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Background

• Insurance can be divided into Life and Non Life (General). General
Insurance may be mandatory eg Motor Insurance or non-mandatory
eg fire, marine, property, and health.

• Key Income Heads for an Insurance Company are

> No of new policies and renewals (premium)

> Interest from investment

• Key Expenditure Heads for an Insurance Company are

> Agent Commission

> Number of Claims Settled

> IT & Admin Expenses

Market Size and Growth

Life Insurance

• Size in 2001(measured by premium p.a) = $5 bn. Potential Size =

$50 bn (300 mn insurable population)

• Estimated Size in 2010 = $ 25 bn.

J.D.Rewa 2010
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General Insurance

• Size in 2001 = $ 2 bn

• Estimated Size in 2010 = $ 10 bn

Key Events

• 1956- Nationalization of life insurance business - Life Insurance Act

• 1972- Nationalization of general insurance business - General

Business (Nationalization) Act

• 1993- Constitution of the Malhotra Committee to study the

insurance industry and suggest
reforms. Recommended opening industry to private participation-
domestic and foreign

• 1996Constitution of the Interim Insurance Regulatory Authority

(IRA) - legislative reforms in the insurance industry until the
establishment of an independent regulatory authority
-
• 1999Passing of the Insurance Regulatory and Development
Authority (IRDA) Act
-
• 2000- IRDA gets statutory status and first licenses are issued to
HDFC Standard Life, Reliance General Insurance and Royal Sundaram
Alliance.

Important Regulations

• Single company cannot carry on both life and non-life insurance

business

• Foreign equity capped at 26%

• Minimum capital requirement of Rs. 1 bn for life and general

insurance and Rs 2 bn for reinsurance

• Companies are subject to stringent exposure norms and are

J.D.Rewa 2010
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required to invest 10-15% of insurance premiums in social and infra

sectors (in life, only 15% can be invested in unapproved securities)

Major Players

Life Insurance

1) LIC- formed with the objective of protecting interest of policy

holders and making insurance popular

• No of agents = 8 lakh

• Policies cover 80 mn individuals

• 99-00 income 45000cr

2) New Entrants- Max New York Life, HDFC Standard Life, OM Kotak,
SBI Life, ING Vyasa, Tata AIG, Birla Sun Life

• Ave capital base Rs 120 cr

• No of agents= 300 to 3000

General Insurance

1) GIC

• Caters to entire non life (including health) segment in India

• Infrastructure of over 3000 branches, 1165 divisional offices and 85

regional offices

• Incorporated as a company with four subsidiaries- National

Insurance Company Ltd., the Oriental Insurance Company Ltd., the
New India Assurance Company Ltd., and the United India Insurance
Company Ltd. These subsidiaries have been recently granted semi-
J.D.Rewa 2010
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autonomous status

• GIC undertakes mainly reinsurance business. Bulk of general

insurance (fire,motor,marine etc) is undertaken by the subsidiaries

2) New Entrants- Tata AIG, ICICI Lombard, Royal Sunderam,

Reliance General

Issues for a New Entrant

Life Insurance

• Huge Capital Commitment Required – minimum paid up capital

base, compulsory investment in infrastructure and social sectors,
heavy brand building

• Reputation and Credibility Key to building customer base

• High Exit Barriers- Insurance policies typically long dated

• Challenges in Distribution – alternative channels to the

traditional agent route are the Internet or Bancassurance. A niche
strategy will not be profitable as insurance is a volumes game

• Product Differentiation - selling in India is done under the “tax

savings” shield (premium paid not taxable and rebate available on
20% of premium paid).Consumers need to be educated about the
merits of pure protection and investment linked policies in addition to
plain vanilla money back products

• Customer Service – while the threat of new players taking over

market has been overplayed, they are expected to score in areas like
customer service, speed and flexibility

• Paucity of Skilled Personnel

General Insurance

• Opportunities in Health Insurance- only 2 million out of 900

J.D.Rewa 2010
 6

million people in India have some kind of health cover. Therefore the
profit margin in this sector is very low.

• Opportunities in Technology Insurance - Coverage can be

obtained by IT companies against burglaries, transit thefts and theft
of proprietary information.

• Other untapped areas are retail, crop and cattle etc.

Reinsurance

• Indian reinsurance sector has GIC and other players from around
the world

• Life segment reinsures with outside players

• General insurance sector reinsures with GIC and others outside

India (Regulations force reinvestment with GIC)

J.D.Rewa 2010