Life Insurance Company ING Vysya Life Insurance

4
4 4 3

Kotak Mahindra Old Mutual Life Insurance

Aviva Life Insurance Company India Ltd Max New York Life Insurance co

3
2 2

Reforms required in Pension sector

Making a case for reforms in the pension sector,

the Economic Survey 2010-11 on Friday said the Parliament should expeditiously clear the long pending PFRDA Bill. "There is need to consider passage of the long pending Pension Fund Regulatory and Development Authority (PFRDA) Bill in order to give a fillip to regulatory robustness in the pension sector," the pre-Budget survey said.

Insurance penetration and density in India

Insurance penetration is defined as the ratio of

premium underwritten in a given year to the GDP.

Insurance density is calculated as the ratio of

premium to population (per capita premium).

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Global Insurance Environment

As per the World Insurance Report published by reinsurance major Swiss Re, the global insurance premium for the calendar year 2010 was USD 4339 billion,which is 2.7 per cent (inflation-adjusted) higher than USD 4109 billion reported during the previous calendar year 2009. The share of life insurance business was 58 per cent in total premium collection. While life insurance business collected USD 2520 billion as premium, the same for non-life business was USD 1818 billion. During 2009, the premium in world life insurance business rose by 3.2 per cent on account of double digit growth in the life insurance premium collection in the emerging markets.

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Recent developments in the Insurance industry

Health insurance policies are on their way to get 'age-free'. Though the

proposal is still at a nascent stage, IRDA has already taken a step towards this concept by making it mandatory for policies to have 'life long' renewal clause. This implies that once a health insurance policy is issued, an insurer would be obliged to continue renewing such a policy during the policyholder's lifetime. However, the entry age barrier would continue to be there Some general insurance companies have already started applying for such 'age-free' policies. For instance, Apollo Munich Insurance applied for such a policy a few months back and is awaiting regulator's approval Cigna TTK Health, a joint venture (JV) company between US-based Cigna Corporation and India's TTK Group, is in the process of applying for the R1 licence with the regulator IRDA and expects to commence operations in the first quarter of 2013 The JV firm, being the new entrant on the Indian health insurance block, intends to be innovative and hence plans to set up a distribution network through which simple health insurance products could be sold by pharmacies themselves

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State-owned Life Insurance Corporation (LIC) would buy 5 per

cent stake in Punjab & Sind Bank. The bank's proposal to issue 11.2 million fresh shares is awaiting Securities and Exchange Board of India (SEBI)'s decision regarding the rate and is eventually subject to approval from the Government of India and other regulatory entities The infusion of additional capital aims at strengthening bank's 'Capital to Risk-weighted Assets Ratio' (CRAR) and support its business growth HDFC Life, a private life insurance company and a JV between India's Housing Development Finance Corporation Ltd (HDFC) and UK's Standard Life plc has launched its first international operations with the opening of its representative office in Dubai. The launch comes as a result of the company's strategy to serve large non-resident Indian (NRI) base in the Gulf region In a bid to enhance overall customer offering and rapidly expand its motor insurance business, private insurer SBI General has entered an alliance with My TVS and India Assistance. The tieup aims to provide emergency roadside assistance to its policy holders anytime and for any car across the country

Future Projections of Insurance Industry.

The general insurance industry is estimated to grow

by over 18 per cent to reach a size of Rs 90,000 crore by 2015, industry chamber Assocham said. The current size of the non-life industry is Rs 47,000 crore. Motor insurance would continue to remain the largest category, contributing over 40 per cent of industry premiums, Assocham said in a statement. "India will be one of the fastest growing markets in Asia and globally -- next only to China among major markets," it said. India will become the third largest car market globally by 2020, with over 70 lakh cars sold annually, driving growth in motor insurance, Assocham said.

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Besides, total expenditure on healthcare will be Rs 20

lakh crore, creating significant opportunities for coverage through health insurance. "The health insurance segment will grow the fastest and account for close to 30 per cent of total industry premiums by 2015," Assocham secretary general DS Rawat said. Within health insurance, the government sponsored health schemes will grow the fastest while retail will emerge as the largest opportunity, he said. Further, with increase in infrastructure spending, there would be opportunities for insuring these projects as well. In the next 5-year Plan beginning April 2012, investment is infrastructure sector involving road, port, railway and power is envisaged at USD 1 trillion.

References
www.irda.gov.in

http://indiabudget.nic.in
www.mbaskool.com www.economictimes.indiatimes.com www.ibef.org www.investopedia.com