LIFE INSURANCE INDUSTRY IN INDIA

INTRODUCTION

The insurance industry in India is under a phase of constant change

for the past few years, due to increasing private participation in the market.

At global level also insurance has established itself as a key field due to

increasing risk and hazards, which includes both, due to natural imbalances

and activities of mankind. As part of the study of the insurance mechanism

and the way in which it works, it will be helpful to examine some of the

unique facets of insurance company operations. The unique nature of the

insurance product requires certain specialized functions that do not exist in

other businesses. This chapter presents functions of insurers, marketing

mix for life insurance business, and a brief history of the evolution and

growth of insurance industry in India.

Kinds of Insurance

From commercial point of view insurance business is broadly divided

into: (i) Life Insurance, and (ii) General Insurance. In fact, insurance other

than life is included under the category of general insurance. General

insurance include: Property insurance, Liability insurance and other forms.

Marine and fire insurance are included under property insurance. Liability

insurance includes workmen compensation insurance, fidelity, and public

liability insurance, etc. The examples of other forms of insurance are

export credit insurance, deposit guarantee insurance, etc., whereby the

insurer guarantees to pay certain sum at certain events. This kind of

insurance is extending these days.

Life insurance is different from other insurances. Under life

insurance, the subject matter of insurance is life of human being. In life

insurance, unlike in general insurance, the promise has to be redeemed

sooner or later. In general insurance, amount is payable only if loss occurs

to the insured property. General insurance is a contract of indemnity. The

amount payable in general insurance depends on the extent of damage and

insurance coverage, and has to be determined through surveys and

assessment. If the property is not fully insured, the average clause is

applicable in general insurance. The amount payable on a claim arising in

life insurance is not in doubt. It is as mentioned in the policy. Life

insurance contracts are long period contracts. Most of the policies are for

term of 15 years or more. General insurance is a one year contract, unless

renewed. Long term nature of the life insurance policy results in a long

lasting relationship between the insurer and the customer (insured), and in

the meantime a number of policy services arise. The long lasting

relationship between the insurer and the customer calls for relationship

marketing in the case of life insurance services1. Life insurance enjoys

maximum scope because life is the most important property of the society

or an individual. Life insurance not only provides protection but is also a

sort of investment.

Benefits of a Strong Life Insurance Market to Economic

Development

An evolving insurance sector is of vital importance for economic

growth. While encouraging savings habit it also provides a safety net to

both enterprises and individuals. Development of the insurance sector is

necessary to support the structural changes in the economy. Social

security and pension reforms too benefit from a mature insurance industry.

A study by the UNCTAD noted that a strong and efficient life insurance

market can aid in overall economic development in the following ways: 2

64

• Life insurance can contribute to social stability by permitting

individuals to minimize financial stress and worry.

• Life insurance can reduce the financial burden on the state of caring

for the aged and for those made financially destitute because of the

death of a family breadwinner.

• Through the accumulation from thousands of policyholders of small

amounts of private savings, life insurers can accumulate sums to be

invested in the public and private sectors. This can benefit an

economy by creating a source of financing for new business, for new

house owners, and for farmers and their equipment.

• The life insurance business generates employment.

• Life insurance can permit more favourable credit terms to borrowers

– both individuals and business – and can decrease the risk of

default.

• Life insurance can also minimize the financial disruption to business

caused by the death of key employees and owners.

• By making available a variety of employee benefit plans, life

insurance companies can promote better employee-employer

relations and can provide low-cost benefits to a broad spectrum of

persons who may otherwise have been unable to obtain such

protection.

Functions of Insurers

Although there are definite operational differences between life

insurance companies and property and liability insurers, the major activities

of all insurers may be classified as: (1) Ratemaking, (2) Production, (3)

Underwriting, (4) Claim settlement, and (5) Investment. In addition to

these, there are, of course, various other activities common to most

65

business firms such as accounting, human resource management, market

research, and so on. Thus all the activities of a life insurance company may

be arranged into three major functional classifications – marketing,

investment, and administration. Of these three areas, marketing is the

largest in terms of both personnel requirements and costs and is critical to

success 3.

Rate Making Function

An insurance rate is the price charged for each unit of protection.

Like any other price, it is a function of the cost of production. However, in

insurance, unlike other industries, the cost of production is not known when

the policy is sold, and it will not be known until some time in future, when

the policy has expired. One fundamental difference between insurance

pricing and the pricing function in other industries is that the price for

insurance must be based on prediction. Rate should be distinguished from

a premium, which is determined by multiplying the rate by the number of

units of protection purchased. The rate making function in life insurance

company is performed by the actuarial department. The rates are subject

to government regulation. The rates must be adequate, not excessive, and

not unfairly discriminatory. To the extent possible, rates should be

relatively stable over time. At the same time, rates should be sufficiently

responsive to changing conditions to avoid inadequacies in the event of

deteriorating loss experience 4. Life insurance rates are influenced by three

major determinants: (1) Mortality rate, (2) Interest on investment, and (3)

commission and other expenses incurred in operating an insurance

enterprise (loading).

Production Function

The production department of an insurance company, sometimes

called the agency department, is its sales or marketing division. This

66

department supervises the external portion of the sales effort, which is

conducted by the agents and development officers. It is the responsibility

of this department to select and appoint agents and assist in sales. In

general, it renders assistance to agents in technical matters.

Underwriting Function

Underwriting is an essential element in the operation of any

insurance program. The underwriting process determines which applicants

are eligible for insurance coverage. The purpose of underwriting is to

control adverse selection and assemble a group of insured whose loss

potential is homogeneous. In the life insurance field, applicants may be

classified as standard, preferred, substandard, and uninsurable.

Since the application for the insurance originates with the agent, this

person is often called a field underwriter. The agent plays a far more

important role in the underwriting process in life insurance. To perform

effectively, the underwriter must obtain as much information about the

subject of the insurance as possible within the limitations imposed by time

and the cost of obtaining additional data. The proposed is required to

provide all information regarding the subject matter of insurance, in the

proposal form. Failure to reveal important information can result in dispute

with the insurer or expensive litigation and may be grounds for the insurer

to deny claims. In life insurance, the primary focus is on the health of the

applicant 5. In case of policies other than ‘non-medical’, a medical report

from the physician selected by the insurance company is required.

Claim Settlement Function

One basic purpose of insurance is to provide for the indemnification

of those members of the group who suffer losses. In the case of life

insurance contract, the indemnity principle is not applicable. In life

insurance, when the insured event happens, i.e., maturity or death, the

67

insurer is required to pay the sum assured along with vested bonus, if any,

to the policyholder in the case of maturity claims, and to the beneficiary in

the case of death claims. The payment of claim amount is the function of

the claims department. As per the Insurance Regulatory and Development

Authority (IRDA) guidelines, death claim should be paid within 30 days of

intimation of claim.

Investment Function

As a result of the business operations, insurance companies

accumulate large amounts of money for the payment of claims in the

future. It is the responsibility of the investment committee to see that they

are properly invested. The primary requisite of insurance company

investments is safety of principal. In addition, the return earned on

investment is an important variable in the rating process. The investment

of LIC is governed by Section 27A of the insurance Act, 1938 and the

(Investment) Regulations prescribed by the IRDA. The investment norm

applicable for life insurers as per IRDA Regulations is indicated in Table 3.1.

Table 3.1

Investment Norms for Life Insurers

Sl. No. Type of Investment IRDA Norm

1. Govt. Securities Not less than 25%

2. Govt. Securities or other Approved Securities

(including item no.1)

Not less than 50%

3. Approved Investments

(a) Infrastructure & Social Sector

(b) Others

Not less than 15%

Not exceeding 35%

Source: IRDA Regulations

LIFE INSURANCE MARKETING

68

Marketing is concerned with identifying customer needs and

determining ways in which the organization is able to meet these needs in a

profitable manner. It is the process by which products (both goods and

services) are matched with market and through which the customer is able

to enjoy the product. Marketing is the delivery of customer satisfaction at a

profit. The twofold goal of marketing is to attract new customers by

promising superior value and to keep current customers by delivering

satisfaction 6.

The term insurance marketing refers to the marketing of insurance

services with the motto of customer-orientation and profit-generation. In

insurance business, the prime focus is on the policy-holders and therefore,

an individual or an institution taking the policies is known as the actual

policy-holder whereas the persons or organizations willing to do so but

waiting for the creative persuasive efforts of the agents are known as the

prospects or potential policy-holders. Insurance marketing is an effort to

transform the prospects into actual policy-holders. In marketing, the job is

not to find the right customers for the products, but the right products for

the customers 7.

The demand for insurance depends on various factors, sometimes

particular to an individual. However, the following factors are generally

common.

(1) Perception towards losses – If the individual feel that insurer’s

calculation of risk and expected losses is better than his own; he will opt

for insurance cover.

(2) Price for risk transformation – The cost of insurance vis-à-vis other

products.

(3) Income and wealth status – Demand for insurance logically is positively

correlated with the income and wealth of the potential insured.

69

(4) Social Insurance Programs – If good social program by government or

other public agencies are available as per individual’s satisfaction,

demand for private insurance will be lower.

(5) Nature of loss – Insurance covers for non-monetary losses like mental

tension and pain, psychological sufferings are generally not very

common and also legal structure takes care of these partially.

At the life insurance market, an individual’s specific behaviour is

governed by internal factors like need, motives, perception and attitudes as

well as by external factors or environmental influences such as the family,

social groups, cultural, economic and business influences8. From the

above, it is clear that the purchase strategy of an individual is influenced by

a number of factors and an in-depth study of these influences is essential to

understand the behavioural profile of customers. The marketing personnel

are required to understand the needs and aspirations of the prospects,

family background, social and economic status, their perception and

attitude towards life insurance.

LIFE INSURANCE MARKETING MIX

The marketing concept dictates that marketing decisions should be

based upon customer needs and wants. Also, because services are

intangible customers will be looking for any tangible cue to help them

understand the nature of the service experience. The insurance marketing

focuses on the formulation of an ideal mix for the insurance business so

that the insurance organizations survive and thrive in a right perspective.

Identification of demand and supply involves various functions of life

insurance marketing to attain success in the insurance market and the

combination of these functions is known as Life Insurance Marketing Mix 9.

70

Figure 3.1 Expanded Marketing Mix for Life Insurance Services

Figure 3.1 portrays expanded marketing mix for life insurance

services. The traditional marketing mix is composed of the four P’s:

Product, Price, Place, and Promotion. In addition to the traditional four P’s,

the insurance services marketing mix includes people, physical evidence,

and process10.

Product: Product is the sum total of physical, social and psychological

benefits. In life insurance, the products are policies/plans or schemes

developed and marketed for different market segments. Life insurance

product has to be developed keeping in view the needs of the people i.e., (i)

providing financial security to the family in case of early death of the

breadwinner of the family, and (ii) providing financial support to the insured

in case of he/she living too long. An insurance company may offer a single

product or a mix of several products to a person or family. Whole life,

Endowment, and Term assurance policies are suitable to the first category,

whereas Pension Plans, Annuities and the like are suitable to the second

category mentioned above. The conventional policies have the main

attributes of protection at early death or living too long; but majority of the

population is interested mainly in investment.

Price: Premium is the price which the person seeking insurance pays to

the insurance company for purchase of life insurance policy. It is fixed

taking into account three factors: (i) mortality rate, (ii) Interest on

investment, and (iii) commission and other administrative expenses

(loading). Price fixing is the function of actuarial department.

(i) Mortality: Since the insurance company assumes the risk of the

individual and since this risk is based on life contingencies, it is

71

Process

People Promotion

Place

Price

Product

Marketing MixPhysical

evidence

important that the company knows within reasonable limits how

many people will die at each stage. For this purpose, insurers use

an instrument called mortality table which is a statistical

representation showing the rate of mortality at each age. Based

on past experience, applying the theory of probability, actuaries

are able to predict the number of deaths among a given number

of people at some given age.

(ii) Interest: The insurance company collects the premium in

advance and does not pay claims until a future date. Therefore, it

has the use of the insured’s money for some time. They can

invest this money and earn interest on it. Since they do earn

interest on the funds they collect, they do not need to collect the

full amount of future losses from the members of the group.

When interest is taken into the computation of premiums, there

will be a corresponding reduction in the net premium payable by

each individual insured.

(iii) Loading: Mortality and interest are used to compute the net

premium, which measures only the cost of claims and omits the

provision for operating expenses. The net premium plus expense

loading constitute the gross premium, which is the selling price of

the contract and the amount the insured pays.

Place: Since life insurance services are intangible, they cannot be

normally stored. Distribution channels like agents, brokers, bancassurance,

tie-ups with corporate agencies, etc. are used to market life insurance

products. Branch offices, policy servicing centres, home or office of the

customer, clubs, festival places, etc., are the places where life insurance

services can be offered and delivered.

Promotion: In the case of service, consumer would prefer more personal

information. He/she is unlikely to buy without adequate information on the

72

services. The provider of service may be required to communicate the

intangible aspects of the service through advertising, publicity, sales

promotion campaigns, personal selling, public relations, exhibition and

demonstration. Potential policy-holders are reluctant to think about the

disaster and death. So they postpone planning for these possibilities unless

they are contacted and influenced by insurance agents. For promoting life

insurance business, sales promotion activities are to be carried out by the

agents, development officers and branch offices. Satisfied customers also

promote life insurance through word of mouth advertising11.

People: It refers to all human actors who play a part in service delivery

and thus influence the buyer’s perceptions. All of the human actors such as

the firm’s personnel, the customer, and other customers in the service

environment provide cues to the customer regarding the nature of the

service itself. Agents, brokers, development officers and other company

staff are the people element in the marketing mix for life insurance

services. How these people are dressed, their personal appearance, and

their attitudes and behaviours all influence the customer’s perception of the

service 12.

Physical evidence: The physical evidence of service includes all of the

tangible representations of the service. The physical evidence cues provide

excellent opportunities for the firm to send consistent and strong messages

regarding the organization’s purpose, the intended market segments, and

nature of the service. The policy document, premium receipt, billing

statements, brochures, letters, and website of the branch office are the

physical evidence in life insurance service 13.

Process: The actual procedures, mechanisms, and flow of activities by

which the service is delivered are called the process. According to

Shotstack, the issues in process management go from process planning and

73

control, operations planning, facilities design, scheduling, inventory

planning and control, quality control, operation control to forecasting, and

long-term planning 14. The various process in life insurance service are

receiving applications, verification of the application, medical examination

of the proposed, sanction and acceptance of first premium, underwriting,

issue of policy document, claim intimation, and claim settlement and the

like.

HISTORICAL FRAMEWORK OF INSURANCE

The story of insurance is probably as old as the story of mankind. A

study of human history reveals a universal desire for security. The quest

for security has been one of the most potent and motivating forces in

material and cultural evolution. The same instinct that prompts the modern

businessman to secure himself against loss and disaster existed in primitive

man also15. The beginnings of the concept of insurance date back almost

6000 years. The ideas of insurance were being practiced in Babylonia and

India, centuries ago. The codes of Hammurabi and of Manu had recognized

the advisability of provision for sharing the future losses16. The Sanskrit

term ‘Yogakshema’ is found in the Rig Veda and that some kind of

commercial insurance was practiced by the Aryan tribes in India nearly

3000 years ago. ‘Yogakshema’ implies the idea of welfare, well-being,

including the idea of prosperity, happiness and so on 17.

Evidences are on record that marine insurance was the earliest form

of insurance. Marine insurance, in fact, started from Italy where some of its

famous commercial centres like Florence, Janeva, Venice and Lombard

Street started the use of marine insurance policies. Then this system

spread over to other countries like France, Holland, Spain, Germany and

England. The marine policies of the present form were sold in the

beginning of 14th century by the Brugians18. Lloyd’s Coffee-house in

74

England gave an impetus to develop marine insurance. After the evolution

of marine insurance, fire insurance system came into existence. The fire

insurance was started in India with the establishment of Triton Insurance

Company at Calcutta in 1850 19.

Global Perspective of Life Insurance

The beginnings of personal insurance are generally attributed to the

Greeks. The Greek societies practiced elementary insurance. Life

insurance made its first appearance in England in 16th century. The first

recorded evidence in England being the policy on the life of William

Gybbons on June 18, 1653. Even before this date annuities had become

quite common in England 20. The first registered life office in England was

the ‘Hand-in-Hand’ society established in 1696. In France, the first life

insurance company was chartered by the King in 1787. The first life insurer

in Germany appears to have been the Deutsche Lebenversicherungs

Gesellschaft, founded in 1828.

English companies had established insurance agencies in Germany,

Netherlands and Scandinavian countries. French companies reached out

into Belgium, Spain, Italy and Switzerland. These countries, as well as

Austria and Hungary did not establish their own companies until the middle

of the 19th century. Life insurance did not prosper in the United States

during the 18th century because of serious fluctuations in death rate. The

growth of insurance in the American colonies was hampered due to the

monopoly on corporate insurers granted by the English Crown in 1720 21.

The first mutual life insurance corporation was established in the United

States in 1759 which is now known as the Presbyterian Ministers’ Fund. The

Girard Life Insurance, Annuity and Trust Company of Philadelphia,

established in1836, used a new principle of granting policy owners

participation in its profits.

75

The first life insurance company to open business in Japan was Meiji Life

Assurance Company. Life insurance spread throughout Japan as a result of

World War II. Japanese and British insurers played a significant role in the

development of life insurance in other Asian countries22. In Korea, British

companies were most active in the insurance business until Japan gained

control of Korea in 1905. The modern Korean life industry really began in

the 1960s. British and other foreign companies played a major role in the

development of life insurance business in Singapore 23.

The global insurance industry has undergone a major change after

11th September attack on the World Trade Center in United States. An

estimated loss of $ 70 billion of this event has posed serious questions

before the players all around the world to rethink and devise their

strategies accordingly. A few insurers have disappeared from the global

picture. Also, the cover for terrorism has disappeared from the

international markets. Insurers have become cautious while underwriting

risk on a global basis. In terms of demand, Japan and the U.S.A. are still the

largest insurance markets, accounting over 70 percent of global premiums.

Insurance penetration (premium volume as a percent of GDP) for life

insurance is highest in Japan, South Africa, and the Republic of Korea where

it averages over 10 percent.

Worldwide insurance premium amounted to US $ 3723 billion in 2006

comprising of US $ 2209 billion in life and US $ 1514 billion in general

insurance business. At this level the premium has increased by 5.0 per

cent in real terms in 2006 as compared to 2.5 per cent in 2005. The growth

in life insurance premium was about 7.7 percent which is the highest since

2000. It is interesting to note that in most of the countries the growth in life

insurance premium was faster than growth in the economic activity. In

emerging markets, the growth in life insurance tripled to 21.1 percent from

7.5 percent in 2005.

76

Indian Perspective

The insurance business in India has completed a full circle from being

an open competitive market to nationalization and to a liberalized market

again. The saga of life insurance business in India can be viewed in three

different phases, namely:

(1) Pre-nationalisation,

(2) Post–nationalisation and pre-liberalisation

(3) Post-liberalisation

1. Pre-nationalisation

The insurance business in India dates back to 1818 when the first

insurance company called Oriental Life Insurance Company established at

Calcutta. This was followed in quick succession with the establishment of

Bombay Life Insurance Company in 1823 and Madras Equitable in 1829.

About 285 companies were formed during the period from 1818 to 1868

and out of these, 174 had ceased to exist by 1870 24. The oldest known life

policy issued in India appears to be the one sold by the Royal insurance on

the life of one Cursetjee Furdoonjee on 6th January 1848 25. There were in

all nearly 15 companies working in India by 1870, out of which seven were

established in India and eight foreign companies with their head offices in

U.K. Prior to 1871, Indians were charged about 15 percent more premiums

as compared to Europeans26. Bombay Mutual Life Insurance Society

established in 1870 was the first company not to differentiate between

Indians and Europeans in the matter of fixation of premium 27. The period

of 20 years after the establishment of ‘Bombay Mutual’ was dominated by

small societies, promoted mainly for the benefit of specified communities.

Foreign companies had an upper hand in matters of insurance business and

they enjoyed near monopoly right up to the end of the 19th century.

77

The Swadeshi movement (1905-1907) gave a great impetus to

formation of more number of insurance companies. Subsequently,

insurance regulations formally began in India through the passing of the

Life Insurance Companies Act, 1912. In 1914, there were only 44 insurance

companies in India and during the next 25 years it rose to 176 but many of

them failed 28. The Insurance Act, 1912 was later broad –based and the

Insurance Act 1928 came in to existence. The Insurance Act was

subsequently reviewed and a comprehensive legislation was enacted called

the Insurance Act, 1938. There was mushroom growth of insurance

companies in India after the passing of Insurance Act, 1938. But the per

capita insurance in India was minimum during that period with USA Rs.

2000, UK Rs. 600, and India Rs. 8 29.

After independence, the Indian Insurance business witnessed severe

competition as a result of which the known – Indian Insurance were

dislodged by Indian Life Insurance companies. From Rs.62.94 crores

business in 1943, it reached to rupees 122.78 crores in 1945; the first time

that Indian Insurance crossed the Rs. 100 cores mark 30. Even this limited

growth was marked by many malpractices, deficiencies, and frequent

liquidations of insurance companies shaking public confidence. During the

decade 1945-1955, as many a 25 insurers went into liquidation and equal

number had to transfer their business to other companies.

Since banking and insurance in those days were in the hands of big

industrial houses, there was interlocking of funds between them. Life

insurance business remained essentially an urban phenomenon during

these years. This led to the nationalization of life insurance. By 1956, 154

Indian insurers, 16 foreign insurers and 75 provident societies were carrying

on life insurance business in India. The bill to provide for the nationalization

of Life insurance business in India was introduced in the Lok Sabha on 18th

78

February 1956 and it became an act on 01.07.1956 and Life Insurance

Corporation of India came in to being on 1st September 1956. At the time of

nationalization, LIC had 05 Zonal Offices 33 Divisional Offices 212 Branches

and Sub-Offices all over India at 97 Centres 31. Table 3.2 exhibits the life

insurance business in India from 1928 to 1956 (pre nationalization period).

Table 3.2 reveals that new business number of policies sold has

increased from 93,000 to 5,67,000 during the pre-nationalisation period

from 1928 to 1956 i.e., an increase of 509.68 percent over a period of 28

years. The sum assured of new business policies increased from Rs. 15.50

crore to Rs. 200.28 crore i.e., an increase of 1192.13 percent during the

same period. The number of policies in force increased from 5,64,000 to

49,99,000 during the period from 1928 to 1956. The increase in terms of

percentage was 786.35. The sum assured of business in force during the

pre-nationalisation period increased from Rs. 124 crore to Rs. 1,275 crore

i.e., an increase of 928.23 percent over a period of 28 years.

79

Table 3.2

Life Insurance Business in India (Pre-nationalisation): 1928-1956

(No. of policies in thousands, sum assured in crores of rupees)

YearNew Business Business in Force

No. ofPolicies

Growth (%)

Sum Assured

Growth (%)

No. of Policies

Growth (%)

Sum Assured

Growth (%)

1928 93 - 15.50 - 564 - 124 -1929 143 53.76 28.75 85.49 656 16.31 142 14.521930 145 1.39 27.50 -4.35 717 9.30 154 8.451931 125 -13.79 26.66 -3.05 714 -0.42 168 9.091932 139 11.20 27.66 3.75 774 8.40 178 5.951933 183 31.65 33.00 19.31 867 12.02 193 8.431934 215 17.48 38.00 15.15 987 13.84 215 11.401935 239 11.16 43.50 14.47 1095 10.94 235 9.301936 273 14.22 46.75 7.47 1261 15.16 261 11.061937 294 7.69 48.66 4.08 1371 8.72 277 6.131938 322 9.52 51.70 6.25 1516 10.58 298 7.581939 300 -6.83 46.62 -9.83 1497 -1.25 272 -8.721940 206 -31.33 36.11 .22.54 1553 3.74 286 5.151941 200 -2.93 39.51 9.42 1592 2.51 292 2.101942 178 -11.00 42.83 8.40 1661 4.33 323 10.621943 296 66.29 72.12 68.38 1821 9.63 369 14.241944 451 53.36 108.90 51.00 2127 16.80 454 23.031945 599 32.81 136.30 25.16 2592 21.86 557 22.691946 617 3.00 153.80 12.84 27974 7.91 651 16.881947 544 -11.83 139.60 -9.23 2936 4.97 706 8.451948 486 -10.66 134.60 -3.58 3025 3.03 724 2.551949 544 11.93 142.20 5.65 3303 9.19 765 5.661950 498 -8.45 139.50 -1.90 3280 -0.70 780 1.961951 474 -4.82 147.90 6.02 3414 4.08 873 11.921952 534 12.66 146.70 -0.81 3925 14.97 922 5.611953 558 4.49 155.20 5.79 4079 3.92 966 4.771954 773 38.53 255.25 64.46 4782 17.23 1177 21.841955 831 7.50 260.84 2.19 4782 0.00 1220 3.651956 567 -31.76 200.28 -23.22 4999 4.54 1275 4.51

Source: Journal of Insurance & Risk Management Vol. 1, Issue 2, May 2003.

2. Post-Nationalisation and Pre-Liberalisation Period

Indian life insurance industry, since nationalisation, has registered a

significant growth and gradually increased its share in household financial

savings and premium income has done reasonably well32.

80

Table 3.3 Life Insurance Business in India

(Post-Nationalisation & Pre-Liberalisation Period): 1957- 1999 (No. of policies in thousands and sum assured in

crores)

YearNew Business Business in Force

No. ofpolicies

Growth%

Sum Assured

Growth%

No. of Policies

Growth%

Sum Assured

Growth%

1957* 932 64.37 328.08 38.95 5417 8.36 1381.61 8.361958 930 0.21 337.45 2.85 5974 10.28 1523.67 10.281959 1115 19.89 417.69 23.78 6880 11.82 1703.74 11.821960 1226 9.95 486.02 16.36 7456 11.62 2000.66 17.431961 1462 19.25 598.79 23.20 8336 11.80 2512.68 25.59

1963** 1758 20.25 734.72 22.70 9261 11.09 2897.21 15.301964 1638 6.82 692.55 -5.74 10119 9.26 3263.33 12.641965 1436 12.33 690.03 -0.36 10670 5.44 3577.33 9.621966 1555 8.29 789.29 14.38 11410 6.93 3995.93 11.701967 1406 9.58 757.94 -3.97 11998 5.15 43338.94 8.581968 1423 1.21 835.40 10.22 12643 5.37 4745.77 9.381969 1450 1.89 920.65 10.20 13345 5.55 5236.63 10.341970 1397 3.65 1025.80 11.42 13919 4.55 5781.20 10.401971 1612 15.39 1215.63 18.50 14693 5.41 6521.47 12.801972 1896 17.62 1498.05 23.23 15711 6.93 7496.21 14.951973 2018 6.43 1726.01 15.21 16792 15.71 8638.10 15.231974 2047 1.14 1912.87 10.83 17943 6.85 9940.70 15.081975 1796 12.26 1760.89 -7.94 18745 4.47 10967.28 10.331976 2009 11.86 2104.00 19.48 19606 4.59 12217.43 11.391977 2053 2.19 2095.40 -0.41 20225 3.41 13382.19 9.531978 1854 9.96 2004.86 -4.32 20708 2.13 14342.29 7.171979 1755 5.53 2057.40 2.62 21173 2.24 15435.19 7.621980 2096 19.43 2733.11 32.84 22039 4.09 17234.24 15.651981 1954 6.67 2882.72 5.47 22758 3.26 19103.12 10.841982 2103 7.62 3778.92 20.68 23604 3.72 21382.97 11.931983 2231 6.09 3974.39 14.24 24378 3.28 23779.98 11.211984 2366 6.05 4386.98 10.38 25271 3.66 26572.89 11.741985 2700 14.11 5375.93 22.54 26477 4.77 30214.34 13.701986 3286 21.70 7056.07 31.25 27689 5.71 35039.34 15.971987 3868 17.71 9067.45 28.50 29802 6.48 41431.69 18.241988 4694 21.35 12434.51 37.13 32346 8.54 50656.30 22.261989 5979 27.37 17222.84 38.51 36079 11.54 63866.56 26.081990 7392 23.63 23219.53 34.82 40339 11.81 81413.95 27.471991 8645 16.95 28139.07 21.19 45508 12.81 102262.83 25.611992 9328 6.86 32064.44 13.95 50863 11.77 125037.88 22.271993 9958 7.79 35956.82 12.14 56612 11.30 150624.33 20.461994 10726 7.71 41813.83 16.29 60800 7.40 174233.16 15.671995 10875 1.39 55228.50 32.08 65452 7.65 211972.87 21.661996 11021 1.34 51815.54 -6.18 70878 8.29 243422.55 14.841997 12268 11.31 56740.50 9.50 77666 9.58 280979.84 15.431998 13311 8.50 63617.69 12.12 84915 9.33 323677.51 15.191999 14844 11.52 75316.28 18.39 91637 7.92 368496.08 13.85

* 15 months ending in December.** 15 months ending in March.Source: Journal of Insurance and Risk Management, Vol. 1, Issue2, May 2003.

81

Table 3.3 gives the growth of life insurance business in India during

the post nationalisation period i.e., from fiscal year 1957 to 1999. The

number of new policies sold increased from 9,32,000 to 1,48,44,000 at a

growth rate of 1,492.70 percent and sum assured of new policies sold

increased from Rs.328.08 crore to Rs.75,316.28 crore at a growth rate of

22,856.68 percent over a period of 42 years from 1957 to 1999. The

business in force in terms of number of policies increased from 54,17,000 to

9,16,37,000 at a rate of 1,591.65 percent and the sum assured of business

in force increased from Rs.1,381.61 crore to Rs.3,68,496.08 crore at a rate

of 26,571.50 percent during the same period.

During the post nationalised era, the industry introduced more than

fifty different products to cater to the needs of different segments of the

market. Statistics indicate the creditable performance of life insurance

industry in terms of covering of premium, the number of products sold, and

the variety of products introduced but also in the area of geographical

coverage. However, the monopoly and the growth of business over a

period of time have not met the requirements that normally one anticipates

when it comes to growth of business 33.

Despite the impressive growth indicated by the Table 3.3, there was

a general feeling of dissatisfaction with the performance of the insurance

sector when viewed against the relevant demographic data. In the mid

nineties when the economic reforms process was under way, the total

insurance premium as a proportion of Gross Domestic Product (GDP)

amounted to a paltry 1.80 percent of which life premium accounted for only

1.2 percent and non-life premium for only 0.6 percent, which was negligible

as compared to Malaysia (3.7 percent), Hong Kong (31percent), Thailand (2

percent), and Japan (8.7 percent). According to the World Development

Report 1999-2000 and World insurance in 1997, the life fund as percentage

of Gross Domestic Savings (GDS) in USA was 25.40 percent, UK 55.40

82

percent, Canada 15.70 percent, Japan 27.10 percent, South Korea 25.90

percent, Malaysia 9.2 percent, Brazil 22 percent, Philippines 4.10 percent,

and China 1.19 percent. Life fund as percentage of GDS in India was 6.02

percent in the year 1998-99, as per the report 34. Life fund as percentage

of GDS in the developed and developing countries shows the progress

made by insurance industry in these countries.

Insurance Sector Reforms in India

Reforms in the insurance sector in India started part of the

liberalization, privatization and globalization process initiated by the

Government. In 1993, Malhotra Committee, headed by former Finance

Secretary and RBI Governor, R.N. Malhotra, was formed to evaluate the

Indian insurance industry and recommend future direction. The committee

was set up with the objective of complementing the reforms initiated in the

financial sector. In 1994, the committee submitted the report and some of

the key recommendations included: 35

(i) Structure

Government stake in the insurance companies to be brought down to

50%.

Government should take over the holdings of GIC and its subsidiaries

so that these subsidiaries can act as independent corporations.

All the insurance companies should be given greater freedom to

operate.

(ii) Competition

Private companies with a minimum paid up capital of Rs.1 billion

should be allowed to enter the industry.

83

No company should deal in both Life and General Insurance through

a single entity.

Foreign companies may be allowed to enter the industry in

collaboration with domestic companies.

Postal life insurance should be allowed to operate in the rural market.

Only one State Level Life Insurance Company should be allowed to

operate in each state.

(iii) Regulatory Body

The Insurance Act should be changed.

An Insurance Regulatory body should be set up.

Controller of Insurance (Currently a part from the Finance Ministry)

should be made independent.

(iv) Investments

Mandatory Investments of LIC Life Fund in government securities to

be reduced from 75 % to 50 %.

GIC and its subsidiaries are not to hold more than 5 % in any

company (There current holdings to be brought down to this level

over a period of time).

(v) Customer Service

LIC should pay interest on delays in payments beyond 30 days.

Insurance companies must be encouraged to set up unit linked

pension plans.

Computerisation of operations and updating of technology to be

carried out in insurance industry.

84

The committee emphasized that in order to improve the customer

services and increase the coverage of the insurance, the industry should be

opened up to competition. But at the same time, the committee felt the

need to exercise caution as any failure on the part of new players could ruin

the public confidence in the industry.

The Insurance Regulatory and Development Authority (IRDA)

The insurance sector began its reform process with the passage of

the insurance Regulatory and Development Authority (IRDA) bill in

Parliament in December 1999. With the setting up of IRDA, the government

has once again de-regulated the sector opening it for private players. One

of the primary objectives of the Indian insurance regulation is the protection

of policyholders against insolvency of insurance companies. To achieve this

objective, the Regulator is endowed with a host of regulatory and

supervisory powers, delegated to him by the government to ensure the

financial and managerial soundness of insurers’ licensed36. The IRDA since

its incorporation as a statutory body in April 2000 has fastidiously stuck to

its schedule of framing regulations and registering the private sector

insurance companies. As per the Act, new entrants, who must be Indian,

will be granted license to transact insurance business only if they introduce

a minimum capital of Rs. 100 crore for life and general insurance business

and Rs. 200 crore for re-insurance business. Foreign collaboration will be

allowed but foreign investment is capped at 26% of the total capital. The

minimum solvency margin for private insurers is Rs. 50 crore for life

insurance companies, Rs. 50 crore or a sum equivalent to 20 percent of net

premium income for general insurance and Rs. 100 crore for re-insurance

companies.

Some of the very important functions of the Regulator include inter

alia the following:

85

Licensing to transact insurance business.

Ensuring security to policyholders.

Control over products and illustrations/sales literatures.

Monitoring mechanism.

There are also other functions like provisions in regard to

management expenses and agency commissions, re-insurance, standards

of accounting, consumer grievance reddressals, control over company

operations etc.

According to the Act, a person desiring to obtain or renew a licence

to act as an insurance agent or a composite insurance agent shall make an

application to the regulator in prescribed form. The applicant shall possess

the minimum qualification of a pass in 12th standard or equivalent

examination, where the applicant resides in urban area, and a pass in 10th

standard or equivalent examination if the applicant resides in rural area.

The applicant shall have completed from an approved institution, at least,

one hundred hours practical training in life or general insurance business as

the case may be, where such applicant is seeking license for the first time

to act as insurance agent. The period of training shall be 150 hours, if the

person is seeking license for the first time to act as a composite insurance

agent. The applicant shall have passed the pre-recruitment examination in

life or general insurance business, or both, as the case may be, conducted

by the Insurance Institute of India, Mumbai, or any other examination body.

The proposed insurance company, when applying for licence, has to

submit complete details about the promoters and their financial standing;

also it’s paid up capital and other financial data. It has also to submit its

strategic plans and financial projections for initial stipulated number of

years.

Rural and Social Sector Obligations

86

Every insurer, who carries on insurance business after the

commencement of the IRDA Act, 1999 is required to ensure that the

following obligations are undertaken, during the first financial years, in

respect of the following:

(a) Rural Sector (where the population is not more than 5000; population

density not more than 400 per Sq. Km; and at least 75 percent of male

working population is engaged in agriculture) in respect of life insurer.

5 % in the first financial year;

7 % in the second financial year;

10 % in the third financial year;

12 % in the fourth financial year;

15 % in the fifth year; of total policies written directly in that year.

(b) Social Sector (includes unorganized sector, informal sector,

economically vulnerable or backward classes and other categories of

persons, both rural and urban areas) in respect of all insurers.

5,000 lives in the first financial year;

7,500 lives in the second financial year;

10,000 lives in the third financial year;

15,000 lives in the fourth financial year;

20,000 lives in the fifth year.

In case of government insurers the quantum of insurance business to

be done shall not be less than what has been recorded by them for the

accounting year ended 31st March, 2000.

3. Life Insurance in the Post-Liberalised Era

87

With foreign direct investment in the insurance sector permitted up

to 26 percent of equity, global insurers have rushed into the Indian market

to capitalize on the sizeable middle class. Indian private companies have

also entered into the field. The first of the licenses for the companies in the

private sector was issued in October, 2000 to HDFC Standard. Insurance

industry as on 1-4-2000 comprised mainly two players: (1) Life Insurance

Corporation of India (LIC) in the life sector and (2) General insurance

Corporation of India (GIC) in the non-life sector. GIC had four subsidiary

companies, namely: i) The Oriental Insurance Company Limited, ii) The New

India Assurance Company Limited, iii) National Insurance Company Limited,

and iv) United India Insurance Company Limited. With effect from

December 2000, these subsidiaries have been de-linked from the parent

company and made as independent insurance companies. With effect from

December 2000, the GIC functions as a National Re-insurer.

Insurance industry in the year 2000-2001 alone had 16 new entrants;

ten in the life sector and six in the non-life sector. Since opening up of the

insurance sector in 1999, 27 private companies have been granted licenses

by 31st March, 2007 to conduct business in life and general insurance. Of

the 27, 16 were in the life insurance and eleven (including a standalone

health insurance company) in general insurance (see Table 3.4). During the

last several years capital amounting to Rs. 8,119.41 crore was brought in

by the private players, of which the contribution of foreign partners has

been Rs.1,809.75 crore 37. There has been no infusion of capital in the case

of LIC which stood at Rs. 5 crore (See appendix 1).

Table 3.4

Number of Registered Insurers in India

Type of Business Public Sector Private Sector

Total

Life Insurance 1 16* 17

88

General insurance 6 11# 17

Re-insurance 1 0 01

Total 8 27 35

* One has been granted registration in 2007-08. # Two have been granted registration in 2007-08. Source: IRDA Annual report 2006-07.

Indian insurance sector recorded an impressive growth after the

sector was opened for private players. According to the IRDA Annual

Report, the life and non-life market touched Rs.1,00,000 crore mark. Indian

insurance business, which remained underdeveloped with low levels of

insurance penetration and insurance density, has shown signs of

improvement after opening of the market in 2000. The premium

underwritten in India and abroad by life insurers in 2006-07 has grown by

47.38 percent as against 27.78 percent in 2005-06. First year premium

including single premium accounted for 48.45 percent and renewal

premium accounted for 51.55 percent of the total life premium. The

industry services the largest number of life insurance policies in the world.

Competition among the companies has impacted their efficiency in

production, innovation and claim management. Further, new untapped

market is being exploited by the private insurers forcing the public insurer

to come out with innovative schemes.

Life insurance penetration and density throw light on the business

performance of life insurance providers at global level. The insurance

penetration in a country depends on its level of economic activity, risk

awareness among the people and the deepening of the financial system.

Insurance penetration is measured in terms of premium (in US$) as a

percentage of GDP of the country and insurance density is measured as

ratio (in percent) of premium to total population. Even though there has

been growth in the life insurance business after the entry of private players,

89

the fact remains that the insurance penetration and insurance density in

India, compared to some of the developed and developing countries of the

world is very low in the post liberalized era 38. Table 3.5 shows the life

insurance penetration in some of the developed and developing countries of

the world.

90

Table 3.5

International Comparison of Life Insurance penetration (premium as % of

GDP)

Countries 2000 2001 2002 2003 2004 2005 2006 2007

United States 4.48 4.40 4.60 4.38 4.22 4.14 4.00 4.20

Canada 3.27 2.97 2.81 2.63 2.97 3.05 3.10 3.20

Brazil 0.36 0.36 1.05 1.28 1.36 1.33 1.30 1.40

Mexico 0.86 0.86 0.94 0.78 0.79 0.68 0.80 0.90

Chile 2.92 2.93 2.53 2.61 2.55 2.24 2.00 2.20

United Kingdom 12.71 10.73 10.19 8.62 8.92 8.90 13.10 12.60

Germany 3.00 3.00 3.06 3.17 3.11 3.06 3.10 3.10

France 6.59 5.73 5.61 5.99 6.38 7.08 7.90 7.30

Russia 1.13 1.55 0.96 1.12 0.61 0.12 0.10 0.10

Japan 8.70 8.85 8.64 8.61 8.26 8.32 8.30 7.50

South Korea 9.89 8.69 8.23 6.77 6.75 7.27 7.90 8.20

PR China 1.12 1.34 2.03 2.30 2.21 1.78 1.70 1.80

India 1.77 2.15 2.59 2.26 2.53 2.53 4.10 4.00

Malaysia 2.13 3.38 2.94 3.29 3.52 3.60 3.20 3.10

Indonesia 0.54 0.53 0.66 0.66 0.63 0.82 0.80 1.10

South Africa 14.04 15.19 15.92 12.96 11.43 10.84 13.00 12.50

Nigeria 0.13 0.14 0.11 0.14 0.17 0.09 0.10 0.10

Kenya 0.72 0.82 0.81 0.78 0.82 0.78 0.80 0.80

Australia 6.04 5.70 5.02 4.42 4.17 3.51 3.80 3.80

Asia 5.96 5.84 5.81 5.74 5.58 5.16 5.00 4.60

World 4.88 4.68 4.76 4.58 4.55 4.34 4.50 4.40Source: Swiss Re Sigma Vol., 2001, 2002, 2003, 2004, 2005, 2006, 2007, and 2008.Note: Data relates to calendar years.

It is evident from Table 3.5 that life insurance penetration in India

which was 1.77 percent in 2000 increased to 4 percent in 2007 at a growth

rate of 125.99 percent. However, in respect of life insurance, India presents

a clear case of under insured country (4 percent of GDP) compared to the

world average (4.40 percent), Asian average (4.60 percent) and developed

countries like U.K. (12.60 percent), France (7.30 percent), and developing

countries in Asia like Japan (7.50 percent), South Korea (8.20 percent) in

2007.

91

Table 3.6

International Comparison of Life Insurance Density (premium per capita in US

$)

Countries 1999 2000 2001 2002 2003 2004 2005 2006

USA 1446.6 1611.4 1602.0 1662.6 1657.5 1692.5 1753.2 1789.5

Canada 674.6 757.2 675.9 657.3 722.9 926.1 1071.9 1204.1

Brazil 11.8 12.9 10.8 27.2 35.8 45.9 56.8 72.5

Mexico 41.3 50.8 53.2 59.2 41.3 50.2 49.9 62.9

Chile 114.3 126.0 122.1 103.5 138.3 164.5 174.9 176.0

UK 2502.8 3028.5 2567.9 2679.4 2417.1 3190.4 3287.1 5139.6

Germany 762.2 683.0 674.3 736.7 930.4 1021.3 1042.1 1136.1

France 1392.3 1437.4 1268.2 1349.5 1767.9 2150.2 2474.6 2922.5

Russia 9.9 19.5 33.2 23.1 33.9 24.8 6.3 4.0

Japan 3103.4 3165.1 2806.4 2783.9 3002.9 3044.0 2956.3 2829.3

South Korea 760.5 935.6 763.4 821.9 873.6 1006.8 1210.6 1480.0

PR China 8.3 9.5 12.2 19.5 25.1 27.3 30.5 34.1

India 6.1 7.6 9.1 11.7 12.9 15.7 18.3 33.2

Malaysia 78.1 86.4 129.5 118.7 139.8 167.3 188.0 189.2

Indonesia 4.4 4.0 3.6 5.2 6.4 7.5 10.5 12.5

South Africa 413.0 392.9 377.2 360.5 476.5 545.5 558.3 695.6

Nigeria 0.2 0.4 0.5 0.5 0.6 0.7 0.5 0.8

Kenya 2.4 2.4 2.9 3.0 3.4 3.7 4.5 5.3

Australia 1333.6 1193.5 1040.3 1010.4 1129.3 1285.1 1366.7 1389.0

Asia 133.3 138.8 125.0 128.1 140.1 147.2 149.6 154.6

World 235.4 239.9 235.0 247.3 267.1 291.5 299.5 330.6

Source: Swiss Re Sigma 2000, 2001,2002,2003,2004, 2005, 2006 and 2007.Note: Data relates to calendar years.

Table 3.6 represents the insurance density in terms of premium per

capita (in USD) at global level. Life insurance density in India which was 6.1

USD in 1999 increased to 33.2 USD in the year 2006 i.e., at a growth rate of

444.26 percent. However, while considering the significance of insurance in

the life of an individual and the performance of the industry at the global

level, the performance of India looks very gloomy during the period from

92

1999 to 2006. Life insurance density in India was just 33.2 USD compared

to the world average (330.6 USD), Asian average (154.6 USD) and

developed countries like USA (1789.5 USD), UK (5139.6 USD), Germany

(1136.1USD), France (2922.5 USD), Japan (2829.3 USD), developing

countries in Asia like South Korea (1480 USD), Malaysia (189.2 USD) in

2006. Analysis of table 3.5 and 3.6 reveals that there is a gap between

what is offered and what is demanded, with regard to life insurance in India.

Growth of life insurance industry is measured in terms of first year

premium income. Since the first private insurer entered in the market in

October 2000, the year 2001-02 is taken as the first full year of operations

in the post IRDA era. Table 3.7 reveals the growth of Indian life insurance

industry in the post-liberalised period from 2001-02 to 2006-07.

Table 3.7

Growth of Life Insurance Industry in the Post-Liberalised era

YearFYPI - LIC

(Rs. in cr.)

Growth(in %)

Private insurers

FYPI (Rs.in cr.)

Growth(in %)

Total FYPI(Rs. in

cr.)

Growth (in %)

2001-02 16,403.1

2

- 268.51 - 16,671.6

3

-

2002-03 12,775.9

7

-22.11 958.13 256.83 13,734.1

0

-17.62

2003-04 12,936.9

0

1.26 2,048.62 113.81 14,985.5

2

9.11

2004-05 17,342.1

8

34.05 4,880.91 138.25 22,223.0

9

48.30

2005-06 21,698.9

1

25.12 9,189.12 88.27 30,888.0

3

38.99

2006-07 44,540.4

1

105.26 16,928.09 84.22 61,468.5

0

99.00

Note: Figures do not include Group & Superannuation business. Source: Asia Insurance Post, Vol.6, Issue 11, June 2006.

93

It can be visualised from Table 3.7 that the First Year Premium

Income (FYPI) for the industry in the year 2001-02 (i.e., the first full year of

operations in the Post- IRDA era) was Rs.16,671.63 crore, out of which

Rs.268.51crore was the contribution of the private sector companies. The

FYPI for the industry in 2006-07 was Rs.61,468.50 crore, out of which

Rs.16,928.09 crore was the contribution of the private insurers. The FYPI

recorded a negative growth of 17.62 percent in 2002-03 which can be

attributed to the decline in the premium income of LIC, which again was

due to the fall in the number of its agents in the same year 39. The industry

picked up and recorded the highest growth of 99 percent in the year 2006-

07. The growth in premium income for the period from 2001-02 to 2006-07

was 6204.45 percent for the private insurers whereas it was 171.54 percent

in the case of LIC. The growth rate for the industry as a whole was 268.70

during the same period. Figure 3.2 depicts the growth of life insurance

industry in India in the post-liberalised era.

94

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Am

ou

nt

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Year

Figure 3.2Growth of Life Insurance Industry in the Post-Liberalised era

LIC

Private insurers

Table 3.7 depicts that FYPI of LIC fell down to 22.11 percent whereas

it increased to 256.83 percent in the case of private insurers in 2002-03 i.e.,

the very next year of commencement of business by private players. But

by the end of 2006-07, LIC picked up and was able to grow at a rate of

105.26 percent, whereas growth rate of private players fell down from

256.83 percent in 2002-03 to 84.22 percent in 2006-07.

Life insurance business is significantly influenced by the state of

economy of a country and major impacting factors are rate of growth of

GDP, domestic savings, household financial savings, disposable income,

etc. The share of life insurance funds in Gross Domestic Savings (GDS) has

increased considerably after the liberalization process initiated in the

country 40. Table 3.8 portrays the growth of life insurance funds in Gross

95

Domestic Savings (GDS), Financial Savings (FS), and Household Savings

(HS) for the period from 1993-94 to 2002-03.

Table 3.8

Gross Domestic Saving: Life Insurance Funds

YearLife Insurance Funds

% Share in Gross Domestic Savings

% Share in Financial Savings

% Share in Household

Savings1993-94 4.75 9.71 5.811994-95 4.38 9.12 5.531995-96 4.53 12.79 6.261996-97 4.91 10.99 6.681997-98 5.32 12.77 6.981998-99 6.02 12.52 6.911999-00 5.91 13.46 6.852000-01 6.59 14.67 7.132001-02 8.25 17.36 8.512002-03 6.86 16.13 7.34Source: National Income Statistics, Centre for Monitoring Indian Economy.

The share of life insurance funds in GDS have increased from 4.75

percent in 1993-94 to 6.86 percent in 2002-03. At the same time, life

insurance funds in Financial Savings (FS) have increased from 9.71 percent

to 16.13 percent, and in Household Savings (HS) the share increased from

5.81 percent to 7.34 percent during the same period. Though the share of

life fund in household financial assets has gone up during the last decade

and Indian life insurance industry registered better growth rate compared

with global growth rate, life insurance premium volume and global market

share remained quite low. Table 3.9 throws light on the premium volume of

some of the developed and developing countries of the world in 2006 and

2007, and global share of life premium in USD in 2007, reported by Swiss

Re Sigma.

Table 3.9

Global Share of Life Premium

(in US $ in 2007)Premium Volume Change Share of World

96

Country (in millions of USD) in 2007 (in %)

Market in 2007(in %)

Ranking

2006 2007

United States 533223 578357 8.5 24.17 1

United Kingdom 256890 349740 36.1 14.61 2

France 176578 186993 5.9 7.81 4

Italy 91878 88215 -4.0 3.69 6

Germany 92974 102419 10.2 4.28 5

Japan 343490 330651 -3.7 13.82 3

PR China 45029 58677 30.3 2.45 8

Taiwan 41253 49813 20.7 2.08 10

India 34587 47132 36.3 1.97 11

South Africa 33106 34927 5.5 1.46 14

Australia 28287 34725 22.8 1.45 15

World 2125791 2393089 12.6 100.00 Source: Swiss Re Sigma No.3/2008

The share of India in World market was only 1.97 percent in respect

of premium volume during the year 2007. USA was in the first place

followed by Japan and U K in the second and third position respectively, in

the year 2007. At the same time, life premium volume in respect of India

has increased from US $ 34587 in 2006 to US $ 47132 in 2007 at a growth

rate of 36.27 percent. However, the world ranking in terms of life

insurance premium volume has improved from 17th in 2005 to 11th in 2007

and the share in world market has increased from 1.02 percent to 1.97

percent during the same period 41.

Conclusion

With the starting of the first life insurance company in 1818, the

organized Indian insurance industry in its life spanning nearly two centuries

has witnessed several phases of boom and bust, growth and decline,

confidence and distrust, yet has moved forward. The industry received

sharper focus after Independence. Consequent on the recommendations of

the Malhotra Committee, insurance sector was opened to private players

97

and the first private insurer commenced operations in 2000. After

liberalization, the insurance industry has been growing between 30 and 40

per cent, but it lags far behind its global counterparts when it comes to

insurance penetration and density. Insurance, together with banking

services adds about 7 per cent to India’s Gross Domestic Product. India has

the highest number of life insurance policies in force in the world. Yet more

than three fourth of India’s insurable population has no life insurance cover.

The next chapter portrays the profile of Life Insurance Corporation

and reveals the growth in marketing of life insurance products in Kannur

and Kasargod districts.

98

References:

1. Valarie, A. Zeithaml and Mary jo Bitner, Services Marketing, Tata

McGraw-Hill Publishing Company, New Delhi, pp. 156-182.

2. UNCTAD, “The Promotion of Life Insurance in Developing Countries”,

pp. iii, 1-2.

3. Philip Kotler and Kevin Lane Keller, Marketing Management, Pearson

Education, Singapore, pp. 372-397.

4. Emmett, J. Vaughan and Therese Vaughan, Fundamentals of Risk and

Insurance, John Wiley & Sons, Singapore, pp. 124-136.

5. Arthur, C. Williams, Jr, et al., Risk Management and Insurance, 8th ed.,

Irwin McGraw- Hill, p. 389.

6. Valarie A. Zeithaml and Mary Jo Bitner., op. cit., p. 182.

7. Booms, B.H., and Bitner, M.J., “Marketing Strategies and

Organisational Structures for Service firms in Marketing of Services”,

ed. J.H. Donnelly and W.R. George (Chicago: American Marketing

Association, 1981), pp. 47-51.

8. Mishra, M.N., Insurance Principles and Practice, S. Chand & Co., New

Delhi, pp. 64-109.

9. Jha, S.M., Services Marketing, Himalaya Publishing House, Mumbai,

pp. 160-203.

10. Srinivasan, K.B., “New Marketing Strategies in a Competitive

Scenario”, The Journal of Insurance Institute of India, Vol. XXVII, July-

December, 2001, pp.53-61.

11. Ibid.

12. Periasamy, Principles and Practice of Insurance, Himalaya Publishing

House, pp.183-186.

13. Ibid.

14. Shostack, G. Lyan, “Service Positioning Through Structural Changes”,

Journal of Marketing, No. 51, Jan. 1987, pp. 34-43.

99

15. Dharmendra Kumar, Tryst With Trust, LIC of India, 1991, p.2.

16. Ibid.

17. Kangle, K.P., The Kautilya Arthasastra – Part III A Study, University of

Bombay, 1965, p. 118.

18. Kanwal I.S., Text Book of Insurance, Kalyani Publishers, Ludhiana,

1988, p. 87.

19. Ibid.

20. M.N. Mishra, op. cit., 113.

21. Kenneth Black, Jr. and Harold D. Skipper, Jr., Pearson Education,

Singapore, 2003, p. 51.

22. The 100 year History of Nippon Life (Tokyo: The Nippon Life

Insurance Company, 1991), p. 5.

23. Allen, J. Pathmarajah, “Growth and Development of the Singapore Life

Insurance Market and its Future Outlook”, (Singapore: Singapore

insurance Training Centre, 1985), p. 195.

24. Gupta, P.K., Insurance and Risk Management, Himalaya Publishing

House, Mumbai, p. 78.

25. Dharmendra Kumar, “Indian Insurance: The Historical Perspective”,

India Insurance Report – Series I, pp. 21-23.

26. Gupta, P.K., op. cit., 79.

27. Gupta, P.K., op.cit. , 83.

28. Rao, C.S., Insurance: Issues and Challenges, Yojana, Vol. 50, Issue

No. 4, p. 5.

29. Sadhak, H., “Insuring Life”, Yojana, Vol. 48, Issue No. 10, 2004, pp.

31-37.

30. Bhave, S.R., Saga of Security: Story of Indian Life Insurance (1870-

1970), Life Insurance Corporation of India, Vakil and Sons, Bombay, pp.

57-63.

31. Gupta P.K., op. cit., 87.

100

32. Tripati Rao, D., privatization and Foreign Participation in (Life)

Insurance Sector, Economic and Political Weekly, Vol. XXXV No. 13,

March 25-31, 2000,pp. 1107- 1120.

33. India Insurance Report Series-I, Allied Publishers Pvt. Ltd., New Delhi,

p.39.

34. World Development Report 1999-2000.

35. Malhotra, R.N., “Report of the committee on reforms in Insurance

Sector”, Ministry of Finance, Government of India, 1994.

36. Rao, G.V., “Funding Protection”, Asia Insurance Post, Vol. 9, Issue 2,

Sept. 2008.

37. IRDA Annual report, 2006-07.

38. Krishnamurthy, S., Insurance Sector: Challenges of Competition and

Future Scenario, Vikalpa, Vol. 30, No. 3, July – September 2005, pp. 96-

101.

39. Ibid.

40. Jha, R.N., ‘Globalization of World Insurance Markets’, Yogakshema,

February 2006, pp. 5-7.

41. The Hindu Survey of Indian Industry 2007, pp. 91-93.

101