Insurance Industry

UDAY SINGH MEENA UDAY BHARATHA REDDY UDIT KHANDELWAL UDIT KUMAR UDIT NARAYAN SINGH

Insurance
2

y We face a lot of risks in our daily lives. Some of these

lead to financial losses. Insurance is a way of protecting against these financial losses. For a payment (premium), an insurance company will take the responsibility of compensating your financial losses

Insurance Sector
3

INTRODUCTION AND OVERVIEW

Insurance Introduction
4

y What is insurance? y Why do we need it? y How has the insurance industry

and the law of insurance evolved?

What is Insurance?
5

Commercial mechanism for transferring risk and spreading loss Economic Concept of Insurance: 1. Insurer offers policy to cover specified risks 2. Insurer collects policy premiums from customers 3. Insurer invests premiums 4. Insurer pays money to insured customers in the event of losses covered by policy.

What is Insurance
6

y Theoretically, everybody comes out ahead (so long as

losses do not exceed returns of invested premiums; and all parties honor their contractual obligations).
y Theoretically, the insurance industry bridges private

interests and public good.

Why do we need insurance?

7

Why do we need insurance?

8

Insurance Law
9

Sources of Insurance Obligations y Policy/Insurance Agreement y Common Law (contract theories; tort theories) y Statutes y Regulations The law of insurance is multi-layered. The prudent researcher will consider each of the layers when approaching a research problem.

The History of Insurance

10

HISTORICAL CONTEXT PROVIDES INSIGHT AND PERSPECTIVE INTO TODAY S INSURANCE INDUSTRY

The History of Insurance

11

y 3000 B.C.E. Mesopotamian merchants assess risk

surcharges in transactions with caravan operators and traders to protect their capital.
y 1750 B.C.E. Code of Hammurabi formalizes

concepts of bottomry and respondentia (protection against loss of hull and cargo, respectively) the underpinnings of maritime insurance.

History of Insurance
12

y 1574 Queen Elizabeth I grants to Richard Candler

the right to establish an insurance office in the Royal Exchange Building for the preparation and registration of policies.
y 1601 Britains Parliament enacts the Assurances Act

of 1601 creating an assurance commission for resolving policy disputes. 43 Eliz. 1 c. 12.

History of Insurance
13

y 1666 Great Fire of London. Shortly thereafter,

Nicholas Brabon opens the first fire insurance office in England. It eventually becomes The Phoenix Assurance Company. Over the next two decades, more fire insurance companies start up.

History of Insurance
y 1690s Fire

insurance companies form the first professional fire brigades.

14

Lloyds of London
y Late 1600s

Edward Lloyds Coffee House. Seafarers, merchants and insurers meet for insurance business and coffee.

Lloyds of London
y 1688 Edward Lloyd

starts a shipping newspaper and reads out shipping news from a pulpit in his coffee house; attracts even more shipowners and insurers

16

History of Insurance
y 1751 Benjamin

Franklin and other capitalists start the Philadelphia Contributorship, the first successful fire insurance company in America.

History of Insurance
18

y Mid-18th Century Many insurance companies are

more likely than banks to have substantial cash reserves. Insurance companies function as lending institutions.
y Mid-18th Century Insurance underwriting is

prosperous industry in America. Lloyds of London also draws a significant share of Colonial Americas underwriting business (capitalization).

Rise of Risk Management

y 1906 S.F.

Earthquake Lloyds underwriter, Cuthbert Heath, orders agents to pay all claims in full regardless of policy terms. Lloyds pays $50 Million in claims.

Rise of Risk Management

y Public confidence in

insurance industry soars; industry booms; risk management innovations; new types of insurance emerge.

20

Lloyds of London
y Today, Lloyds of

London is an insurance icon

y Not an insurance

company, but an exclusive insurance market

Changing Customer Expectations in Insurance Sector

22

PRE TO POST LIBERALIZATION

Comparisons of factors influencing Insurance market

23

Pre Liberalisation
Security Savings Tax Rebate 43% 14% 43%

Post Liberalisation
Security 50% Savings* 34% Tax Rebate 16% * childrens education, daughters marriage, retirement plan

Motivating Factor(s) for Considering Insurance

Sources of Information on Insurance & Product Awareness

Friends, Colleagues, Relatives and Agent Low awareness of several insurance products due to poor communication in spite of availability Additionally from direct mailers, consumer meets, internet & media (mass media & outdoor) Rising level of awareness of new products of both LIC and private companies

Choice of First Policy

Money Back Endowment Whole Life 60% 40% 0% Money Back 42% Endowment 48% Whole Life 10% This change in product-mix reflects maturing of the insurance customer

Pre Purchase Process : LIFE

24

Pre Liberalisation
Approach of Agent - informal and through referral Long term family type of relationship Often selling insurance as commodity Average communication skills

Post Liberalisation
Approach - more professional, sometimes aggressive (in one or two private company agents) Proactive in contacting prospects directly, often has to start from selling concept of insurance rather than product Conducts financial health check up and then offers suitable products / solutions Better communicator & presenter Handles larger number of queries

Approach of the Agent and Consumers Experience

Awareness & Consideration of Private Players

Private Companies Overall SECA SEC B SEC C Awareness 73% 93% 83% 50% Consideration 35% 65% 30% 10% SEC B & C prospect not influenced much by direct contact of agent and generally takes decision only after consulting informed family member or friend.

Awareness of New Products- LIFE

25

 Though most SEC A & some SEC B customers have generally heard of change in

product offering after liberalization but unable to provide any details.  Only some customers have mentioned new products such as  Products with multiple riders-medical, accident, waiver of premium rider  Pension/retirement benefit plans  Flexi premium plans product with single premium and short time premium option
 Some customers exposed to new products perceive new products similar to old

ones and do not offer any additional advantage. New policies are like old wine in new bottle

Purchase Process : LIFE

26

Pre Liberalisation
No. of customers getting discount : 50% Rate of discount : 25%-50% of first year premium

Post Liberalisation Discount Offering Practices

Customers getting discount : 33% (highest in Delhi) Rate of discount : More or less same

Policy Delivery
Mode - Registered post for LIC, hand delivered by agent in 23% cases Mode - Registered post for LIC - Courier for private companies In both cases, policy comes in attractive, protective plastic jacket Time taken LIC Private Co Up to 1 week 5% 85% Up to one month 77% 15% > 1 month 18% 0%

Time taken Up to 1 week One month > 1 month

0% 65% 35%

Post Purchase Process : LIFE

27

Pre Liberalisation
Generally no correspondence from either company or agent except for late premium payment reminder from company Agent maintained informal contact with close customers

Post Liberalisation
Mailers from both private companies & LIC on products & services, greeting cards on birthdays, anniversary and new year Phone calls from private company call centres Agent in regular contact for offering new products

Correspondence (other than premium notice) from Company / Agent

Delay in Premium Payment

Incidence of delay high 30% (due to irregular receipt of premium notice from
company / reminder from agent)

Incidence of delay low

15%

(more regular receipt of premium notice from company / reminder from agent)

Changing Customer Expectations - LIFE

28

Role of IRDA
 Educate public on regulatory safeguards, investment guidelines and plough back of

profits (several people had expressed concern about security of their money, credibility of private insurance companys investment of funds in foreign markets and repatriation of profits to foreign countries)  Inform public on Social and Rural obligations of private players (several people believed that only LIC was responsible for insuring the poor)

Changing Trends in Savings Pattern

29

Pre Liberalisation
Saving Instruments Insurance Bank Deposit PPF NSC Shares Post office Bonds Gold TOTAL % of Respondents 23 28 19 12 7 7 0 4_ 100

Post Liberalisation
Saving Instruments Insurance Bank Deposit PPF NSC Shares Post office Bonds Gold TOTAL % of Respondents 33 44 8 0 3 3 9 0_ 100

* When the respondents were asked where they would invest their extra income, if any, the top responses were recorded as above

Other Non-life Policies (Health, Property, Accident)

30

 Awareness of Tata AIG, ICICI Lombard, Cholamandalam, Bajaj Allianz and     

Royal Sundaram among private companies No respondent interviewed had taken insurance from any private company Respondents did not feel the need to take a separate accident insurance policy, as most of them perceived it to be covered under life insurance Companies regular in sending notice for renewal of policy (pre and post liberalisation) Instances of paying premium by credit card observed (post liberalisation) Customers satisfied with both company and agent (pre and post liberalisation)

Claim Settlement Process NON-LIFE

31

Vehicle Insurance
Accident Claim
    

Surveyor comes unannounced and after several days, customer unable to meet him and explain his case face to face Company approves claim for amount much less than repair estimate submitted Agent often does not take responsibility to facilitate process of claim settlement Owner has to pay repair bill and only then claim payment from company Claim settlement takes from 1 to 3 months

Theft or Total Loss

 

Claim settlement process lengthy and cumbersome FIR, RC, road tax and other documents to be submitted. In theft cases, company awaits non-recovery closure of case by police before settling claim. For this reason claim settlement takes months. General perception is that amount paid is lower than market value

Claim Settlement Process NON-LIFE

32

Health Insurance (only one case encountered)

 Hospital bill has to be paid by insured and this causes heavy financial

burden  Claim process involves much paper work - first customer has to send request to company for sending claim form, then he puts together all bills in original, doctors medical prescriptions and hospital discharge certificate giving history of illness and treatment and sends these documents along with claim form  Several queries from company on pre-existence of disease, settlement process cumbersome and time consuming No claim settlement encountered in Property and Accident Insurance

Changing Customer Expectations NON-LIFE

33

Motor Vehicle Insurance

     

Renewal notice should be received regularly from company/agent Collection centres should be set up for depositing renewal cheque Premium payment at petrol pumps Accident/Total Loss claims should be settled for full estimated value Claim should be settled in 30 days Inclusion / Exclusion clauses should be explained at the time of issuing policy to avoid problems at time of claim settlement

Health Insurance
   

Non hospitalisation cases should also be entitled for claim settlement Pre-existing diseases should be detected through rigorous medical check-up at policy issue stage, company should not reject claim for this reason later Direct payment by company to hospital through TPA arrangement Issue Medi-Card so that patient can be admitted in hospital without having to deposit heavy admission fee

Non Policy Holders (Life)

34

Reasons for not taking Insurance

   

Low liquidity in insurance Low returns in insurance compared to other investments No assured regular source of income of respondent Lack of knowledge about insurance process & how it works

Future intention & inclination towards taking Insurance

 Among non-policy holders, SEC A generally not interested in

insurance, prefer other Investments for better returns (bank deposits)  SEC B & C undecided as yet, may consider insurance in future for family security reasons, only from LIC ( likely to be money back)

General Insurance
35

y Insurance other than Life Insurance falls under the

category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc

General Insurance
36

The non-life insurance sector is on an upswing! The non-life insurance industry in India has grown by over 16 % p.a. over the last 5 years. There is a vast business potential that lies untapped, as more and more cities enter the development phase.

Conduct
37

INDIAN INSURANCE INDUSTRY MAJOR PLAYERS OF GENERAL INSURANCE MARKET

Big Companies of General Insurance

38

y Bajaj Allianz y ICICI Lombard y Tata Aig y National insurance y New India Assurance y Oriental insurance

Bajaj Allianz
39

y Bajaj Allianz General Insurance Company Limited is a

joint venture between Bajaj Auto Limited and Allianz SE. Both enjoy a reputation of expertise, stability and strength

Bajaj Allianz today has a network presence in over 200 towns spread across the length and breadth of the country. From Surat to Siliguri and Jammu to Thiruvananthapuram, all the offices are interconnected with the Head Office at Pune.

Bajaj Allianz
40

y Dealing in these sectors:-

Travel Insurance 2. Health Insurance 3. Corporate Insurance 4. Motor Insurance

1.

ICICI - Lombard
41

y ICICI Lombard General Insurance Company Limited is a

74:26 joint venture between ICICI Bank Limited and the Canada based $ 26 billion Fairfax Financial Holdings Limited. ICICI Bank is India's second largest bank
y Lombard Canada Ltd, a group company of Fairfax Financial

Holdings Limited, is one of Canada's oldest property and casualty insurers. ICICI Lombard General Insurance Company received regulatory approvals to commence general insurance business in August 2001.

ICICI - Lombard
42

y Dealing in three sector:-

Health Insurance 2. Motor Insurance 3. Home Insurance

1.

Health insurance
43

y A health insurance policy will provide a cover to you

and your family against sudden medical contingency or bodily injury.

Motor Insurance
44

y Motor insurance protects you and your vehicle against

every comprehensible risk related to your vehicle theft or damage to it, death of the driver and passengers in an accident, and damage caused by your vehicle to another person or property.

Home insurance
45

y It is imperative that you secure your home from

natural and man-made catastrophes.

The maximum coverage is up to Rs. 1,00,000 for up to 6 months. The cover is available only if you are insuring the structure of your home.

TATA-AIG
46

y Tata AIG General Insurance Company Ltd. is a joint

venture company, between Tata Sons and American International Group its operations in India on January 22, 2001 offers the complete range of general insurance for automobile, home, personal accident, travel, energy, marine, property and casualty, as well as several specialized financial lines.

y Tata AIG General Insurance Company, which started

TATA - AIG
47

Dealing in three sector:Individual 2. Small business 3. Corporate

1.

Individual
48

Every stage of life, you are open to immense risk and immense opportunity and Tata AIG has the ideal bouquet of insurance products for each of those risks and opportunities.

Small business
49

Tata AIG offers a comprehensive risk solution through various Multiline Package Policies:y Society Policy y Office Policy y Manufacturing Unit Package Policy

Corporate
50

"From blue chips to local marketers, whatever the size of your business, Tata AIG has the insurance you are looking for.
y Accident & Health y Travel y Energy y Property y Marine

National Insurance Company Limited

51

y National Insurance Company Limited was

incorporated in 1906 with its Registered office in Kolkata. Consequent to passing of the General Insurance Business Nationalisation Act in 1972, 21 Foreign and 11 Indian Companies were amalgamated with it and National became a subsidiary of General Insurance Corporation of India (GIC) which is fully owned by the Government of India

National Insurance Company Limited

52

y It deals in these policies:-

Personal line Insurance 2. Rural Line Insurance 3. Industrial Line Insurance 4. Commercial Line Insurance
1.

Performance
53

CONTRIBUTION OF LIFE INSURANCE SECTOR IN THE INDIAN ECONOMY

STRUCTURE OF INSURANCE INDUSTRY

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Historical Perspective (i) Prior to 1956 (ii) 1956 2001 242 companies operating Nationalisation LIC Monopoly player Government control Opened up sector

(iii) 2001 --

Present Structure of Insurance Industry

55

(i) (a) LIC Fully owned by Government (b) Postal Life Insurance

Present Structure of Insurance Industry (contd...)

56

(ii) Private players 1. Bajaj Allianz Life Insurance Co. Ltd. 2. Birla Sun Life Insurance Co. Ltd. (BSLI) 3. HDFC Standard Life Insurance Co. Ltd. (HDFC STD LIFE) 4. ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU) 5. ING Vysya Life Insurance Co. Ltd. (ING VYSYA) 6. Max New York Life Insurance Co. Ltd. (MNYL)

Private players (contd)

57

7. MetLife India Insurance Co. Pvt. Ltd. (METLIFE) 8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 9. SBI Life Insurance Co. Ltd. (SBI LIFE) 10. TATA AIG Life Insurance Co. Ltd. (TATA AIG) 11. AMP Sanmar Assurance Co. Ltd. (AMP SANMAR) 12. Aviva Life Insurance Co. Pvt. Ltd. (AVIVA) 13. Sahara India Life Insurance Co. Ltd. (SAHARA LIFE) 14. Shriram Sunlam

Present Structure of Insurance Industry (contd...)

58

y (iii) Other likely players

PNB Life Insurance 2. Reliance Life Insurance 3. Axa Bharti Enterprises

1.

CONTRIBUTION TO INDIAN ECONOMY

59

y Life Insurance is the only sector which garners long y y y y

term savings Spread of financial services in rural areas and amongst socially less privileged Long term funds for infrastructure Strong positive correlation between development of capital markets and insurance /pension sector Employment generation

Aggregation of Long Term Savings

60

(i) Total Assets of Life Insurance Companies y 2002 2003 2,80,450 cr y 2003 2004 3,52,608 cr y 2004 2005 4,23,000 cr (ii) Total Premium generated y 2002 2003 57,708 cr y 2003 2004 66,278 cr y 2004 2005 79,000 cr y 2005 2006 94,000 cr y 2006 2007 1,12,000 cr y 2007 2008 1,33,000 cr

Aggregation of Long Term Savings

61

(iii) Industry is growing @ 19 p.a. (iv) Life Insurance funds account for 15% of household savings. (v) The industry has the potential to increase the share to 20%.

Spread of financial services in rural areas and amongst socially underprivileged 62

IRDA Regulations provide certain minimum business to be done (i) in rural areas (ii) in the socially weaker sections Life Insurance offices are spread over nearly 1400 centres. Presence of representative in every tehsil deeper penetration in rural areas.

Spread of financial services in rural areas and amongst socially underprivileged

63

Insurance agents numbering over 6.24 lakhs in rural areas. Policies sold in rural areas (2004-05) No. of policies - 55 lakhs Sum assured - 46,000 crores Social security - No. of lives covered 2003-04 17.4 lakhs 2004-05 42.1 lakhs

Long term funds for infrastructure

64

For GDP to grow at 8 to 10%, qualitative improvement in infrastructure is essential. Estimates of funds required for development of infrastructure vary widely. An investment of 6,19,600 crore is anticipated in the next 5 years (Source : SSKI India) Tenure of funding required for infrastructure normally ranges from 10 to 20 years. Major portion of these funds are routed through debt/private equity participation.

Long term funds for infrastructure(contd...)

65

Part funding through Central Government/State Government budgetary allocations. Insurance companies invest in Central/State Government approved securities which ultimately also used for infrastructure projects. As per IRDA norms, the pattern of investment of life insurance companies funds are (i) In Central Government, State Government and other approved securities not less than 50% (ii) Infrastructure 15%

Long term funds for infrastructure(contd...)

66

Investment in the infrastructure projects is a natural fit for life insurance companies who have long duration funds. Average Term of Life Policies is 23 years. Has investments of over Rs.40,000 cr in infrastructure. It is expected life insurance sector be able to generate approximately Rs.15,000 cr for infrastructure investment in 2006-2007 with amount increasing every year.

Development of Capital Markets/Economic Growth

67

Industry also contributes in economic development through investments in capital market. Present level of investments is over Rs. 40,000 crore. (Mark to Market basis around 80,000 crores). Annual Investment of around 9000 crores in capital markets. Contribution to Five Year Plans 9th Plan 2,30,900 crores Last Two Years 1,70,900 crores

Development of Capital Markets/Economic Growth

68

Helps inculcate a sense of security by protecting earning of people in case of untimely death. Benefits to Policy Holders 2002 2003 20,800 cr 2003 2004 24,200 cr 2004 2005 28,700 cr

EMPLOYMENT GENERATION
69

Life insurance industry provides increased employment opportunities. Employees in insurance sector as on 31st March, 2005 is around 2 lakhs. Many agents depend on insurance for their livelihood No. of agents on 31st March 2004 15.59 lakhs Brokers, corporate agents, training establishments provide extra employment opportunities. Many of these openings are in rural sectors

SPECIAL FEATURES
70

Capital Intensive Industry 2002 03 2003 04 1631 cr 4053 cr 2219 cr 3239 cr

(i) Total Income (ii) Capital employed (Data excludes LIC)

GROWTH POTENTIAL
71

y At present insurance penetration in India is quite

low 2.26% of GDP.

y In Korea the penetration stands at 6.77%, y In Singapore 6.38%.

PHASE OF TRANSITION
72

Life Insurance industry is under the phase of infancy after 50 years of monopoly Competition from within and other sectors of financial market Needs environmental support till it reaches a comfort zone

Indian Insurance Sector

73

FICCI CONFERENCE

INDIAN INSURANCE INDUSTRY: NEW AVENUES FOR GROWTH

NEW DELHI, 19 OCTOBER 2004

INDIA INSURANCE INDUSTRY STATUS

India Has Come A Long Way In The Last Four Years 74 Life 2000 Number of players Premium income (Rs '000 Cr) Insurance premium as % of GDP Insurance premium per capita (Rs) 1 CAGR: 23% 27.5 63 ~1.2% ~280 2.3% 590 2004 14 17 Non-Life 2004 14(1) CAGR: 16% 2000 4 9.4 ~0.4% ~100

0.62% 160

Several new products and channels

(1) Includes 4 nationalised companies Source: IRDA, Swiss Re

INDIA'S COMPARATIVE ECONOMIC POSITION IS IMPROVING

Relative to Developed and Developing Economies 75
Twelfth largest economy in the world (2002) Real GDP (USD Bn)
USA Japan Germa France UK Italy China Brazil Canad Spain Korea India Mexic Russia Taiw a Poland

High, steady growth among different economies GDP CAGR from 1993 to 2002
10290 4280
% GDP growth
13 13 11 10 9 7 55 3 1 0 -1 -3 -5 -5 -7 -9 -10 -11 -13 -13

2390 1640 1510 1300 1290 940 770 670 590 570 500 480 370 180

India's Average GDP growth (93-02)

Max Average Min India China S HK Mexico UK USA (83-02) Korea India Taiwan Thailand Malaysia Brazil Japan (93-02)

Stable BoP position (2002) Current account surplus as a % of GDP 8.3

Stable and low inflation rates Average inflation rate from 1999-2002
12.5% 10.0% 6.7% 6.3% 3.8% 0.5% 0.3% -0.2% 0.0% o ea ha and

4.7 0.3 0.7 1.9

5.4

6.3

India '94 India '02

-4.4 Brazil

-3.4 China Thailand Malaysia

ndones a az nd a

Mexico

Indonesia

Philippines

Russia

Poland

Taiwan

China

Note: Real GDP estimates Source: EIU, World Bank, Analyst reports, Literature review

... INSURANCE IS POISED FOR GROWTH

76

Example: Life insurance penetration increases with affluence

Insurance premium as % GDP Threshold for 12 insurance pick-up Three avenues for growth 1 Addition of new customers

10 8 6 4
INDIA

2 Existing customers buy more

2 0 100 0
1,000 1

3 Extension to new geographies

2 3 10,000 100,000 GDP per capita in USD (log scale)

(1) PPP adjusted GDP per capita higher by a factor of ~5-6; lower income categories not shown Source: Swiss Re; NCAER

OVERALL HOWEVER INSURANCE STILL UNDER PENETRATED ... 77

... But still remains # 19 in insurance terms...
Premium income ($ Bn)

... with some product categories nascent Pension scheme

USA Japan UK 247 171 164 112 60 59 50 47 47 479

1055

Annuity scheme Health insurance Disability and critical illness insurance Professional liability Crop insurance Income protection Credit insurance

Germany France Italy S Korea Canada Netherlands Spain

11 China
...

19 India

17

AS A FULLER PRODUCT LIST COME ON OFFER LATENT DEMAND WILL78 GET RELEASED
Pre 2000 Endowment and money back policy - ~98% to total premium income Today Variety of products with riders covering disability,critical illness, accidents etc. Increasing acceptance of variable returns and pure term products Unit linked products Tomorrow Pension scheme Annuity scheme Income protection Increased term

Life returns, limited, if any term

Products viewed as necessary evil for tax-breaks

Products with guaranteed

Personal non-life insurance products (except motor) virtually nil

Non Life Corporates buying Non life

New products emerging to cater to personal needs: Health Travel (overseas/domestic) Household articles Building (structure/content) Mobile insurance Credit insurance ...

Home building structure and contents (penetration in India ~1% v/s ~70% in UK) Health insurance (penetration in India 1-2% v/s 10% in UK) Corporate and professional liability

CUSTOMER AWARENESS IS KEY

79

Low penetration of personal non life products...

% customers having bought insurance in metros
Auto Health Accident Home ire Theft

... due to low awareness for several types of insurance

% customers with unaided awareness of different types of insurance in metros

39 12 8 2 1 2

Auto Health Accident Home re Theft

45 19 17 9 6 2

Source: Survey of about 306 customers across Delhi, Mumbai and Kanpur conducted in 2002

Porter's 5 Forces Analysis

1. THREAT OF NEW ENTRANTS 2. POWER OF SUPPLIERS 3. POWER OF BUYERS 4. AVAILABILITY OF SUBSTITUTES 5. COMPETITIVE RIVALRY

1-Threat of New Entrants.

. The average entrepreneur can't come along and start a

large insurance company. The threat of new entrants lies within the insurance industry itself. Some companies have carved out niche areas in which they underwrite insurance. These insurance companies are fearful of being squeezed out by the big players. Another threat for many insurance companies is other financial services companies entering the market. What would it take for a bank or investment bank to start offering insurance products? In some countries, only regulations that prevent banks and other financial firms from entering the industry. If those barriers were ever broken down, like they were in the U.S. with the GrammLeach-Bliley Act of 1999, you can be sure that the floodgates will open.

2-Power of Suppliers.
y The suppliers of capital might not pose a big

threat, but the threat of suppliers luring away human capital does. If a talented insurance underwriter is working for a smaller insurance company (or one in a niche industry), there is the chance that person will be enticed away by larger companies looking to move into a particular market.

3-Power of Buyers
y The individual doesn't pose much of a threat

to the insurance industry. Large corporate clients have a lot more bargaining power with insurance companies. Large corporate clients like airlines and pharmaceutical companies pay millions of dollars a year in premiums. Insurance companies try extremely hard to get high-margin corporate clients

4-Availability of Substitutes
y This one is pretty straight forward, for there are

plenty of substitutes in the insurance industry. Most large insurance companies offer similar suites of services. Whether it is auto, home, commercial, health or life insurance, chances are there are competitors that can offer similar services. In some areas of insurance, however, the availability of substitutes are few and far between. Companies focusing on niche areas usually have a competitive advantage, but this advantage depends entirely on the size of the niche and on whether there are any barriers preventing other firms from entering.

5-Competitive Rivalry.
The insurance industry is becoming highly

competitive. The difference between one insurance company and another is usually not that great. As a result, insurance has become more like a commodity an area in which the insurance company with the low cost structure, greater efficiency and better customer service will beat out competitors. Insurance companies also use higher investment returns and a variety of insurance investment products to try to lure in customers. In the long run, we're likely to see more consolidation in the insurance industry. Larger companies prefer to take over or merge with other companies rather than spend the money to market and advertise to people.

Thank You

86