48

CHAPTER ⸎ 1
INTRODUCTION
1.1 Insurance sector in India
1.2 Reforms in Insurance Sector in India: A beginning
1.3 Malhotra committee report
1.4 Insurance Regulatory and Development Authority of India (IRDAI)
1.5 Micro Insurance
1.6 The Insurance (Laws) Amendment Act (2015): Phase II of the reforms
1.7 Investment pattern of Insurance Sector In India
1.8 Indian Insurance Industry in the Post LPG Era
1.9 Scope and Structure of Study
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INTRODUCTION

The history of insurance is rooted within the story of mankind. The same instinct that
stimulate modern businessmen and gives them a sense of security against loss and
disaster also existed in primitive men. Primitive men also sought to avert the evil
consequences of fire, flood and loss of life and were willing to make some sort of
sacrifice in order to achieve security. The concept of insurance has moved through
various situations and phases in its journey. Since its appearance, insurance has become
an inevitable asset to every aspect related to human life. Whether it is health disorders
or constructing properties, household requirements or multimillion dollar projects;
insurance is being recognized as a strong safety device to meet unexpected losses.

The insurance business in India started without any obligations in the nineteenth
century. At that time, it was a typical story of a colonial era. Only few British
insurance companies were controlling the whole market and were serving the larger
cities of India. The Life Insurance Company was domestically floated in 1956 after
independence, and then the firms were formed in 1972 in the general insurance
business. Till the entry of private firms, the Life Insurance sector in underdeveloped
markets was only tapped by LIC of India (the only public sector life insurer).

With the entry of private firms, the rules of the scenario have changed.
The Government of India liberalized the insurance sector in March 2000 through
the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry
decisions for private firms and allowing foreign firms to enter the market with some
restrictions on direct ownership. The bill was passed to guard the interest of the
customers in their dealing with global and private firms. Under the present guidelines,
there is a 49% equity cap for global investments in an insurance company.
Phase wise reforms has improved profit and growth insurance sector and benefited
consumers also.

This project titled “IMPACT OF REFORMS IN INSURANCE SECTOR IN

INDIA: A RESEARCH STUDY” states growth in insurance sector after reforms,
time period is taken from year 2001 to year 2018.
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1.1 Insurance Sector in India: History

The insurance business made its way in India in 18th century. Life Insurance business
came into existence in the year 1818 with the establishment of the Oriental Life
Insurance Company in Calcutta. Bombay Mutual Assurance Society Ltd., formed in
the year 1870. The Bharat Life Insurance Company in 1896 and the Empire Life
Insurance of India in 1897. Following this; the Hindustan Co-operative Life Insurance
was formed in Calcutta, the United Life Insurance in Madras, the Bombay Life
Insurance in Bombay, the National Life Insurance in Calcutta, the Jupiter Life
Insurance in Bombay and the Lakshmi Insurance in New Delhi. By the year 1956,
when the Life Insurance business was nationalized and Life Insurance Corporation of
India (LIC) was formed on 1st September 1956, there were 170 companies and
75 provident fund societies transacting life insurance business in India.
General insurance in India came as a gift of British administration. The first general
insurance company in India was Triton Insurance Company limited which was
established in 1850 in Calcutta. 1907 witnessed the establishment of Indian
Mercantile Insurance limited which was the first company to handle all class of
general insurance in India. In 1957 General Insurance Council a wing of Insurance
Association of India enacted a code of conduct to insurance companies for fair
conduct and sound business practices. General Insurance Corporation of India (GIC)
was incorporated on 22 November 1972 under the Companies Act, 1956 as a private
company limited by shares. GIC was formed for the purpose of superintending,
controlling and carrying on the business of general insurance. As soon as GIC was
formed, GOI transferred all the shares it held of the general insurance companies to
GIC. Simultaneously, the nationalised undertakings were transferred to Indian
insurance companies. After a process of mergers among Indian insurance companies,
four companies were left as fully owned subsidiary companies of GIC:
 National Insurance Company Limited
 The New India Assurance Company Limited
 The Oriental Insurance Company Limited
 United India Insurance Company Limited.
The next landmark happened on 19th April 2000, when the Insurance Regulatory and
Development Authority Act, 1999 (IRDAA) came into force. In November 2000, GIC
was re-notified as the Indian Reinsurer and through administrative instruction, its
supervisory role over the four subsidiaries was ended.
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With the General Insurance Business (Nationalisation) Amendment Act 2002

coming into force from March 21, 2003; GIC ceased to be a holding company of its
subsidiaries. The ownership of the four erstwhile subsidiary companies and also of the
General Insurance Corporation of India was vested with Government of India. GIC
Re is a wholly owned company of Government of India

Table No.: 1.1a

Types of Insurance
Life Insurance General Insurance
 Endowment Assurance Plans  Health Insurance
 Terms assurance Plans  Industrial all Risks Insurance
 Pension Plans  Crop Insurance
 Unit Linked Investment Plans  Personal Accident Insurance
 Assurance Plans for Children  Group Insurance
 Family Income Policies  Motor Vehicle Insurance
 Life Annuity Joint Life Assurance  Flood Insurance
 Policies for Maintenance of  Office Risk Coverage Insurance
Handicapped Dependent
 Endowment Policies with Health  Videsh Yatra Insurance
Insurance Benefits
 Whole Life Plan  Marine Insurance
 Fire Insurance Policy
 Travel Insurance Policy
At present the insurance industry of India consists of 62 insurance companies of
which 24 are in life insurance business, 29 are non-life insurers and 9 are in
Re-insurers business. Among the life insurers, Life Insurance Corporation (LIC) is
the sole public sector company and among the non-life insurers there are six public
sector insurers.

Table No.: 1.1b

Registered Insurers Including Foreign Re-insurers’ Branches in India
Type of insurer Public sector Private sector Total
Life 1 23 24
General 6 17 23
Health 0 6 6
Re-insurers (including Foreign
1 8 9
re-insurers Branches/Lloyd’s India)
Total 8 54 62
*Annual Report of IRDAI, 2017
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1.2 Reforms in Insurance Sector in India: A Beginning

The Indian insurance industry was revolved around two public sector players, viz.,
Life Insurance Corporation of India and General Insurance Corporation of India. LIC
has been operated in the life segment lodge in the people brain by providing wide
range of services, building an extensive network of branches and offering
employment to a large number of agents. The non-life insurance sector was
overwhelmingly dominated by GIC. One of the major reason for the nationalization of
insurance companies in 20th century was to channel greater resources towards
development programs. It also sought to increase insurance market penetration and
bring down incidence of failures of insurance companies which were thought to be a
result of mismanagement. But, in the post-nationalization period, GIC and LIC funds
were nevertheless used to finance government deficits and this severely constrained
their operations. Moreover, these corporations were also asked to channel funds
towards meeting social objectives. With the initiation of reforms in financial sector in
early 1990s, the need to restructure insurance sector was realized. In July 1999, the
Indian economy had taken certain macro-economic reforms involving stabilization
and structural reforms. The new economic policy introduced changes in several areas,
including insurance. The salient features of the policy also known as “LPG” were:
(a) Liberalization (internal/external)
(b) Privatization
(c) Globalization.
The liberalization of the Indian insurance sector has resulted in a number of insurance
companies (both - private as well as foreign) entering the market. This has led to an
increase in the available choices not only in terms of service providers but also in
terms of products for customers. In the process of the insurance sector reforms, the
legislation of IRDA Bill 1999, marked definite point in the move towards
privatization of the India’s insurance sector. This comprehensive bill allowed the
entry of private companies in the sector in both – life and non-life sector, but a single
company cannot transact business in both. Globalization implies integration of the
economy of the country with the rest of the world economy and opening up of the
economy for FDI. Following the privatization of the insurance sector, the global
enterprises soon entered the market
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1.3 Malhotra Committee

A move to liberalise insurance sector was taken in April 1993 with establishment
of Malhotra committee so called committee on insurance sector reforms. Malhotra
committee was headed by R. N. Malhotra, a former finance secretary and governor of
Reserve Bank of India. “The Committee was established to assess insurance sector
strengths and weaknesses in terms of the objective of providing high quality services
to the public and serving as an effective instrument for mobilization of financial
resources for development, to review the then existing structure of regulation and
supervision of insurance sector and to suggest reforms for strengthening and
modernizing regulatory system in tune with the changing economic environment”
(“Consultation Paper on Revision of the Insurance Act 1938 & the Insurance
Regulatory & Development Authority of India Act 1999,” 2003;“Malhotra committee
recommendation,”1998). The Malhotra Committee recommended introduction of
concept of “professionalization” in the insurance sector. The committee recommended
opening of insurance sector to private players and setting an independent regulatory
authority to create a level playing field for all entities.
The terms of reference of the said committee were:
1. To review present structure of insurance industry and to evaluate its strength and
weakness in term of offering wide-range of insurance products with a high
quality of services to public and operating as an effective means for mobilisation
of financial resources for development of the economy.
2. To formulate recommendation for modifying structure of insurance industry and
general framework of policy consistent with the structural changes in the
economy and financial sector.
3. To make precise proposal regarding the LIC and GIC with a view to improve
their functioning in changing economic environment.
4. To examine present structure of regulations and supervision of insurance sector
and to make suggestions for strengthening and modernising the regulatory system
in dynamic economic environment.
5. To review and make suggestions on the role of surveyors, intermediaries and
ancillaries of the insurance sector.
6. To make suggestions on such other matters as the committee considers relevant
for the growth and development of insurance sector.
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The Malhotra Committee came up with the recommendations in January 1994.

The committee appointed a private opinion poll agency to conduct a market survey
for finding out satisfaction level of users of life insurance and assess their perceptions
on possible liberalization of insurance sector. Based on the findings of survey,
the committee underlined some positive and negative aspects of development of LIC
which are stated as under:

On the positive side;

1. LIC was proliferated insurance culture widely across India,

2. Huge amount of saving was mobilised for national development and fund was
used to finance social sectors such as housing, electricity, water supply,
sewerage, medical and education,

3. LIC was a name of trust among insuring public, and

4. A large pool of talented insurance professionals was built up.

On the negative side;

1. The enormous market and service network of LIC was inadequately responsive to
customer needs.

2. There was lack of insurance awareness among the public.

3. Lack of life insurance product with reference to the customer needs.

4. Term assurance plans were not encouraged and unit linked products were not
available.

5. Price of insurance products were quite high and return from life insurance was
significantly lower than other saving instruments.

6. LIC was facing some serious problem due to mismanagement and poor structure.
The central and zonal offices were excessively overstaffed.

7. Work culture within the organisation was not satisfactory.

8. Trade unions had indulged in restrictive practices.

9. The efficiency of the organisation and quality of customer service had seriously
affected due to lack of computerization.
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The Malhotra Committee touched both life and general insurance business.
The main recommendations of Malhotra Committee were:
1.3a Liberalization: Liberalization of insurance industry by permitting domestic
and foreign private players was among the several important recommendations
the committee made so far. Monopolies are awful in themselves especially
when they are government monopolies because they do not keep themselves
viable. At the time of nationalization of insurance business, it could have been
known that state monopolies would not survive over a long time or lead to
lack of competition. Yet, at that point of time, it was believed that control over
huge funds and their utilization was absolutely necessary to ensure fulfilment
of state priorities for investment. Therefore, Malhotra committee
recommended that state monopoly of insurance sector should be broken up by
allowing domestic and foreign private firms in the market. The idea behind
this measure was to ensure utilization of untapped potential, introduction of
competition, expansion of business and better choices to customers in terms of
variety of products, reduction of prices and efficient customer service.
1.3b Supervision and Regulation: Insurance regulatory authority should be act as
regulator, controller, supervisor, initiator, conductor, mediator and detector of
insurance industry. In order to keep it as an autonomous body, the committee
recommended that 0.05% of yearly premium income of insurance companies
be levied to finance its establishment and activities.
1.3c Restructuring: The committee observed that both life and non-life insurance
sector is facing some serious problem due to mismanagement and poor
structure. Therefore, committee proposed restructuring of LIC and GIC.

1.4 Insurance Regulatory & Development Authority of India (IRDAI)

The enactment of any legislation is not facile process. It requires lot of efforts and
time especially with reference to India. Based on the recommendation of Malhotra
committee regarding establishment of a strong, effective and independent regulatory
body to protect interest of policyholders and development of insurance industry, the
Government of India had established interim regulatory authority in January 1996
through an exclusive order. Later on, this Interim Regulatory Authority becomes
Insurance Regulatory and Development Authority of India (IRDAI).
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IRDAI as an autonomous body was formed on April 19, 1999. IRDAI entrusted with
the task of regulating, supervising and developing insurance and reinsurance business
in India. IRDAI started its functioning on April 19, 2000 headed by N. Rang chary as
its first Chairperson.
Chart :1.4a
IRDAI: Organisation

Ministry of Finance
(Government of India)

Insurance Regulatory and

Development Authority
(IRDAI)

Life General Specialised Standalone Re- Foreign

Insurance Insurance Insurance Insurance insurance Re-insurers'
(24 Player) (21 Players) (2 Players) (6 Players) (2 Players) Branches

Public Public Public Public Public Private

(1) (4) (2) (6) (1) (7)

Private Private Private

(23) (17) (1)

*Annual Report of IRDAI, 2017

Objectives of the Insurance Regulatory and Development Authority of India
1. To protect the interest of policyholders of insurance policies.
2. To bring about speedy and orderly growth of the insurance industry and to
provide long term funds for accelerating growth of the economy.
3. To set, promote, monitor and enforce high standards of integrity, financial
soundness, fair dealing and competence of those it regulates.
4. To ensure speedy settlement of genuine claims, to prevent insurance frauds and
other malpractices and put in place effective grievance redressed machinery.
5. To promote fairness, transparency and orderly conduct in financial markets
dealing with insurance and build a reliable management information system to
enforce high standards of financial soundness amongst market players.
6. To take action where such standards are inadequate or ineffectively enforced.
7. To bring about optimum amount of self-regulation in day-to-day working of the
industry consistent with the requirements of prudential regulation.
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Functions of Insurance Regulatory and Development Authority of India

1. Issue to the applicant a certificate of registration; to renew, modify, withdraw,

suspend or cancel such registration.

2. Protection of the interests of the policy holders in matters concerning assigning of

policy, nomination by policy holders, insurable interest, settlement of insurance
claim, surrender value of policy and other terms and conditions of contracts of
insurance.

3. Specifying requisite qualifications, code of conduct and practical training for

intermediary or insurance intermediaries and agents.

4. Specifying the code of conduct for surveyors and loss assessors.

5. Promoting efficiency in the conduct of insurance business.

6. Promoting and regulating professional organisations connected with the insurance

and re-insurance business.

7. Levying fees and other charges for carrying out the purposes of this Act.

8. Calling for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organisations connected with the insurance business.

9. Control and regulation of the rates, advantages, terms and conditions that may be
offered by insurers in respect of general insurance business not so controlled and
regulated by the Tariff Advisory Committee under section 64U of the Insurance
Act, 1938 (4 of 1938).

10. Specifying the form and manner in which books of account shall be maintained
and statement of accounts shall be rendered by insurers and other insurance
intermediaries.

11. Regulating investment of funds by insurance companies.

12. Regulating maintenance of margin of solvency.

13. Adjudication of disputes between insurers and intermediaries or insurance

intermediaries.

14. Supervising the functioning of the Tariff Advisory Committee.

15. Specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector.
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Chart :1.4b
Milestones in Post Reform Period

199 Introduction of Insurance Regulatory and Development Authority of India Act,

9 1999
200 Constitution of IRDAI on 19th April, 2000 & Framing of Various Regulations
0 Entry of domestic and foreign private firms into the Indian insurance market
Insurance Regulatory and Development Authority of India (Investment)
Regulations, 2000
200 Establishment of Life Insurance Council and General Insurance Council
1 Introducing Third Party Administrators for health insurance services
200 Regulation on Protection of Policyholders' Interests
2 Introducing New Insurance Intermediaries: Brokers and Corporate Agents
Four subsidiary companies of GIC became independent companies
200 Referral Arrangement with Banks
3 Strengthening of Insurance Councils
200 Various Committees / Working Groups on issues viz. Earthquake pool,
4 Intermediaries, and Health Insurance
Regulation on qualifications of actuary
200 Guidelines on Group Insurance Policies
5 Introduction of Micro Insurance Regulations
De-Tariffing of Marine Insurance
Guidelines for Unit Linked Insurance products
Report of KPN Committee on Provisions of Insurance Act, 1938
200 Guidelines on Anti Money Laundering/ Counter Financing of Terrorism
6 Entry of Stand-Alone Health Insurance Company
200 Guidelines on Advertisement, Promotion & Publicity of Insurance Companies,
7 and insurance intermediaries
De-tariffing of General insurance sector
Creation of Motor Pool for Third party Insurance
200 Benefit Illustrations for Unit Linked Products
8 Innovation in Products
Strengthening on-site & off-site Monitoring
200 Guidelines for Corporate Governance
9 Guidelines on Health plus Life Combi Products
Grievance Redressal Mechanism
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201 Regulations on Treatment of Discontinued Linked Insurance Policies

0 Regulations on Sharing of Database for Distribution of Insurance Products
Mandating Public Disclosures
Creation of IRDAI Grievance Call Centre & Guidelines for Grievance
Redressal
201 Framework for life insurance companies to raise capital through public issue
1 Insurance Regulatory and Development Authority of India (Scheme of
amalgamation and transfer of general insurance business) Regulations 2011
Insurance Regulatory and Development Authority of India (Issuance of capital
by life insurance companies) Regulations 2011
Creation of Integrated Grievance Management System
Portability of Health insurance policies Mobile application to compare
insurance products and premium rates
Insurance awareness initiative “Bima Bemisaal
201 Web Enabled Facility to Ascertain Insurance Particulars of Motor Vehicles
2 Online application to compare Non-Life Insurance products
Revised ULIP Guidelines
Creation of Consumer Education Website-for Public
201 Insurance Regulatory and Development Authority of India (Issuance of Capital
3 by General Insurance Companies) Regulations 2013
Insurance Regulatory and Development Authority of India (Health Insurance)
Regulations, 2013
Insurance Regulatory and Development Authority of India (Places of
Business) Regulations, 2013
Linked & Non-linked Life Insurance Regulations
Insurance Repository System for Individual Policy Holders
Common Service Centers to sell simple policies in rural areas
Circular on Insurance Fraud Monitoring Framework
201 Report of the working group on File & Use guidelines for General insurance
4 products
201 The Insurance Laws (Amendment) Act, 2015, which provides for raising the
5 foreign investment cap from 26 per cent to 49 per cent
Permission to set up IFSC Insurance Office in special economic zones
Norms on maintenance of insurance records
201 IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers
6 other than Lloyd’s) (First Amendment) Regulations, 2016
IRDAI (Lloyd’s India) Regulations, 2016
 48

201 Ayushman Bharat Yojana Launched

8
1.5 Micro Insurance

After a period of consultation, in November 2005 the Insurance Regulatory and

Development Authority introduced a set of regulations, specifically covering micro
insurance. It created a charter for insurers to offer micro insurance products targeting
both rural and urban inhabitants . Micro insurance has become a needy protection for
the poor.

The insurance sector has reached to all the high income individuals, families but
unable to reach to those poor people who do not have capacity to purchase these
insurance products. So, there was a huge gap in insurance between the rich and
the poor. The poor suffered a lot since they could not cover their risk through
insurance because it was unaffordable for them. It necessitated for the Insurance
Regulator of India to emphasize on promoting the insurance schemes which cover
lower amount of premium and also lower sum assured. So the concept of
micro-insurance emerged. But initially the insurance companies were reluctant to
offer products in this segment as it was profitable for them. So the initiative was
actually taken by the Micro Finance Institutions (MFI) who also deliver the micro
credit to the poor.

The Insurance Regulatory Authority of India made it mandatory for every insurance
company to contribute certain percentage of their insurance products to the rural and
micro insurance segment. As a result, many private companies came forward to offer
the micro insurance services. Today we have many private players offering the micro
insurance in life, health and other general insurances. Apart from these private players
there were many MFI's and NGO‘s who came forward out of their own interest to
offer the micro insurance services to their clients.

In order to widen the network, the IRDA has allowed the cooperative banks, regional
rural banks, primary agricultural co - operative societies and individuals such as
shopkeepers, medical store owners, petrol pump owners and public telephone
operators to act as micro-insurance agents. These agents have greater access to the
poor and can distribute the insurance policies with much ease.
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1.6 The Insurance (Laws) Amendment Act (2015): Phase-II of the

Reforms
The recent regulatory reforms in the insurance industry can be divided into two
phases- In Phase I of the reforms the IRDA Bill was presented before the Parliament
in 1999 for its approval. In the Phase II of the reforms, there was an introduction of
Insurance Laws (Amendment) Act 2008 in the Parliament. This proposal focused on
the FDI cap hike in the insurance sector. In July 2014 FDI limit was increased up to
49% from 26%, with full Indian management and control through Foreign Investment
Promotion Board (FIPB). finally, on 26 December 2014, the Government passed the
Insurance Laws (Amendment) Act 2015. The Insurance (Laws) Amendment Act
(2015) is a game changer for the insurance industry. It is a major step towards the
deepening of economic reform process in insurance sector. With the FDI limit hike
from 26% to 49% it can speed up the ongoing reform process in Indian economy and
can take the Indian economy into new heights. One of the notable features of this
amended Act of 2015 was that the subscribers of Employee’s Provident Fund (EPF)
will now have choice to opt for New Pension Scheme (NPS) of the Government of
India and also the workers covered under the Employee’s State Insurance will have
the option to choose Health Insurance products organized by the IRDA. Now Social
security schemes of the Government of India including the state government and the
insurance schemes issued by the IRDAI should come together through a proper
mechanism; would help to bring into reality, “MAKE IN INDIA” the dream of
government. Some questions have also been raised that the insurance sector will not
reap benefits from the FDI increase. There are leaders in the industry who all already
well-established and they do not require additional capital. But at the same time there
are also companies such that they do not have enough capital to diversify and
therefore are not doing well. These are the ones that are going to benefit by the FDI
reforms introduced in the sector. If the private sector is allowed to bring in 49%
equity; according to an estimate; this can probably bring inRs.50000 crores in the
industry. And it is believed that this will enable the insurers to setup offices in the
rural areas and thus, enable the general public to buy more policies. Therefore, it can
also be said that in a way these reforms are going to make the industry more
transparent and consumer-friendly.
 48

Government has also announced many schemes, which would lead to increase the
insurance penetration in the country and especially in the health insurance segments.

Some of them are:

 In line with Pradhan Mantri Jan Dhan Yojana (PMJDY), another scheme named
Pradhan Mantri Suraksha Bima Yojana (PMSBY) was also announced that would
cover accidental death risk of Rs.2lakh for a premium of only Rs.12 per year, i.e.
1 per month.

 Pradhan Mantri Jeevan Bima Yojana (PMJBY), a social security scheme was also
announced that would cover both – natural and accidental death risk of Rs. 2
lakhs. The premium would be Rs.330 per year or less than a rupee per day, for
the age group of 18-50 years.

 Government has proposed to increase the health insurance deduction limit under
Section 80D to Rs.25000 from Rs.15000

 Ayushman Bharat Yojana or National Health Protection Scheme is a program

which aims to provide a service to create a healthy, capable and content new
India. It has two goals, one, creating a network of health and wellness
infrastructure across the nation to deliver comprehensive primary healthcare
services, and another is to provide insurance cover to at least 40 per cent of
India's population which is majorly deprived of secondary and tertiary care
services. Indu Bhushan appointed as a Chief Executive Officer (CEO) and Dr
Dinesh Arora appointed as deputy ceo of Ayushman Bharat Yojana.

 Features
Ayushman Bharat consists of two major elements.
1. National Health Protection Scheme
2. Wellness centers

 National Health Protection Scheme will provide cashless treatment to patients.

And wellness centers will provide primary care to the patients. In fact, the
government will upgrade existing Public Health Centers to Wellness Centers. The
government has roped in multiple agencies to ensure seamless coordination
between the centre and states.
48
 48

1.7 Investment Pattern of Insurance Sector in India

Insurers collect premiums from individuals when selling contracts and invest the
proceeds in varied instruments such as government securities, debenture, money market
securities, equities, mutual funds and others with a view to meet the contractual
obligations incurred in the future. Therefore, the main challenge for insurance
companies is not only developing and promoting insurance products, but also the
efficient allocation of internal and accumulated funds. The return on investment of
insurance funds influences the premium rates and bonuses of insurance business and
eventually, the buying behaviour of customers. Thus, the rate of return offered by
insurance companies has a direct bearing on the growth rate of insurance industry and
its competitive position. A number of questions are raised about investment pattern of
insurance companies i.e., how insurance companies are investing, where they are
investing, how safe policyholder’s funds are, and what is the role of regulations in
nurturing the investment of insurance companies. Therefore, this is not logical to
leave investment decision on market forces and prudence of insurers. Allocation of
funds for investment by insurance companies is regulated in most of countries.
At present, investment pattern of insurance companies in India are subjected to
comprehensive regulations. Recently, Insurance Regulatory and Development
Authority of India (Investment) (Fifth Amendment) Regulation, 2013 has come into
force which made several amendments over the previous regulation.
IRDAI has prescribed quantitative limits on investment pattern of insurance
companies. According to Insurance Regulatory and Development Authority of India
(Investment) (Fifth Amendment) Regulation, 2013, the quantitative limits of:

Life Fund: A minimum of 25% is to be invested in central government securities.

A minimum of 50% is to be invested in central government, state government
securities or other approved securities. Approved investments subject to
exposure/prudential norms cannot exceed 50%; and other investments subject
to exposure prudential norms cannot exceed 15%. Housing and infrastructure requires
a minimum of 15% investment. Pension and Annuity Plans: A minimum of 20% is
to be invested in central government securities. A minimum of 40% is to be
invested in central government securities, state government securities or other
approved securities. Approved investments subject to exposure/prudential norms
have a cap of 60%.
 48

Unit Linked Insurance Plans (ULIPs): At least 75% should go to approved

investments which tend to be liquid stocks with a strong dividend payment record,
and not more than 25% to other investments.
General Insurance: A minimum of 20% is to be invested in central government
securities. A minimum of 30% is to be invested in central government, state
government securities or other approved securities. Approved investments cannot
exceed 70%; and other investment cannot exceed 25%. Housing and loans to state
governments for housing and fire-fighting equipment require a minimum of 5%
investment and infrastructure requires a minimum of 10% investment. Apart from
these quantitative limits, investments of insurance companies are subjected to various
exposure and prudential norms where there is limit for investments in investee
company, entire group of investee company, and industry sector to which investee
company belongs. There are also regulations which prescribe formation of investment
committee, investment policy, operational control and risk management review.
Regulations are also regulating investment in mutual funds, derivatives, venture
capital, private equity and list of approved and unapproved investment.
Unit-linked insurance plan (ULIP): This plan is a product offered by insurance
companies that, unlike a pure insurance policy, gives investors both insurance and
investment under a single integrated plan. The first ULIP was launched by Unit Trust
of India (UTI). With the Government of India opening up the insurance sector to
foreign investors in 2001 and the subsequent issue of major guidelines for ULIPs by
the IRDAI. Now several insurance companies forayed into the ULIP business leading
to an over-abundance of ULIP schemes being launched to serve the investment needs
of those looking to invest in an investment cum insurance product. A ULIP is
essentially a combination of insurance and an investment vehicle. A portion of the
premium paid by the policyholder is utilized to provide insurance coverage to the
policyholder and the remaining portion is invested in equity and debt instruments. The
aggregate premiums collected by the insurance company providing such plans is
pooled and invested in varying proportions of debt and equity securities in a similar
manner to mutual funds. Each policyholder has the option to select a personalized
investment mix based on his/her investment needs and risk appetite. Like mutual
funds, each policyholder's ULIP holds a certain number of fund units, each of which
has a net asset value (NAV) that is declared on a daily basis.
 48

(The NAV is the value upon which net rates of return on ULIPs are determined. The NAV
varies from one ULIP to another based on market conditions and fund performance)
Features: A portion of premium goes towards mortality charges i.e. providing life
cover. The remaining portion gets invested funds of policyholder's choice. Invested
funds continue to earn market linked returns. ULIP policy holders can make use of
features such as top-up facilities, switching between various funds during the tenure
of the policy, reduce or increase the level of protection, options to surrender,
additional riders to enhance coverage and returns as well as tax benefits.

Depending upon the death benefit, there are broadly two types of ULIPs.
Under Type-I ULIP, the nominee gets the higher of Sum Assured and Fund Value
while under Type-II ULIPs, the nominee of the policy holder gets the Sum of Sum
Assured and Fund Value in the event of demise of the policy holder. There are a
variety of ULIP plans to choose from based on the investment objectives of the
investor, his risk appetite as well as the investment horizon. Some ULIPs play it safe
by allocating a larger portion of the invested capital in debt instruments while others
purely invest in equity. Again, all this is totally based on the type of ULIP chosen for
investment and the investor preference and risk appetite.

Since ULIP (Unit Linked Insurance Plan) returns are directly linked to market
performance and the investment risk in investment portfolio is borne entirely by the
policy holder, one needs to thoroughly understand the risks involved and one’s own
risk absorption capacity before deciding to invest in ULIPs.

There are several public and private sector insurance providers that either operate solo or
have partnered with foreign insurance companies to sell unit linked insurance plans in
India. The public insurance providers include LIC of India, SBI Life & Canara while and
some of the private insurance providers include Aegon Life, Edelweiss Tokio Life
Insurance, Reliance Life, ICICI Prudential, HDFC Life, Bajaj Allianz, Aviva Life
Insurance, Max life insurance, Kotak Mahindra Life, & DHFL Pramerica Life Insurance.
Tax benefits: Investment in ULIPs is eligible for tax benefit up to a maximum of Rs
1.5 lacs under Section 80C of the Income Tax Act. Maturity proceeds are also exempt
from income tax.
 48

1.8 Indian Insurance Industry in The Post LPG Era

In the post LPG period, the Insurance Industry of India witnessed a marvellous
growth and touched its historical height. So many factors have collectively
contributed to this remarkable achievement. In this tenure, insurance companies
introduced many phenomenal business strategies by way of offering colourful
schemes and products.
Chart 1.8
Growth drivers for Insurance

Increasing
Awareness Higher focus on
Strong under penetrated
regulatory segments
regime
(Tier-II &
Tier - III cities )

Government
Conducive initiatives
Legislative (financial
Changes inclusion &
Growth
Drivers literacy)
for Insurance
Segment
Increasing Use
Entry of Global
of
insurance brands
Technology

Evolving
Product Boom of
& Pricing InsureTech
approaches by Sector
Insurers Emergence of
new distribution
channels

India is the 13th largest insurance market in the world in terms of premium volume.
While the Life insurance India is the 13th largest insurance market in the world in
terms of premium volume. While the life insurance ranking stands at the 10thposition,
the non-life insurance ranking is at 15th. While the overall GDP of the country did not
improve as expected in FY 17, the growth of the insurance industry has been
significant due to the big boost in the agricultural sector. The year has also seen a
 48

change in the industry stakeholder composition, with not only new entrants in the
insurance segment, but also in the reinsurance segment.
1.9 Scope and Structure of the Study
After liberalization in the year 2000, the private insurer came in to Indian market.
At present (Feb 2018) there are 24 (total) Life Insurance and 21 Non-Life insurance
companies operating in India. Still a large part of Indian insurance market is untapped
hence gives a great opportunity to the insurers from public and private sector both.
Monopoly of public sector companies comes to an end after liberalization on and the
private players are doing good job as their market share is continuously increasing.
Though the public insurers are still in position of market leader but the private players
are giving them tough competition. Definitely after reforms insurance sector is on
progressive path. In the present research report an effort has been made to know about
impact of reforms in insurance sector in India.

1.9.1. Structure of the Research

In order to achieve objectives of the present study, the entire work has been broadly
divided into following five chapters.
The present chapter I “Introduction” provides introductory on insurance sector
and its history in India. It covers formation of the committee for reform in the
insurance sector, establishment of IRDAI, entrance of private companies. This
Chapter also covers a brief note on investment pattern of insurance premiums which
decides profit/growth of insurance sector. The chapter defines the statement of
problem.
Chapter II “Review of Literature” is devoted to review the existing theoretical and
empirical literature on present status, challenges and future prospect of insurance
industry, investment pattern of insurance companies, reforms in insurance sector,
growth in private insurance sector. The review of literature covers different aspects of
the insurance industry
Chapter III “Research Methodology” covers methodology used to prepare project
report.

Chapter IV “Data Analysis, Interpretation and Presentation analyses the impact

of reforms in insurance sector in India, mainly after year 2000. Data is generated from
various insurance reports and published papers and interpreted by presenting tables,
bar graphs and pia charts in the chapter.
 48

Chapter V “Conclusion and Suggestions” concludes the research finding and offers
suggestions. Finally, it provides direction for future research on the subject matters
1.9.2 CONTRIBUTION OF THE STUDY

Research studies these days are gaining an unprecedented focus and attention.
Reforms in Insurance sector has become an interested area in both academic and
practitioner communities because of changing insurance investment regulations and
growing importance of insurance companies as institutional investor. The present
study is an empirical work based on secondary source of information. The study not
only fulfils the requirement of the academic degree but also it is part of social
commitment to bring out the facts and importance to insurance sector since
liberalization. The study will not only help its readers but also help the future
researcher as their guide. The study further makes an attempt to point out that reforms
in insurance sector has played a very crucial role in getting the Indian insurance sector
aligned with global standard.
 48

CHAPTER ⸎ 2
REVIEW OF LITERATURE
2.1 Available Literature between 1990- 2000
2.2 Studies related to impact of reforms in insurance sector in India
2.3 Studies related to Investment Pattern and regulation of Insurance Companies
2.4 Conclusion
 48

Introduction
A literature review is conducted to generate a theoretical and scientific analysis of a
particular phenomenon and uncover what is known and the gaps related to that topic.
The primary purpose of a literature review is to gain a broad background related to
problems in conducting research on a particular topic, selecting a problem and
purpose, developing a framework and formulating a lesson plan.
An attempt has been made to review and discuss literature related to my project report
titled “Impact of reforms in insurance sector in India: A research study”.
2.1 Available Literature Between 1990- 2000
Dodds J.C. and Croom H. (1979) have critically analysed the investment behaviour
of life insurance companies; with an objective to providing guidelines to show the
future investment pattern in the insurance business.
Hubner S.S. and Kenneth B. Jr. (1982) have worked on life insurance & health
insurance and the different types of products and plans that are the organizational and
marketing aspects of insurance firms are also discussed at length by the authors
Marks,S. D. (1982) explained the fundamentals of insurance and discussed
the various types of insurance such as life, fire, marine, life etc. are discussed
in detail.
Rajan Sexena (1986) in his article titled “Marketing of Life Insurance Services”,
discussed different issues related to the marketing strategies of insurance firms.
The author focused on the importance of applicability of marketing concepts to the
selling of life insurance products, and the need for interactive strategies in the
marketing of life insurance products.
Hofsted G. (1995) identified the major function of life insurance was to guard against
financial loss. Any event affecting an individual’s earning ability has an impact on the
individual’s human life. This event may be early death, incapacity, retirement or
unemployment. Besides covering the risk of death, it covers the risks of disability,
serious illness and superannuation.
Pedro P. B. (1996) in his article “Competition Effects of Price Liberalization in
Insurance” outlines the insurer’s decision making process, and their exercise of
monopoly power. The author concluded with presenting a case study of the
Portuguese auto-insurance market. Two distinct time spans were taken and a panel of
data was used.
 48

1982-1988 was characterized by price regulation, and 1989-1990, was characterized

by pricing freedom. A clear change in the company’s market conduct was observed
after the price liberalization event. The results suggested that firms behaved in a more
competitive way than the post liberalization period, where a significant degree of
conspiracy was identified.
Gidhagen (1998) attempted to develop a conceptual framework from a relationship
perspective for the study of insurance services marketing. Deregulation and
internationalization have created a new, increasingly competitive business climate.
The focus of this research work is on the relationship between insurance companies
and their corporate customers.
Mishra and Simita M. (2000) compared the position of the Indian insurance sector to
European countries, in which life insurance accounted study states that the need for
insurance arises when economic activity increases, families become nuclear, kins get
geographically dispersed and individuals become more dependent on employment.
The author analyzed the top ten largest insurance markets and how they are ranked by
revenue in the year 1998.

2.2 Studies Related to Impact of Reforms in Insurance Sector in India

Agarwal (2001) examined the role of information technology in the insurance sector
in his study, and focused upon the requirements of providing effective services due to
the entry of private firms. An insurance firm can utilize its services in many ways
such as: customer service, investment management, claim management, relationship
management etc. This article emphasizes that to gain overall boost in the size and
revenue of the insurance market, it is understood that information technology must
take on a vital role, to enable extensive penetration.
Michael (2001) analysed the demographic facets in this article and appraised the
insurance business with a case. Additional features added to conventional products are
referred to as help products. In this study, the author has conducted a customer survey
to identify the demographic aspects and their roles. The author has also invested
efforts to analyse the consumer’s decision towards a new class of insurance products.
Finally, the study concludes that, there is a weak relationship between the consumer’s
decision making process and the class of products offered, as demographic factors do
not always perform as expected. Therefore, it seems sensible to focus on alternate
factors alongside to ensure effective marketing.
 48

Nikhil G. (2001) in his article has identified, that the strategies that Indian insurance
firms adopt, is hinged upon the product’s essential usefulness in providing safety
features. The author highlights the growing proportional aspects, penetration levels
and other macro factors affecting the global insurance market during the year 1999.
Each private player’s viewpoint is to sell the product for customers at their own risk.
Vasanthi S., Prakash, and Sithramu (2001) explored the agents in the liberalized
economy and the changes taking place in their management. This article aimed upon
identifying the competencies needed and methodology adopted for selecting effective
agents. A sample of 15 agents of the age range between 28 to 47 years, and customers
of such agents were taken for qualitative assessment.
The findings of the research conducted indicated that, professional competency plays
a vital role for successful insurance agents. The study also highlighted how to manage
agents to develop competencies and area experts in the selection of effective agents.
Somesh (2001) discussed issues related to regulation of insurance business especially
in context of solvency, market routine and some observed practice follow by different
countries in world with particular reference to India. The author suggested that the
initial focus of regulator must be on financial soundness of players, tariff and contract
standardisation, and creating a level playing field for new entrant’s vis some vis the
monopoly giant LIC and General Insurance Corporation of India (GIC).
Ajay K. R. and Mukesh D. (2002) focused upon the social implications in opening
up of the insurance sector to private firms to identify reasons as to why there was
private entry after nationalization, what the social aspects are so far and how the
reforms have taken place in the Indian insurance industry.
The issues faced by private firms due to competition are to enhance resource
optimization, reduce premium cost, mobilize funds domestically, offer better pay
packages and attract inflow of foreign capital. This study has also revealed that, most
of the private firms concentrate on business only in the urban areas, due to a lucrative
market response
Pradeep G. and Sanjay B. (2002) analysed and discussed the challenges with
possible solution strategies, applicable to the insurance sector in India. Authors have
made an attempt to identify how different brands can be positioned in the market and
how business practice codes are given by IRDA to maintain standards. The research
piece revealed that after liberalization, awareness of brands is 100% for LIC, 70% for
ICICI Prudential awareness and 52% for HDFC.
 48

Hendel and Lizzeri (2003) studied the long -term contract properties and found
empirical support, for forecasting the model by using data from the life insurance
market. In particular, they presented that all types of life insurance contracts
especially the more front-loaded contracts, are associated with lower lapses and lower
present discounted value of premiums over their coverage period. They argued that
asymmetric information among others is not a reasonable option or explanation of
their findings.
Pramod P. and Saumya S. (2003) in their research article tried to find out the
competitiveness between LIC and the new players and carried out as SWOT analysis
to advise effective strategies. The objective of this article was to assist the public
sector insurance giant to boost the market share, to help LIC to retain old customers,
and to attract new customers. The study also highlighted the level of customer
satisfaction and quality of services disbursed. The methodology applied in this article
has been derived through open-ended interview with customers, to identify their
perceptions and expectations. 100 customers in Dhanabad and its surrounding areas
were selected to collect information on the sum assured, annual premium paid etc.
The findings of the study noted, that majority of customers were graduates, who felt
that the main work of LIC is to insure human life. Most respondents however
preferred only money back polices and Bima Nivesh covering a single premium.
Hitt and Croson (2004) pointed out, that there were three principal issues i.e.
transparency, dis-intermediation and differential pricing that help in determining the
transformation of retails financial services, including life insurance firms. The authors
have explored, that financial services industries are gradually transformed by these
three trends. Vaidyanathan R. (2007) discussed regulation and financial convergence
in the insurance sector. In his article he mentioned, that there is no legislative
framework for considering the compound nature of the working of the financial
corporation. A new structure needs to be developed to monitor activities of insurance
providers in a structured system.
Sinha (2005) described the current state of development in India’s insurance market
in respect of life insurance, non-life insurance, rural insurance and regulatory regime.
The author highlighted that Indian insurance market has vast potential to become a
largest insurance market in the region fostered by sound economic fundamentals,
rising household wealth and further improvement in regulatory framework which
pave the way for strong growth in insurance market.
 48

Santosh D. and Upinder D. (2007) tried to focus on global state of affairs, as they
opine that India cannot remain inaccessible. It is apparent that the existing firms need to
gear up to face the competition. These new firms will have to consider new
requirements of customers. The existing firms will also have to take care of customer
specific aspects and needs. As a matter of information, custom-based products will have
to be developed to suit specific customer needs. New products have to be developed for
large corporate groups. The insurance industry is going to undergo a vast change in its
marketing practices, as well as its marketing strategies. The existing and new firms will
have to work out different strategies to keep and improve their market share.

Devasenathipathi, Saleendran and Shanmugasundaram (2007) in their study,

“A Study on Consumer Preference and Comparative Analysis of All Life Insurance
Companies” analysed and rated all life insurance firms by analysing certain factors.
They examined the effect of privatization, measured customer perception, purchase
behaviour and consumer awareness regarding life insurance products. The study
concluded that the deciding factor of the purchase process depended on quality,
convenience and promptness of services that may lead a company to acquire the top
rank with a huge market share.

Pillai (2007) in his article titled the “Life Insurance Business” defined life insurance
as, the business of offering contracts of insurance upon human life, including any
contract whereby the payment money is assured on death (except death by accident
only) or the happening of any contingency affecting human life. This also includes any
contract which is subject to the payment of premium for ensuring a team’s human life.

Narayanan (2008) in his article attempted to decode the secrecy of pension plans and
assist people to zeroing down on an apt pension plan. Originally, it dealt with the basics
of Unit Linked Pension Plans (ULPP) and how it works. The article explained how it is
different from the traditional insurance plan and discussed, the basis for selecting an
appropriate ULPP will would prove to be beneficial at the time of retirement.

Mahesh Chand G. and Deepti (2008) in their article, “Efficiency of the General
Insurance Industry in India in the Post-Liberalization Era: A Data Envelopment
Approach”, attempted to examine the technical competence and the scale efficiency of
12 general firms in India, in the financial year 2002-03 and 2005-06. Their study
presented that, private firms are lagging behind public firms but they are fast catching
up and the competence scores of public and private firms seem to converge.
 48

James P.C. (2008) understood that by calculating the probabilities of the occurrence of
risks leading to loss; it is possible to convert risk conditions into catalysts for driving the
economic momentum in society. In fact, insurance public good; regulation, self-regulations
and standards usually requires that rates and terms are fair, reasonable and not excessive.
Ramin Cooper M. & Chris Sakellariou (2008) in their paper, “Financial Liberalization,
Deposit Insurance and Bank Stability” investigated the impact of implementing an
explicit deposit insurance scheme, on the likelihood of banking crisis in countries
with well-liberalized financial systems. They concluded that deposit insurance will be
successful in alleviating moral hazard and will increase the constancy of the financial
system, only if an adequate degree of financial liberalization exists.
Sonia S. (2008) observed the potential for insurance companies in housing areas, with
the objective to find out the profiles of consumers in insurance, and the attributes of
insurance that become functional while taking decisions. The author concluded with
findings from 500 respondents, that there is an immense prospect for insurance in
housing areas as most of these areas are untouched. For insurance firms to be
successful in their areas, must design their products and services in such a way so as
to attract customers, and provide them with the best products and services.
Vadlamannati (2008) examined the contribution of insurance sector to economic
development in India from 1880 to 2006. The results reported a positive relationship
between insurance sector and economic development and exhibited a long run
equilibrium relationship. However, the study did not indicate any strong relationship
between insurance sector reform and economic development, but favoured the reform
as an indicator of prosperity. It has also suggested complete deregulation of insurance
sector and an acceleration in pace of reform.
Kirti D. (2009) focused on consumer beliefs and attitudes towards advertising media.
He concluded that it is very important for marketers to generate advertisements that
are believable and offer relevant information about the product. The message in the
advertisements should focus on benefits and attributes, with required amount of
creativity in it to get maximum results.
Rajendran R. and Natarajan B. (2009) highlighted that the business in India, the
business outside India as well as the total business of LIC has always had an increasing
trend. The collected and analysed data proved that liberalization, privatization and
globalization are exerting a positive influence on LIC and its performance.
 48

Murthy T.N., Raja Babuand Riswana Ansari (2009) in the paper titled,
“Performance Evaluation of LIC: Ways of Winning Confidence” highlighted the
development and expansion of the company, a performance review before and after
liberalization, their innovative product lines, improved customer services and
enhanced distribution channels of LIC. Their objectives were to know about the
growth and development of the LIC business before and after liberalization,
privatization and globalization; and to study the ways to improve customer services in
LIC for winning confidence, and making appropriate suggestions for the improvement
of the LIC business.

The study concluded that to achieve greater insurance penetration, public as well as
private insurance units have to improve in terms of quality of services offered and
greater efficiency.

M.C. Garg and Anju Verma (2010) in their paper titled “An Empirical Analysis of
Marketing Mix in the Life Insurance Industry in India”, analysed the marketing mix in
life insurance in India. The population for this research comprised of all employees of
public and private life insurance companies in India. A sample of 95 employees was
drawn on the basis of convenient sampling. Their prime objective was to study the
nature, pattern and process of the marketing mix in life insurance companies in India.
They concluded that various dimensions of the marketing mix where measured and
analysed. For instance age-wise, sex-wise, qualification-wise, hierarchy-wise and
organization-wise analyses depicted that a majority of respondents are of the opinion,
that the concept of marketing mix is understood and implemented regularly, that the
suppleness of various mix ingredients aren’t always studied by the marketing
departments of life insurance firms, that the marketing departments of life insurance
firms always review the mix, that regular careful analysis is carried out to develop an
optimal and most economic mix, and that other departments are always invited to take
part in developing this optimal mix .

However, they were also of the opinion that the marketing departments sometimes an
attempt at quantifying the level of expenditure, that life insurance companies
sometimes attempt at analysing their competitors’ mix, and that life insurance
companies sometimes do briefing about the mix plan to outside contractors. Life
insurance companies rarely adjust their marketing mix in relation to specific
segments.
 48

Rajendra and Natarajan (2010) analysed the impact of liberalization, privatization

and globalisation on LIC using methods of least square and linear trend.
The researchers also examined the current status, competition and challenges faced
by LIC.

The findings revealed that LIC has been observed an upward trend throughout
the study period in terms of business in India, business outside India and total business.
It was further highlighted that there is a positive influence of LPG on LIC and its
performance.

Kamalanathan (2011) undertook a survey of 400 policyholders from Mumbai city to

investigate behaviour of policyholders towards private life insurers. The sample of
400 policyholders consisted of 115 from South Mumbai, 115 from Eastern Suburb
and 170 from Western Suburb. The questionnaire included both open ended and
closes ended questions related to policies purchased, reason to purchase, benefit
drawn and companies recommended.

The author concluded that satisfaction level of respondents towards private life
insurance companies is more than LIC and trustworthiness is the major reason for
purchase of LIC products.

Manjit Singh and Rohit K. (2011) in their paper “Efficiency Analysis of the Public
Sector General Insurance Companies: A Comparative Study of Pre- and Post-Reform
Period”, compared the competence of the Indian public sector general insurance firms
during the pre- and post-reform periods. The pre-reform time span includes 1993-94
to 1999-00, and the post reform time span includes 2000-01 and 2007-08.

The results concluded that the competence of the public sector general insurance firms
is higher in the post-reform period, than the pre-reform period.

Debabrata Das and Jasojit Debnath (2012) in their paper, “Performance of

Insurance Companies in India: A Comparison of Public and Private Insurers”,
highlighted the performance of life insurance sector in terms of variety of parameters,
and also threw light on the different marketing channels.

Their study also suggested that life insurers have improved over the years, and
insurance is now not limited only to a particular class or society. Rather with
innovative products and better customer services, the insurance firms are trying to
cultivate an insurance habit among all segments of the population.
 48

Sharma and Chowhan (2012) studied the impact of privatization on life insurance
business in India with sample of 50 consumers in Jaipur city. In order to fulfil
objectives of the study, 50 consumers were divided into 3 category i.e. high level
financial consumers, medium level financial consumers and low class financial
consumers. The authors pinpointed that life insurance industry has been developed
tremendously after privatization of Indian insurance sector in terms of number of
offices, number of agents, new business policies and premium collected. There has
also been a significant change in marketing practices of insurance companies with
new innovative policies and products.

Pamecha and Chhajer (2013) in their article discussed the paradigm changes that
took place in the Life Insurance industry in India. These authors have elaborated the
rationale behind the leadership position enjoyed by LIC in the market. The recent
regulatory changes in the Life Insurance industry in India have also been highlighted
in the article. Authors found that the global integration of financial markets resulted
from de-regulating measures, explosion of technological information and financial
innovation. Also the study emphasized, that liberalization and globalization have
allowed the entry of foreign players in the insurance sector, providing a better array of
services for the customers at competitive prices.

V. Ushakiran, Maschendar and Sreenivasa (2013) discussed that growth in the life
insurance sector touched new statures, and the entry of the private companies has
given a tough challenge to the Life Insurance Corporation of India. The entire risk
business has started to show significant changes. Right from increasing insurance
penetration to changing the customer’s mind-set about life insurance to the state of
reducing risk as an investment alternative. Insurance firms have started focusing upon
innovative policies and creative practices in the Indian market. This orientation has
changed the entire shape of the life insurance sector in India.

FICCI (2013) highlighted that non-life insurance sector in India burdened with
growing underwriting losses as claim ratio is very high. However, strong retail lines,
increasing customer awareness and premium growth are among some of positive
development in Indian non-life insurance market. Therefore, general insurance
players should reassess all aspect of their business such as pricing, product, risk
management and customer relation.
 48

Ghosh (2013) aimed to identify association between life insurance industry and
economic development in India. The result was consistent with the fact that there is long
term association between life insurance industry and economic development in India, but
this association is unidirectional. The results of granger causality test highlighted that life
insurance industry contributes to the overall economic growth in India.

Shreedevi and Manimegalai (2013) compared the performance of public and private
non-life insurance companies over a period of 9 years from 2002-03 to 2010-11.
The study was carried out to examine any significant difference in number of new
policies issued, gross direct premium income and net incurred claim among public
and private non-life insurers by using Mann-Whitney U test.

The researchers asserted that public sector firms have done far better than private
sector firms which can be due to aggressive pricing and retention of business.
Moreover, New India Assurance Company Limited and ICICI Lombard General
Insurance Company Limited found to be pioneers in non-life insurance market.

Venkatesh (2013) attempted to explain growth of Indian insurance sector by

reviewing premium and insurance density. The author had used trend analysis to
obtain trend %age of variables and advocated that trend %age has been continuously
improved. However, India’s insurance density has been showing low %age, but it
expected to be improved year to year.

Verma and Bala (2013) examined the association between life insurance and economic
development in India during 1991-2011. Life insurance premium and life 45 insurance
investment are selected as proxy measures for life insurance and gross domestic product
is used as proxy measure for the economic development.

The results revealed that life insurance has positively significant impact on the economic
development.

Mandeep K. and Dalwinder K. (2014), in their paper, “Customer Satisfaction towards

Life Insurance in Punjab” identified the association between customer satisfaction and
demographics of customers.

Their study brought out seven factors through factor analysis, namely; services and
company reputation, quick and timely services, customer convenience, additional
facilities, loyalty of employees, efficient departments with disciplined employees, and
service material and understanding of requirements.
 48

Ramamoorthi and Kumar (2014), reviewed the theoretical analysis of product

liability insurance between buyers and sellers. A model consisting of three groups of
buyers, a producer-seller, and an insurance institution has been developed under
varying assumptions in their study. Authors have found that the liberalization of the
economy has resulted in the availability of large number of lucrative alternative
products and financial services.

Gupta and Aggarwal (2014) tried to explore relationship between the level of
insurance penetration and GDP in India. The researchers opined that lack of financial
awareness leads to the lower savings in the financial instruments resulting to the very
low level of insurance penetration, especially after 2010. Meanwhile, the insurance
industry needs to tap the unrealized potential of the public, private and foreign investors
in order to ensure growth in the economy together with increase in penetration.

Nandi (2014) measured relative performance of the selected life insurers of India.
This study was based upon top 13 life insurers including 1 public sector life insurer
and 12 private sector life insurers covering a period from 2002-03 to 2011-12. This
study utilized two inputs (commission paid and operating expenses) and two outputs
(premium and net benefit). The results showed that life insurers are carrying life
insurance business at an average technical efficiency of 82.6%, pure technical
efficiency of 87.5% and scale efficiency of 94.7%. On the other hand, sector wise
performance analysis revealed that performance of public sector life insurer is better
than private sector life insurers.

Shah and Dadachanji (2014) identified the various opportunities and threats which
Indian insurance companies are confronting. The authors proposed a clear agenda for
insurers and suggested that insurance companies should set a digital goal post, adjust
to a digital attitude, speed up their current digital efforts and exhort the right
possibilities within their organizations set up.

Kaur and Sharma (2015) concentrated on the impact of FDI on the efficiency of
private life insurers. Ten private life insurers were analysed with the use of multiple
regression analysis for the period of 7 years from 2008 to 2014. The variables
employed in the study were FDI, annual premium, profit & loss, operating expenses
and business expansion. The authors highlighted that FDI will develop market for the
private insurance players in urban, semi urban and rural areas.
 48

Mistry and Singh (2015) investigated the factors which influence maturity benefits
of ULIPs from 2008 to 2012 by using regression analysis. The study covered ten
insurance companies and their three classifications of ULIPs i.e. unit linked
endowment plan, unit linked wealth plan and unit linked child plan.

The results revealed that premium allocation charge, mortality charge, policy
administration charge and fund management charge are the determinants of maturity
benefit of ULIPs.

Rakesh and Shilpa (2015) investigated the need for raising FDI in Indian insurance
sector. The researchers highlighted that FDI initiatives are taken to encourage joint
ventures in insurance sector so as to uplift position of insurance companies in
domestic market. Despite the present policy and regulatory conditions are not ideal
for foreign companies, there are major initiatives towards facilitating FDI inflows
without affecting other sectors of the economy. Increased FDI is perceived to
influence Indian insurance sector in long term than short term.

Sinha (2015) has used a dynamic slacks based data development analysis model
(DEA). The DEA model was proposed by Tone and Tsutsui (2010) to be used for
performance evaluation. The same has been used in this study using 15 life insurance
companies in a seven-year period (2005–2006 to 2011–2012). The author has
identified that, the unique selling point of the present approach is unlike the
conventional static DEA models. He has also presented a framework, by using a link
variable, connecting the observed years and thereby creating a common benchmark.

Joy and Pratim (2016) explored that in the pre-reform era, the Life Insurance
Corporation of India dominated the Indian life insurance market with a market share
close to 100 %. But the situation drastically changed since the enactment of the IRDA
Act in 1999. At the end of the FY 2012-13 the market shares of LIC stood at around
73%, with the number of players in India’s life insurance sector.

The authors deliberated that; the reason for the decreased market share over this
period could be attributed to the increasing competition prevailing in the country’s life
insurance sector. At the same time, the liberalization of the life insurance sector for
private participation has eventually raised issues, about ensuring sound financial
performance and solvency of the life insurance companies; besides safe guarding the
interests of the policyholders.
 48

Kumar (2016) explored, that there has been an observable change in the market
dynamics since liberalization and introduction of economic reforms. A considerable
amount needs to be done for future growth and development of the market in an
orderly and sustained manner. Even post liberalization insurance companies in India
have been ignoring rural markets.

Insurance companies in India will have to show long term commitment to the rural
sector as well, and will have to design products which are suitable for rural people.
Insurance companies need to think about their distribution mechanism to work
effectively in rural markets.

Rajesh K. Yadav (2016) published paper in “World Scientific News” concluded that
increase in foreign direct investment (F.D.I.) is optimistic move for the future of
Indian Life Insurance Sector, since this sector need huge amount of capital investment
which can be done effectively only through increase in FDI and it enhance overall
performance of insurance sector. Innovative insurance product and services, better use
of technology, increase in employment and competition etc. are by-product of
increase in F.D.I in insurance Sector.

Government of India through Insurance Regulatory and Development Authority of

India (I.R.D.A.I.) and Reserve Bank of India (R.B.I.) need to keep regular check on
the outflow of India currency. India is growing economy and many consider it an
attractive country for investment in mainly to its fast growing and changing insurance
market. Indian insurance industry is still less penetrated and has huge growth
potential. Foreign direct investment (F.D.I.) plays significant role in the economic
development of the country. This study is based on secondary data collected from
I.R.D.A and research papers from various journals.

Yogesh Jain (2013) published paper in “IOSR Journal of Business and Management
(IOSR-JBM)” Insurance sector in India is one of the booming sectors of the economy
and is growing at a very speedy rate. This sector in India was liberalized in 2000.
The opening up of the insurance for private players has led to rapid growth of
the sector.

This paper analysis past and present status of the insurance sector in life insurance
sector in particular. The paper also discusses about the future strategies of the Indian
Insurance sector.
 48

The present descriptive and analytical secondary based study was conducted with an
objective to analyse the condition of life insurance industry and to study the impact of
post 2008 economic crisis on insurance industry in India, also an attempt to study the
opportunities and challenges for life Insurance in post liberalization area. In the post
liberalization period, the life insurance industry of India witnessed a marvellous
growth but this growth was declined after economic crisis are some of the major
findings of study.

Seharish J Ansari, Amir Rehmani published paper in” International Journal of

Applied Research 2016” concludes The insurance industry in India has passed
through a period of structural changes under the combined impact of financial sector
reforms in general and insurance sector in particular. With the liberalization of
insurance sector, the paradigm for Indian insurance industry has witnessed a sea
change during the last decade. FDI was much needed in the Indian insurance industry
as it brought the requisite growth capital from foreign promoters, better insurance
business practices not available in the country and of course the new type of
international exposure from foreign players and thus helped in deepening the
penetration of insurance products in the Indian rural markets, where the penetration
level was too low. The privatization of the sector has also contributed in a great way by
increasing the insurance density and also penetration in both – life and non-life
segments. Concluding, the study reveals that the economic reforms in the sector have
led to the overall improvement in the performance of the insurance industry as a whole.

IBEF (February, 2018) Report summary says: The overall insurance industry is
expected to reach US$ 280 Bln by 2020. The domestic life insurance industry registered
16.83 % y-o-y growth for new business premium in 2017-18, generating a revenue of
Rs 1.51 trillion (US$ 23.32 Bln). Premium income of the life insurance segment had
increased 14.04% in FY 17 to Rs 4.18 trillion (US$ 64.92 Bln).

Gross direct premiums for general and health insurance segment reached
Rs 1.28 trillion (US$ 19.88 Bln) in 2016-17. Gross direct premiums for non-life
insurance industry increased by 18.87% y-o-y in FY 18. The market shares of private
sector companies in the non-life insurance market rose from 13.12% in FY 03 to
48.01% in FY 18. Pradhan Mantri Fasal Bima Yojana (PMFBY) covered 50.9 million
farmers in India in 2016-17. Strong growth in the automotive industry over the next
decade to be a key driver of motor insurance.
 48

2.3 Studies Related to Investment Pattern and Regulation of

Insurance Companies
Vaidyanathan and Sriram (2000) expressed the views on the investment regulatory
framework of insurance and pension funds in India. The authors have also referred to
investment practices in other countries in order to identify possible changes in
investment criteria which will benefit all constituents of industry. The authors have
recommended an investment pattern for regulated asset in which bifurcation is made
between regulated asset and free assets. Free assets of life insurance should be
invested in approved and unapproved investment based on insurers’ discretion.
Vaidyanathan (2001) looked at the factors to be considered by life insurers, general
insurers and pension funds in their investment decision making by discussing the
experience in the United States, United Kingdom and India. The findings turned out
that the investment regulations of insurance companies should be emphasised on
solvency requirements, asset valuation regulation, maximum amount of investment in
certain classes of securities, minimum percentage of the fund to be invested in certain
asset classes, limits on the percentage of funds that can be invested in any
company/industry and treating some assets as inadmissible for valuation purposes.
Finally, it was concluded that liability profile, incidence of income tax and capital
gains tax are important factors influencing the asset allocation between fixed income
and growth oriented investments.
Kong and Singh (2005) focused on investment decisions of life insurance companies
with special reference to emerging markets. The authors mentioned that mature
market insurers invest only a small portion of their assets in emerging markets
because of regulatory constraints, rating pressures and currency risk while domestic
insurers usually remain captive investors of local securities and lend stability to the
domestic investment market.
Karuna K. (2009) ULIPs like other products cannot claim to be a perfect financial
solution. But, for an investor who invests judiciously and is ready to wait patiently,
ULIPs is one good investment vehicle available in the Indian financial market.
Pa. Keerthi, R. Vijayalakshmi (2009) All the respondents/Policy holders have
certain level of expectations from the services that are to be delivered by an insurance
company. Their expectation level varies irrespective of the demographic profile but
they look forward to excellent delivery of services.
 48

Mr. Khanna, Member (Actuary) IRDA (2009), ULIPs are of generally long
duration (12-20 years) the ups and downs in the market are natural. When the market
is down it not good time to redeem the money from units, some investor sees this as a
good period to invest.
Sunil Dhawan (2009) Investors in the high-risk category should give priority to
equity-linked products such as ELSS or ULIPS over fixed income products.
Kumar (2010) exposed that public sector non-life insurers have higher underwriting
loss than private sector non-life insurers. However, investment income of public
sector non-life insurers has been compensated their underwriting loss, leading to
higher profitability than private sector non-life insurers.
It was further highlighted that the new competitive market condition acts as a catalyst
in the non-life insurance industry and instil efficiency in business practices of public
sector non-life insurers. Private insurers have been filled the gap rapidly by offering
better services to their customers. They have covered approximately forty-one % of
market in such a short span of time. Therefore, public insurers should thoroughly
reassess their business practices to remain competitive in the market.
Venkataraman (2012) described the dynamics of investment function of insurance
companies as well as its importance in providing liquidity. The paper placed special
emphasis on balancing of all aspect of investment management of insurance companies
and suggested the investment managers to balance portfolios subjected to regulatory
requirements and few broader optimum portfolio parameters. It was also highlighted
investment function as an essence to honour claims and building wealth base.
Bawa and Kaur (2013) calculated investment efficiency of general insurers of India
over the period of 8 years from 2003 to 2010. The study selected 10 general insurance
companies of India including 4 public sector general insurers and 6 private sector
general insurers. Two models were tested with the use of data envelopment analysis.
First model was considered investment as input, and return on investment to
policyholders and returns on investments to shareholders as outputs. For the second
model, capital and net premium were taken as inputs, and investment was used as
output. The results depicted that technical efficiency of public sector is quite high as
compared with private sector.
Kamau (2013) evaluated the interrelationship between investment income and
underwriting profit. Data were collected for twelve years ranging from 2000 to 2011
for non-life insurers licensed more than three years within period.
 48

The study presented a very low degree of correlation between underwriting profit and
investment income. Unlike underwriting profit, investment income has high
correlation with all other selected variables namely admitted assets, admitted
liabilities, capital employed and non-life net premium.
Kumari (2013) evaluated the financial performance of life insurance industry in India
through various financial ratios. These ratios were calculated based on Gart etal.
(1994), National Association of Insurance Commissioners (NAIC) guidelines and
IRDAI. Some of these ratios are total assets to earned premium ratio, investment
income to earned premium ratio, investment income to total investments ratio, current
ratio. Overall results of these ratios provide an indication of financial soundness.
Department of Financial Services (2013) reviewed the existing investment patterns
being followed in banking, capital market, pension and insurance sector.
The committee recommended a five-year phase-out plan to move to the prudent
investor regime. During the first two years, the current ambit of directed investment
should be shrunk. In the next three years, the limits of directed investment norms must
be markedly loosened, including as a preparatory to paradigm shift to prudent investor
regime. While doing so the regulator must allow for the emergence of some new
classes products, such as commodity futures, real estate investment trusts,
infrastructure investment trusts, etc. It is only after five years that the insurance and
pension sectors should leapfrog to prudent investor regime completely.
Gupta (2013) asserted that investment of insurer is very sensitive issue and should be
diligently monitor by insurer in order to obviate the possibility of an industry failure.
The article suggested that investment committee should change the status of the
security in its investment risk management system when credit rating agencies
downgrade certain assets. Simultaneously, it is also required to uphold solvency of the
insurer so that it remains in a position to shell out its claims and survival benefits to
policyholders.
Babu (2013) highlighted that LIC and private insurance sector have invested large
amount of investible fund in approved investments and only a little sum has invested
in other securities because the traditional policies are always emphasized on security
of capital rather than return. The author further stated that new insurers begin to play
an imperative role by increasing rate of accretion to total invested funds and insurance
companies may provide policyholders hedge against inflation.
 48

Gowd, Kiran, and Rao (2013) analysed the investment strategy of LIC of India and
its impact on profitability by employing the techniques of regression analysis,
correlation and analysis during the period from 1998 to 2011. The result unveiled that
investment strategy of LIC has positive impact on its profitability, but its average
investment yield is fluctuating. The researchers recommended that LIC has to revise
its investment strategy to optimize its average yield of investment without violating
regulatory norms.

Panda (2013) shed light on the investment pattern of LIC and its risk taking ability
while investing in different segments. The results demonstrated a significant increase
in investment of government securities, state government securities plus
housing/infrastructure, corporate sector and project loan. However, investment in
housing and infrastructure alone does not reveal any significant increase. In addition
to this, the paper concluded that investment pattern of LIC depend upon the growth
and development of country as greater economic activities lead to widening financial
market. The paper identified three stages in the development of investment practices
which transform life insurers from basic investors of policyholders’ fund to large
multifaceted institutional investors.

Reddy (2015) analysed investment pattern of life insurance companies from 2001 to
2009. The author found that investments of life insurers have been increased with
respect to central government securities and investments subject to exposure norms.
Moreover, investments are mainly inclined towards statutory investments avenues
which are very essential to ensure policyholder protection.

2.4 Conclusion

The chapter gives a summary of various literature reviewed and gives analytical and
view of similar work already carried out in the area selected for research. This chapter
presented in detail various studies related to Impact of reforms in insurance sector in
India. It also presented studies related to present status, challenges future prospect of
insurance industry and investment pattern. Review of relevant literature has done with
the support of research reports and publications of several governmental and
nongovernmental organizations, related research paper and articles both online and
offline.
 48

CHAPTER ⸎ 3
RESEARCH METHODOLOGY
3. Statement of the problem
1
3. Objectives of the Study
2
3. Hypothesis
3
3. Scope and Significance of the Study
4
3. Methodology
5
3. Source of Data Collection
6
 48

RESEARCH METHODOLOGY

3.1 Statement of the Problem

Liberalization, Privatization and Globalization (LPG) have opened new horizons in
the insurance industry. The reform of Indian insurance sector has brought substantial
changes in the level of competition, business environment, managing strategies,
service quality and the advance technology front. Experience has already shown that
quality of service is the influencing factor in the market and in fact, only those units
will survive which offer to the customer what he wants, and to his satisfaction. For the
old, established, public sector companies, it is a question of revolutionizing the very
approach to the business. For the new players also, it means an attitudinal change,
because they have to depart from the systems, procedures and attitudes of the public
sector so that the customer will be better served.

The insurance industry has offered a new customer friendly products, new delivery
channels like bank assurance, corporate agents, brokers and direct selling through the
internet, greater use of computerization and information technology etc. The public
sector general insurance companies have made both quantitative and qualitative
progress in the post-liberalisation period.

The private companies have proved to be more innovative and have introduced
competitive products with specialised features, especially for personal lines policies.
For example, they have pioneered health insurance products similar to Medicaid,
including critical illness covers where the insurer pays the sum assured on the
diagnosis of any one of the ten identified critical diseases. The rapid expansion of
insurance companies since nationalization has given rise to a number of problems
relating to the image, operational efficiency, productivity, and the quality of portfolio
of the system as a whole.

Since the onset of the reform, public sector insurance companies have been compelled
to review their mechanism in order to compete with private sector companies. Large
number of initiatives have been taken by the public sector companies to compete with
private sector companies. But still the public sector companies need to reassess their
present status after having modified their approach. So the research problem
attempted is to evaluate a comparative study on Impact of reforms in the public and
private sector insurance companies in the post-liberalisation era.
 48

3.2 Objectives of the Study

The main objectives of the study are as follows:
1. To study the insurance sector in India in the post reform period.
2. To analyse the comparative performance of the public sector and private sector
general insurance companies.
3. To know investment pattern of insurance sector in India
4. To review the major initiatives towards opening up of the insurance industry in
India.
3.3 Hypothesis
To achieve the objectives of the study, the main hypotheses formulated for
the present study are as follows:
3.3.1: Reforms in insurance sector is working as a booster for their growth.
3.3.2: The private sector insurance companies are providing tough competition to the
public sector insurance companies.
3.3.3: reforms and competition in the insurance sector has impact on the
performance of insurance companies in India.
3.4 Scope and Significance of the Study
The insurance sector in India has come a full circle from being an open competitive
market to nationalisation and back to a liberalized market again. Tracing the
developments in the Indian insurance sector reveals the 360 degree turn witnessed
over a period of almost two centuries. With the liberalization and entry of
private companies in insurance, the Indian insurance sector has started showing
signs of significant change. The insurance industry is surely coming of age,
after years of being a public monopoly. Even though the public insurance
companies still dominate the market, the fruits of competition are already
visible in terms of wide range of products, innovative bundling of insurance with
other financial services, aggressive marketing, and better customer care. With the
spread of insurance, people are beginning to think of insurance as a real service,
instead of being driven merely by tax incentives or statutory insurance requirements.
With the introduction of competition in the market, insurance activity has stepped up
in the country.
This study is an attempt to evaluate how the public and private sector general
insurance companies are performing in the post liberalisation era in India.
 48

3.5 Methodology
Research Methodology: Every researcher needs some data to analyses the situation
and to find out final results. The research work also is depending upon some facts and
figures which is of two types
I. Primary Data: This is the data which does not exist, hence has not been used by any
researcher earlier for his research work. Such data collected first time for specific
research work. In short the data which is newer and never used earlier called
primary data. It can be collected through several methods like questionnaire, direct
interviews of respective officials, survey and discussion with people etc.
II. Secondary Data: The data which is already available in the market and/or have
been used by several researchers known as secondary data. Such type of data
would be collected through websites of respective organization, their annual
reports, various journals, newspapers and books on related topics.
3.6 Source of Data Collection
The secondary data has been collected through official website and annual reports of
the companies, IRDAI, LIC, etc. Apart from it data from different research papers,
journals, newspaper articles and reports has also been used. The collected data has
classified, tabulated and analysed. Statistical tools like CAGR, percentage, Pie, bar
chart, linear graph have been used get desire results.
The main target of this study is to make an analytical comparison between public and
private sector insurance companies, on the basis of their market growth during the
period from year 2001 to 2018. This analysis will help to judge the impact of reforms
in insurance sector. The analysis will also tell investment pattern of insurance sector
in various sector, which boosts Indian economy and infrastructure in our country.
 48

Chapter ⸎ 4

Data Analysis, Interpretation and Presentation

4.1 Insurance Penetration and Density in India
4.2
Impact of reforms in Life Insurance Sector
.
4.3 Growth of Non-Life Insurance Sector
4.4 Growth and Trends of Investments of the Insurance Sector in India during Post
Privatization
4.5 Government Initiatives – Progress Report
4.6 Conclusion Primary Survey report on awareness of insurance sector
4.7 Primary Survey report on awareness of insurance sector
 48

Data Analysis, Interpretation and Presentation

The growth and development of insurance sector has been one of the important
objectives of insurance reforms. The insurance reforms in other countries resulted into
higher growth of the sector. A natural question therefore arises that what happen to
the growth of insurance sector since privatization of Indian insurance initiated in year
2000.
Growth and development of Indian insurance sector is measured on the basis of
insurance penetration and density, number of insurance companies, premium
underwritten, new policies issued, expenses, profitability, growth of insurance offices
and investments. Study is mainly divided in following topics:

 Growth of Life Insurance Sector

 Growth of Non-Life Insurance Sector

The study is based upon secondary data which has been collected from annual reports
of IRDA, IRDA Journal and LIC. Besides, a few websites have also been consulted.
Data from 2000 to 2017 is collected, analyzed and interpreted.

4.1 Insurance Penetration and Density in India

The measure of insurance penetration and density reflects the level of development of
insurance sector in a country. Iinsurance penetration measures the contribution of
insurance premium to the Gross Domestic Product (GDP) of a country in percentage
terms, insurance density is calculated as the ratio of premium to population (per capita
premium). During the first decade of insurance sector liberalization, the sector has
reported consistent increase in insurance penetration from 2s.71% in 2001 to 5.20% in
2009. Since then the level of penetration was declining. However, there was a slight
increase in the years 2015 (3.44%) and in 2016 (3.49%).

Graph: 4.1a and 4.1b indicates insurance penetration and insurance density in India,
during the period from 2001 to 2017. Overall (total) density is growing over the years.
The level of insurance density reached the maximum of USD 64.4 in the year 2010
from the level of USD 11.5 in 2001. During the year 2017, the insurance density was
USD 60 and insurance penetration was 3.50 %.
 48

Table No.: 4.1

Insurance Penetration and Density in India
Life Non- life Total
Year Density Penetration Density Penetration Density Penetration
(USD) (%age) (USD) (%age) (USD) (%age)
2001 9.10 2.15 2.40 0.56 11.50 2.71
2002 11.70 2.59 3.00 0.67 14.70 3.26
2003 12.90 2.26 3.50 0.62 16.40 2.88
2004 15.70 2.53 4.00 0.64 19.70 3.17
2005 18.30 2.53 4.40 0.61 22.70 3.14
2006 33.20 4.10 5.20 0.60 38.40 4.80
2007 40.40 4.00 6.20 0.60 46.60 4.70
2008 41.20 4.00 6.20 0.60 47.40 4.60
2009 47.70 4.60 6.70 0.60 54.30 5.20
2010 55.70 4.40 8.70 0.71 64.40 5.10
2011 49.00 3.40 10.00 0.70 59.00 4.10
2012 42.70 3.17 10.50 0.78 53.20 3.96
2013 41.00 3.10 11.00 0.80 52.00 3.90
2014 44.00 2.60 11.00 0.70 55.00 3.30
2015 43.20 2.072 11.50 0.72 54.70 3.44
2016 46.50 2.72 13.20 0.77 59.70 3.49
2017 60.00 3.50
*Source: Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2001 to 2016

Graph:
Graph: 4.1a4.1b
Insurance
Insurance density ininIndia
Penetration India *Prepared by Researcher on the basis of

6
70
data from Annual reports of Insurance
60
5 sector
50
4
40
3
n$
t

30
UeS
erc

2
In

20
InP

10
1
0
0
4.1.2 Insurance Penetration
202

303

606

707

010

111

414

515
101

404

505

808

909

212

313

616
00

00

00

00

00

00

00

00

00

10

10

10

10

10

10

10
202

202

202

202

202

202

202

202

202

202

202

202

202

202

202

202

and Density – India vis-à-vis Rest

_Life _Non-life _Total

_Life _Non-life _Total of the World

Insurance penetration and density in
global scenario is presented in the
table No. 4.1.2.
Bar graphs drawn on this data shows a comparison of these two parameters. Growth
of penetration and density is low compare to European countries.
 48

Table No.: 4.1.2

Insurance penetration & density – India vis-à-vis rest of the world
Country Insurance Penetration Density (USD)
(Total) (Total)
India 3.5% 60
Sri Lanka 1.1 % 38
Russia 1.4 % 46
Vietnam 1.8 % 77
Indonesia 2.1% 123
Brazil 4.1 % 323
PR China 4.2% 337
Malaysia 4.8% 346
Thailand 5.4% 452
Australia 6.5% 3397
Singapore 7.2 % 3732
US 7.3% 3777
Japan 9.6% 4064
UK 10.2% 4174
*As on March 2017 (Insurance sector Reports-
Insurance Penetration
Insurance Density
(PremiumasPer% Capita
(Premium of GDP)in USD) 2017)
4174
4064

4500
10.20%
3777
3732

9.60%

4000
*Prepared by Researcher on the basis of data
3397

3500
7.30%
7.20%

3000
from Annual reports of Insurance sector
6.50%
5.40%

2500
4.80%
4.20%
4.10%

2000
3.50%

1500
2.10%
1.80%
1.40%

1000
1.10%

452
346
337
323
123

500
77
60

46
38

0
 48

4.2 Impact of Reforms in Life Insurance Sector:

Impact of reforms in life insurance sector are studied by tabulating and analysing
following parameters:
4.2.1 Premium underwritten by Life Insurance Companies in India
Table No. 4.2.1 shows the premium underwritten by life insurance companies in
India. It can be seen from the Table No. 4.2.1 that life insurance industry underwrote
premium of Rs. 50094.46 crore during the financial year 2001-02, which was
increased to Rs.291638.63 crore in 2010-11, but the total life insurance premium
collection dropped in the year 2011-12 to Rs. 287072.11 crore. However, following
the year 2011-12 it increased to Rs. 328101.14 crore in 2014-15. Total premium
collection in year 2016-17 was Rs.418476.62 crore, an increased at CAGR of 14.19 %
during the period 2001 to 2017.

Table No.: 4.2.1

(Amount in crore)
Year Public Private Total
2001-02 49821.91 272.55 50094.46
2002-03 54628.49 1119.06 55747.55
2003-04 63533.29 3120.33 66653.75
2004-05 75127.29 7727.51 82854.80
2005-06 90792.22 15083.54 105875.76
2006-07 127822.84 28253.00 156075.76
2007-08 149789.99 51561.42 201351.41
2008-09 157288.04 64497.43 221791.26
2009-10 186077.31 79369.94 265450.37
2010-11 203473.40 88165.24 291638.63
2011-12 202889.28 84182.83 287072.11
2012-13 208803.58 78398.91 287202.49
2013-14 236942.30 77340.90 314283.20
2014-15 239667.65 88433.49 328101.14
2015-16 266444.21 100499.02 366943.23
2016-17 300487.36 117989.26 418476.62
CAGR 11.89% 46.14% 14.19%
*Sources: Compiled by Researcher from Various Annual Reports of IRDAI from 2002 to 2017
 48

Graph: 4.2.1
Year wise Premium of Different Life Insurance Companies in India
450000
Public Private Total
400000

350000

300000

250000

200000

150000

100000

50000

0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2001 to 2017

LIC recorded a premium income of Rs. 49821.91 crore in 2001-02 which was
increased to Rs. 203473.40 crore in 2010-11, but LIC premium collection slipped to
Rs. 202889.28 crore in the year 2011-12. However, following the year 2011-12 it
increased to Rs. 239667.65 in 2014-15. In Year 2016-17 premium collection was
Rs. 300487.36 crore. Public sector collection increased at a CAGR of 11.89 % during
the period 2001 to 2017.

Private sector recorded a premium income of Rs. 272.55 crore in 2001-02 which was
increased to Rs. 88165.24 crore in 2010-11, but private sector premium collection
dropped in the subsequent years to Rs. 77340.90 crore in 2013 - 14. However, private
sector premium increased to Rs. 88433.49 crore in 2014-15. In Year 2016-17
premium collection was of Rs. 117989.26 crore. Private sector collection increased at
a CAGR of 46.14 % during the period 2001 to 2017.
The compound annual growth rate (CAGR) is a useful measure of growth over
multiple time periods. It can be thought of as the growth rate that gets you from the
initial investment value to the ending investment value if you assume that the
investment has been compounding over the time period.
The formula for CAGR is:
CAGR = (EV/BV)1/n – 1
Where:
EV = Investment's ending value
BV = Investment's beginning value
n   = Number of periods (months, years, etc.)
 48

4.2.2 Growth in Number of Life Insurance Offices in India

Number of life insurance offices had increased from 2001-02 to 2009-10 and
decreased thereafter till 2012-13. The decreasing trend of number of life offices
reverted in 2013-14 & 2014-15. Number of life insurance offices opened by private
sector had increased from 116 in 2001-02 to 8768 in 2009-10 and decreased thereafter
in subsequent years. The number of life offices established by LIC had increased to
4897 in 2016-17 from 2199 in 2001- 02. Total Number of life insurance offices
expanded at a CAGR of 10.23%.
Table No.: 4.2.2
Number of Life Insurance Offices in India
Year Public Private Total
2001-02 2199 116 2306
2002-03 2191 254 2445
2003-04 2196 416 2612
2004-05 2197 804 3001
2005-06 2220 1645 3865
2006-07 2301 3072 5373
2007-08 2522 6391 8913
2008-09 3030 8785 11815
2009-10 3250 8768 12018
2010-11 3371 8175 11546
2011-12 3455 7712 11167
2012-13 3526 6759 10285
2013-14 4839 6193 11032
2014-15 4877 6156 11032
2015-16 4892 6179 11071
2016-17 4897 6057 10954
CAGR 5.13% 28.04% 10.23%
 48

Graph: 4.2.2
Number of Life Insurance Offices in India
14000
Public Private Total
12000

10000

8000

6000

4000

2000

0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

*Sources: Compiled by Researcher from Various Annual Reports of IRDAI from 2001 to 2017
4.2.3 Increasing Private Sector Activity in Life Insurance Segment
Share of publicShare
and private
of public
sector
and inprivate
life insurance
sector segment(%) Growth of the private insurance company
FY17 in life insurance segment(%)
FY03
share: Over the years, share of private sector
in life insurance segment has grown from

2%
around 2 % in FY03 to 28.93 % in FY17.
29%
*Prepared by Researcher on the basis of data from
Public
Publicsector
sector Private
Privatesector
sector
Annual reports of IRDAI from 2001 to 2017

71% 4.2.4 LIC continues to dominate Life

98%
Insurance Segment

As of March 2018, life insurance sector had

23 private players in comparison to only 4 in FY02. With 70.31 % share market share
in FY18, LIC continues to be the market leader. On the basis of total premium
income, the market shares of LIC decreased from 71.81 % in 2016-2017 to 70.31 % in
2017-18. The market share of private insurers has increased from 28.19 % in 2016-17
to 29.69 % in 2017-18.

Chart 4.2.4
Market share of major componies in terms of first year life insurance premium collected
(FY18*)

Others
14%
SBI life
6%
HDFC standard
life
ICICI prudential
6%
life
5%
LIC
70%

LIC ICICI prudential life HDFC standard life SBI life Others
 48

*Prepared by Researcher on the basis of data from Annual reports of IRDAI

4.2.4a New Business (Individual Assurance): LIC

Table No.: 4.2.4a

New Business (Individual Assurance): LIC
Sum Assured Annual Premium
Year No. of Policies
( in cr.) Receivable ( in cr.)
2003-04 26467882 199048.52 12564.09
2004-05 21831774 179886.66 11250.69
2005-06 29298170 284179.84 15183.00
2006-07 20922100 202024.45 11697.66
2007-08 17971872 174043.80 9897.63
2008-09 29333516 363601.83 16878.32
2009-10 30590641 397157.64 20970.79
2010-11 31459382 444031.90 23614.07
2011-12 34617089 497229.06 25625.81
2012-13 36320864 508458.41 25530.74
2013-14 34210302 557709.40 29227.70
2014-15 19913064 408679.65 19852.90
2015-16 20236928 454295.04 22144.27
2016-17 19617710 472947.11 24573.60
2017-18 20727155 532897.48 27626.90
*Sources: Compiled by Researcher from Various Annual Reports of LIC from 2003 to 2018
 48

Graph: 4.2.4a
New Business (Individual Assurance): LIC
Sum Assured ( in cr.) Annual Premium Receivable ( in cr.)
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

550000

600000
Includes New Business in India and Out of India

*Prepared by Researcher on the basis of data from Annual reports of LIC from 2003 to 2018

Table No.: 4.2.4b

Total Business of Individual Assurance in force: LIC
Sum Assured Annual Premium
Year No. of Policies
(in cr.) Receivable (in cr.)
2003-04 154014997 927072.30 62465.13
2004-05 163050927 1032053.03 68838.15
2005-06 179662768 1282467.87 77448.43
2006-07 189517498 1400055.91 81521.93
2007-08 192527384 1487978.15 79287.95
2008-09 210253232 1787787.75 90898.53
2009-10 226158870 2063791.18 104776.20
2010-11 240484337 2334453.99 119770.54
2011-12 255946155 2676009.68 135256.10
2012-13 270351267 2997676.02 148793.95
2013-14 279626299 3321163.69 164946.09
2014-15 277681768 3506546.19 170840.61
2015-16 279184601 3736124.66 178783.67
2016-17 280755109 3970332.57 187423.69
2017-18 282351553 4255523.11 198743.01
*Sources: Compiled by Researcher from Various Annual Reports of LIC from 2003 to 2018
*Includes New Business in India and Out of India
 48

Graph: 4.2.4b
Total Business of Individual Assurance in force: LIC
Sum Assured Annual Premium

2016-17

2014-15

2012-13

2010-11

2008-09

2006-07

2004-05
0

500000

1000000

2000000

3000000

4000000
1500000

2500000

3500000

4500000
*Prepared by Researcher on the basis of data from Annual reports of LIC from 2003 to 2018
4.2.5 Growth in Private Life Insurances companies:
Performance of SBI Life and TATA AIA are presented in following tables & graphs.
4.2.5a SBI Life Insurance Company: SBI Life Insurance is a joint venture between
Indian banking giant State Bank of India (74 %) and France headquartered BNP Paribas
Assurance (26 %). The company’s IPO was in September 2017. The company primarily deals
in life insurance and pension plans with 758 offices across India. In FY16, it issued around
1.274 million insurance policies. Total premium collected and net profit are shown in
table No.: 4.2.5a

Table No.: 4.2.5a

SBI Life Insurance Company
Total premium
Year Net profit(in million $)
(in billion $)
2007-08 1.4 8.4
2008-09 1.6 39.0
2009-10 2.1 58.2
2010-11 2.8 80.2
2011-12 2.8 118.6
2012-13 1.9 114.5
2013-14 1.8 122.8
2014-15 2.1 136.0
2015-16 2.4 131.5
2016-17 3.1 142.0
CAGR 8.27% 32.68%
 48

*Source: SBI Life Annual Report, IRDA

TotalNetpremium
profit collected
(US$(US$
billion)
billion) *Prepared by Researcher on the basis of data from
Annual reports of SBI Life from 2007 to 2017
160
3.5
1403
Between FY08 and FY17, SBI Life’s

3.1
142
profits increased at a CAGR of 36.91 %

136
120

2.8

2.8
2.5

131.5
122.8
118.6
100

114.5

2.4
2
2.1 with its annual profits increasing to US$

2.1
80

1.9

1.8
1.5
80.2
60
1.6
1.4

401 141.99 million by FY17. In FY16, it

58.2
39

0.5
20
00 8.4 accounted for a market share of 17.2 %
2007-08
2007-08 2008-09
2008-09 2009-10
2009-10 2010-11
2010-11 2011-12
2011-122012-13
2012-132013-14
2013-142014-15
2014-152015-16
2015-162016-17
2016-17

CAGR
CAGR
36.97
9.23 among all life insurance companies.
4.2.5b Tata AIA Life Insurance
Company Limited (Tata AIA Life): Tata AIA Life Insurance Company Limited
(Tata AIA Life) is a joint venture between Tata Sons (74 %) and AIA Group Limited
(26 %). Total life insurance premium collected and total sum assured are shown in
table No.:4.2.5b.

Table No: 4.2.5b

Life Insurance Premium Total sum assured
Year
collected (in million $) (in billion $)
2005-06 199 4.00
2006-07 303 9.00
2007-08 508 9.00
2008-09 596 10.00
2009-10 737 11.00
2010-11 874 13.00
2011-12 774 13.00
2012-13 508 10.00
2013-14 385 9.20
2014-15 351 12.00
2015-16 389 10.00
2015-16 497
CAGR 8.68 9.60
*Prepared by Researcher on the basis of data from
TotalTotal
life insurance
sum assured premium
(US$(US$
billion)billion) Annual reports of Tata-AIA from 2001 to 2016
*Prepared by Researcher on the basis of data from
14
1000 Annual reports of Tata -AIA from 2005 to 2017
12900
Overall life insurance premium increased
13

13

800
12
874

10700
737 11

774

from US$ 198.8 million in FY06 to

10

10

10

600
9

8
9.2

500
596

6 US$ 497 million in FY 17, witnessing

508
508

400
497

300
4
389
385

growth at a CAGR of 8.68 % over FY06-

351
4

303

200
2
100
199

00
2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
06 07 08 09 10 11 12 13 14 15 16 17
2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

CAGR 8.68
CAGR 9.60
 48

17.
The sum assured increased from US$ 4 billion in FY06 to US$ 10 billion in FY16,
rising at a CAGR of 9.60 %.
4.2.6 Expenses of Life Insurance Companies in India after reforms:
Table No.:4.2.6 shows commission and operating expenses of life insurers in India.
Total commission expenses of life insurance sector stood at Rs. 22117.15 crore in
2016-17, as against Rs. 4568.41 crore in 2001-02. It expanded at a CAGR of 10.36%.
Commission expenses of LIC increased from Rs. 4519.31 crore in 2001-02 to
Rs. 16631.95 crore in 2016-17. Commission expenses of LIC grew at a CAGR of
8.48%. Commission expenses of private insurers increased from Rs. 49.09 crore in
2001-02 to Rs 5485.20 crores in 2016-17. Private insurers’ commission expenses grew
at a CAGR of 34.28%. Similarly, total operating expense of life insurance sector was
increased from 4679.75 crore in 2001-02 to 46138.88 crore in 2016-17.

Table No.: 4.2.6

(Amount in crore)
Year Commission Operating
Public Private Total Public Private Total
2001-02 4519.31 49.09 4568.40 4260.39 419.36 4679.75
2002-03 5015.07 153.02 5168.09 4571.75 838.27 5410.02
2003-04 5742.91 514.41 6158.32 5186.49 1402.44 6588.93
2004-05 6203.23 854.72 7057.95 6241.26 2229.46 8470.72
2005-06 7100.19 1543.10 8643.29 6041.56 3569.48 9611.04
2006-07 9173.58 3109.65 12283.20 7080.86 6520.04 13600.9
2007-08 9614.69 5089.61 14704.30 8909.32 12032.46 20341.78
2008-09 10055.09 5474.27 15529.40 9064.29 16763.03 25827.32
2009-10 12132.56 6052.75 18185.30 12245.82 16561.11 28806.93
2010-11 13347.29 4982.12 18329.40 16980.28 15962.02 32942.30
2011-12 14063.06 4458.05 18521.10 14914.40 14760.19 29674.59
2012-13 14790.26 4471.19 19261.50 16707.66 14844.70 31552.36
2013-14 16762.88 4083.49 20846.40 20277.88 14773.88 35051.76
2014-15 15118.14 4342.54 19460.68 22395.45 14466.14 36861.59
2015-16 15500.33 4766.36 20266.69 22691.83 16086.06 38777.89
2016-17 16631.95 5485.20 22117.15 28952.06 17186.82 46138.88
CAGR 8.48% 34.28% 10.36% 12.72% 28.12% 15.38%
*Sources: Compiled by Researcher from Various Annual Reports of IRDAI from 2002 to 2017
Operating expenses of life insurance industry expanded at a CAGR of 15.38%.
Operating expenses of LIC increased from Rs. 4260.39 crore in 2001-02 to Rs.
28952.06 crore in 2016-17. Operating expenses of LIC grew at a CAGR of 12.72%.
 48

Operating expenses of private insurers increased from Rs. 419.36 crore in 2001-02 to
Rs. 17186.82 crore in 2016-17. Operating expenses of private insurers expanded at a
CAGR of 28.12%.

Graph: 4.2.6b
Graph: 4.2.6a
Expenses of
Expenses of Life Insurance
InsuranceCompanies
Companiesinin
India (Commission)
India (Operating)
50000
25000
45000 Public Private Total
Public Private Total
40000
20000
35000
crore
mountinin crore

30000
15000
25000
AAmount

20000
10000
15000
10000
5000
5000
0
2002- 2003-
2001- 2002- 2003- 2004-
2004- 2005-
2005- 2006-
2006- 2007-
2007- 2008-
2008-2009-
2009-2010-
2010-2011-
2011-2012-
2012-2013-
2013-2014-
2014-2015-
2015-2016-
2016-
02 03
03 04
04 05
05 06
06 07
07 08
08 09
09 10 11
10 11 12 12 13 13 14 14 15 15 16 16 17 17

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2001 to 2017

4.3 Impact of Reforms in Non-Life Insurance Sector

Impact of reforms in Non-life insurance sector are also studied by tabulating and
analysing following parameters:
4.3.1 Premium Underwritten by Non-Life Insurance Companies in India
Table No.:4.3.1 shows the premium underwritten by non-life insurance companies in
India. There is a steady increase in the total premium collection by the non-life
insurance sector during the period. The total premium collection went to
Rs. 114023.32 crore in 2016-17 from Rs. 12385.24 crore in 2001-02. Non-life
insurance industry expanded at a CAGR of 14.88%. Public sector non-life insurers
recorded a premium income of Rs. 11917.59 crore in 2001-02 which was increased to
Rs. 60218.36 crore in 2016-17. Public sector non-life insurer’s premium collection
increased at a CAGR of 10.66%.
Private sector recorded a premium income of Rs. 467.65 crore in 2001-02 which was
increased to Rs. 53804.96 crore in 2016-17. Private sector non-life insurance premium
collection increased at a CAGR of 34.53%.

Table No.: 4.3.1

Premium Underwritten by Non-Life Insurance Companies in India
(Amount in crore)
Year Public Private Total
2001-02 11917.59 467.65 12385.24
 48

2002-03 13520.44 1349.80 14870.24

2003-04 13337.08 2257.83 15594.91
2004-05 13972.96 3507.62 17480.58
2005-06 15972.96 5362.66 21339.1
2006-07 16258.90 8646.57 24905.47
2007-08 16831.84 10991.89 27823.73
2008-09 18030.74 12321.09 30351.83
2009-10 20643.45 13977.00 34620.45
2010-11 25151.85 17424.63 42576.48
2011-12 30560.74 22315.03 52875.77
2012-13 35022.12 27950.53 62972.65
2013-14 38599.71 32010.30 70610.01
2014-15 42549.48 35090.09 77639.57
2015-16 47690.68 39694.08 87384.76
2016-17 60218.36 53804.96 114023.32
CAGR 10.66% 34.53% 14.88%
*Sources: Compiled by Researcher from Various Annual Reports of IRDAI from 2002 to 2017.
Graph: : 4.3.1
Premium Underwritten by Non-Life Insurance Companies in India
120000

100000 Public Private Total

80000
A mount in crore

60000

40000

20000

0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Note: Specialized and Standalone Health Private Insurers are not included.

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2001 to 2017
4.3.2 Expenses of Non-Life Insurance Companies in India after reforms:
Table No. 4.3.2 given below shows commission and operating expenses of non-life
insurance sector in India. Total commission expense of non-life insurance sector
increased from Rs. 663.32 in 2001-02 to Rs. 5903.83 crore in 2016-17. Commission
expenses of non-life insurance industry increased at a CAGR of 14.64%. Commission
expenses of public sector non-life insurers increased from Rs. 657.41 crore in 2001-02
to Rs. 3624.81 crore in 2016-17. Commission expenses of public sector non-life
insurers grew at a CAGR of 11.26 %. Commission expenses of private sector non-life
 48

insurers increased from Rs. 5.91 crore in 2001-02 to Rs. 2306.02 crore in 2016-17.
Commission expenses of private sector non-life insurers expanded at a
CAGR of 45.20%.

Table No.: 4.3.2

Expenses of Non-Life Insurance Companies in India
(Amount in crore)
Commission Operating
Year
Public Private Total Public Private Total
2001-02 657.41 5.91 663.32 2525.78 175.09 2700.87
2002-03 935.70 42.55 978.25 2766.61 317.71 3084.32
2003-04 1092.28 109.65 1201.93 3647.68 495.16 4142.84
2004-05 1233.19 228.19 1461.38 3640.30 691.98 4332.28
2005-05 1431.41 394.28 1825.69 4016.92 1060.51 5077.43
2006-07 1489.74 585.97 2075.71 3606.74 1700.15 5306.89
2007-08 1519.54 637.39 2156.93 3652.96 2482.30 6135.26
2008-09 1670.86 682.79 2353.65 4347.21 3017.22 7364.43
2009-10 1825.81 676.9 2502.71 5262.59 3129.61 8392.2
2010-11 1943.34 794.21 2737.55 6688.60 3931.88 10620.48
2011-12 2258.09 1079.80 3337.89 6563 4614 11177
2012-13 2505.47 1515.36 4020.83 8037 5503 13540
2013-14 2869.72 1753.96 4623.68 8791 6327 15118
2014-15 3105.11 1760.72 4865.83 11181 7527 18708
2015-16 3342.80 1983.25 5326.05 12528 9018 21546
2016-17 3624.81 2306.02 5903.83 12838 10694 23532
CAGR 11.26% 45.20% 14.64% 10.70% 29.31% 14.49%
*Sources: Compiled by Researcher from Various Annual Reports of IRDAI from 2002 to 2017.
Note: Specialized and Standalone Health Private Insurers are not included.

Similarly, total operating expense of non-life insurance sector increased from

Rs. 2700.87 crore in 2001-02 to Rs. 23532 crores in 2016-17. Total Operating
expenses of non-life insurance industry increased at a CAGR of 14.49%.
Operating expenses of public sector non-life insures increased from Rs. 2525.78 crore
in 2001-02 to Rs. 12838 crores in 2016-17. Operating expenses of public sector
nonlife insurers expanded at a CAGR of 10.70%. Operating expenses of private sector

non-life insurers increased from Rs. 175.09 crore in 2001-02 to Rs. 10694 crores in
2016-17. Operating expenses of private sector non-life insurers grew at a CAGR of
29.31 %.
 48

Graph: 4.3.2a
Expenses of Non-Life Insurance Companies in India (Commission)

7000

6000 Public Private Total

5000

4000
Amount in crore

3000

2000

1000

0
2 3 4 5 5 7 8 9 0 1 2 3 4 5 6 7
1 -0 2 -0 3 -0 4 -0 5 -0 6 -0 7 -0 8 -0 9 -1 0 -1 1 -1 2 -1 3 -1 4 -1 5 -1 6 -1
2 00 2 00 2 00 2 00 2 00 2 00 2 00 2 00 2 00 2 01 2 01 2 01 2 01 2 01 2 01 2 01

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2001 to 2017

Graph: 4.3.2
Expenses of Non-Life Insurance Companies in India (Operating)
25000 Public Private Total

20000

15000
Amount in crore

10000

5000

0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
02 03 04 05 05 07 08 09 10 11 12 13 14 15 16 17

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2001 to 2017
4.3.3 Higher private sector participation in Non –life segment:
 48

Graph: 4.3.3
Growing share of private sector

Public sector Private sector

80.00%

70.00%
60.00%
50.00%
40.00%
30.00%

20.00%
10.00%
0.00%
FY04 FY18*

The market shares of private sector companies in non-life insurance segment rose
from 15 % in FY04 to 48.01 % in FY18*.

*Prepared by Researcher on the basis of data from Annual reports of IRDAI

4.3.4 Key players in the non –life insurance segment:
The number of companies increased from 15 in FY04 to 24 in FY17; six of these
companies are in the public sector.
The public sector companies accounted for a cumulative share of about 51.99 % of
the total Gross Direct Premium in the non-life insurance segment FY18*.
New India leads the market with 15.18 % share.

Graph: 4.3.4
Market share of major companies in terms of Gross Direct Premium collected (FY 18*)

New India
15%
Others United
35% India
11%
National
HDFG 11%
BajajICICI-Oriental
Ergo
5% Lombard
Allianz 8%
6%Oriental
9%

New India United India National Oriental ICICI-Lombard Oriental Bajaj Allianz
HDFG Ergo Others

Private players are not far behind and compete better in the non-life insurance
segment.
 48

*Prepared by Researcher on the basis of data from Annual reports of IRDAI

4.3.5 Fiscal 2018 –Non Life Insurance Sector:
Amongst PSUs, New India Assurance collected the highest premium in year 2017.
Health and motor segments have been the major contributors towards their growth.
Among the private players, ICICI Lombard General Insurance has topped the chart
with a growth Over the years, the private sector has been successfully nibbling away
at the PSU market share, thereby enhancing their own.

Table No.: 4.3.5a

Non-life insurance Market Share - PSU Vs. Pvt.
Year PSU PVT
FY 13 57% 43%
FY 14 56% 44%
FY 15 55% 45%
FY 16 54% 46%
FY 17 53% 47%
* Prepared from The Indian Insurance Sector Report: 2017

Table No.: 4.3.5b

Non-life insurance Market Share –Segment wise - PSU Vs. Pvt.
FY 13 FY 14 FY 15 FY 16 FY 17
PSU 63% 60% 59% 56% 53%
Fire
PVT 37% 40% 41% 44% 47%
PSU 69% 66% 62% 58% 55%
Marine
PVT 31% 34% 38% 42% 45%
PSU 68% 67% 68% 67% 64%
Engg.
PVT 32% 33% 32% 33% 36%
PSU 47% 47% 47% 47% 47%
Motor
PVT 53% 53% 53% 53% 53%
PSU 60% 61% 63% 63% 62%
Health
PVT 40% 39% 37% 37% 38%
PSU 73% 81% 80% 79% 77%
Aviation
PVT 27% 19% 20% 21% 23%
PSU 43% 42% 41% 39% 39%
Liability
PVT 57% 58% 59% 61% 61%
PSU 38% 35% 31% 31% 39%
PA
PVT 62% 65% 69% 69% 61%
PSU 79% 75% 68% 69% 56%
Others
PVT 21% 25% 32% 31% 44%
* Prepared from The Indian Insurance Sector Report: 2017
 48

Gr a p h : 44.3.5b
Graph: .3.5a
N o n- lif e I ns ur a nc e M a r ke t Sha r e - PSU V s. Pv t.
Non-life Insurance Linewise Market Share - PSU Vs. Pvt.
PSU PVT
100%

68% 69% 56%

62% 58% 55%
60% 59% 56% 53%

69% 61%
42% 41% 39% 39%
68% 67% 68% 67% 64%

73% 81% 80% 79% 77%

40% 39% 37% 37% 38%
47% 47% 47% 47% 47%

53% 53% 53% 53% 53%

60% 61% 63% 63% 62%

57% 58% 59% 61% 61%

19% 20% 21% 23%
36%
47%

35% 31% 31% 39%

45%

44%
90%
80%

32% 33% 32% 33%

37% 40% 41% 44%

42%
70%

31%
43% 44% 45% 46% 47%
60%

69%
50%

31% 34% 38%

21% 25% 32%

40%

75%
66%

62% 65%
30% 57% 56% 55% 54% 53%
20%

27%

79%
69%

38%
63%

43%
10%
0%
FY 13 FY 14 FY 15 FY 16 FY 17

FY 17 FY 16 FY 15 FY 14 FY 13

*Prepared by Researcher on the basis of data from The Indian Insurance Sector Report: 2017
The PSU insurers have been steadily losing their market share specifically in the Fire,
Engineering, Liability & Misc. classes of insurance. Whereas they have managed to
hold their ground under the Motor, health and aviation classes of insurance.
4.4 Growth and Trends of Investments of the Insurance Sector in India
during Post Privatization
Insurance industry is the trustee of public money as by nature of business it attracts
long term funds. Insurance companies are now among the major institutional investors
around the globe. The insurance sector is a colossal one and growing at healthy rate.
Over the last few years, insurance industry has been gone through intense changes and
faced more challenges. At meantime, when the economy needs long term funds to
start ball rolling on future growth, insurance can provide right balance in terms of
volume as well in terms of tenure. However, insurance companies are mandate to
follow investment norms prescribed by IRDAI which hampers insurance companies’
investments in capital market to fund growth of either infrastructure projects or
manufacturing sector.
4.4.1 Total Investment of Insurance Sector in India
Table No.:4.4.1 reveals data on investment of life insurance sector, non-life insurance
sector and insurance industry as a whole. Total investment of insurance sector was
Rs.253769 crores at the end of 2002 and touched Rs.3076537 crores at the end of
2017. It expanded at a CAGR of 16.88 %. Investment of life insurance sector was
Rs.230369 crores at the end of 2002 and reached Rs.2854193 crores at the end of
2017. It increased at a CAGR of 17.04 %. Investment of non-life insurance sector was
 48

Rs.23400.4 crore at the end of 2002 and reached to Rs.222344 at the end of 2017. It
grew at a CAGR of 15.11 %. It can be observed from the Table No.: 4.4.1that
investment of insurance sector has grown consistently over the period.

Table No.: 4.4.1

Total Investment of Insurance Sector in India
(Amount in crore)
Year Life Growth(%) Non-Life Growth(%) Total Growth(%)
2001-02 230369 - 23400.4 - 253769 -
2002-03 260552 13.10 30334.3 29.63 290887 14.62
2003-04 352625 35.33 34074.9 12.33 386699 32.93
2004-05 428452 21.50 37412 9.79 465864 20.47
2005-06 487151 13.70 42332.4 13.15 529483 13.65
2006-07 604180 24.02 50382.8 19.01 654563 23.62
2007-08 765969 26.77 56280.1 11.70 822249 25.61
2008-09 916365 19.63 58893.3 4.64 975258 18.60
2009-10 1212458 32.31 66371.9 12.69 1278830 31.12
2010-11 1430118 17.95 82520.2 24.33 1512638 18.28
2011-12 1581259 10.56 99268.5 20.29 1680527 11.09
2012-13 1744894 10.34 122992 23.89 1867886 11.14
2013-14 1957466 12.18 139809 13.67 2097275 12.28
2014-15 2247522 14.81 160714 14.95 2408236 14.82
2015-16 2502068 11.33 188126 17.06 2690194 11.71
2016-17 2854193 14.07 222344 18.19 3076537 14.36
CAGR 17.04% - 15.11% - 16.88% -
*Source: Compiled by Researcher from Various Annual Reports of IRDAI from 2002 to 2017
 48

Graph: 4.4.1
Life and Non-Life Investment as Percentage of Total Investment
100
90
80
70
60
50
40
30
20
10
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2002 to 2017

Graph: 4.4.1 depicts that investment of life insurance sector as %age of total
insurance sector investment lies between 90.7 % at the end of 2002 to 92.8 % at the
end of 2017. Non-Life insurance sector investment as %age of total insurance sector
investment lies between 9.22 % at the end of 2002 to 7.23 % at the end of 2017.

4.4.2 Investments of Life Insurers

Life insurance companies involve huge amount of fund with longer maturity because
most life insurance contracts are long-term nature. Life insurance companies’
investible funds are classified into three major categories like life fund, pension,
general annuity & group fund and unit linked fund. These funds differ in term of
nature of investment and regulations.

Table No.:4.4.2 represents data regarding investment pattern of Life fund during
2002-2017. Investments in central government securities were Rs.128813.10 crore at
the end of 2002 which increased to Rs.951214 crores at the end of 2017. Investments
in these securities grew at a CAGR of 13.31 %. Investments in state government or
other approved securities were Rs.3364.38 crore at the end of 2002 which increased to

Rs.668430 crores at the end of 2017. CAGR stands 38.20 % for these securities
investments.
 48

Table No.:4.4.2
Investments of Life Insurers: Life Fund
(Amount in crore)
State Government
Central Housing &
or other Approved Other
Year Government Infrastructure
Approved Investments Investments
securities Investment
securities
2001-02 128813.10 3364.38 20740.87 60928.74 16521.65
2002-03 123704.98 23380.50 32962.63 42703.36 6897.04
2003-04 144665.52 30028.12 38636.84 77132.81 16845.63
2004-05 170433.39 39474.78 45521.01 84412.93 26377.73
2005-06 201678.32 43799.61 49638.45 75373.71 26698.56
2006-07 233664.31 45644.64 69836.78 86360.96 30048.61
2007-08 250793.31 67045.41 63262.13 118338.7 42190.44
2008-09 269091.17 88755.04 66673.33 153870.47 51260.39
2009-10 307095.57 113644.46 85674.54 190398.99 34477.3
2010-11 353376.05 141357.66 89180.75 215000.98 42159.12
2011-12 394780 177933.28 97319.92 258324.79 46262.23
2012-13 440990.60 214456.88 118878.35 296590.39 49083.72
2013-14 518824.47 255469.45 155025.90 329787.31 29117.83
2014-15 623292.85 328728.88 174510.99 342583.28 26193.14
2015-16 831049.00 528206.00 186112.00 583145.00 33145.00
2016-17 951214.00 668430.00 200438.00 587576.00 66694.00
CAGR 13.31% 39.20% 15.23% 15.22% 9.11%
*Source: Compiled by researchers from various annual reports of IRDAI from 2002 to 2017

Graph: 4.4.2
1000000
Investments of Life Insurers: Life Fund
900000

800000 Central Government securities

700000
State Government or other Approved securities
Housing & Infrastructure Investment
600000
Approved Investments
500000
Other Investments
400000

300000

200000

100000

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
 48

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2002 to 2017
Housing & infrastructure investments were Rs.20740.87 crore at the end of 2002 and
reached to Rs.200438 crores at the end of 2017. These investments grew at a CAGR
of 15.23%. Approved investments were Rs.60928.74 crore at the end of 2002 which
increased to Rs.587576 crores at the end of 2017. These investments increased at a
CAGR of 15.22%. Other investments were Rs.16521.65 crore at the end of 2002
which increased to Rs.66694 at the end of 2017. These investments grew at a CAGR
of 9.11%.
4.4.3 Investment of life insurance companies: UNIT linked Fund:
Table No. 4.4.3 represents data regarding investment pattern of unit linked fund
during 2002-17. Table No. 4.4.3 reveals that insurance companies had not invested in
approved investments and other investments at the end of 2002. Approved
investments were Rs.260.36 crore at the end of 2003 which increased to Rs.361746
crores at the end of 2017. These investments grew at a CAGR of 88.73 %. Other
investments were Rs.5.55 crore at the end of 2003 which increased to Rs.18095 at the
end of 2017. These investments expanded at a CAGR of 71.48 %.
Table No.:4.4.3
Investment of life insurance companies: UNIT linked Fund
(Amount in crore)
Year Approved Investment Other Investment
2001-02 0.00 0.00
2002-03 26.36 5.55
2003-04 1577.38 110.93
2004-05 6731.78 795.66
2005-06 23401.01 2487.12
2006-07 57587.24 9462.56
2007-08 111629.43 21448.05
2008-09 151489.89 21272.87
2009-10 311668.71 25871.42
2010-11 371898.63 27217.13
2011-12 346340.05 23631.74
2012-13 325282.95 17224.23
2013-14 322455.98 9205.18
2014-15 352371.00 10369.00
2015-16 328974.00 11438.00
2016-17 361746.00 18095.00
CAGR 88.73% 71.48%
 48

*Source: Compiled by researchers from various annual reports of IRDAI from 2002 to 2017

Graph: 4.4.3
Investment ofApproved
life insurance
Investment
companies: UNIT linked Fund
Other Investment
360000

320000

280000

240000

200000
ountincrore

160000
Am

120000

80000

40000

0
200 200 200 200 200 200 200 200 200 201 201 201 201 201 201 201
*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2002 to 2017
4.4.4 Investments of Non-Life Insurers:
Non-life or general insurance companies’ contracts are short term in nature and the
liquidity needs of non-life companies are much higher. Thus the investible funds of
general insurance companies chop and change broadly. Therefore, investment
portfolio of general insurer should be managed prudently to enable the company meet
the increasing costs of business operations. Total Non-Life insurance fund also shows
a consistent increase from Rs. 23400.43 crore in 2001-02 to Rs. 222344 crore in
2016-17. Assets of Non-Life insurance business increased at a CAGR of 15.11 %.
Investments in central government securities were 6907.92 crore at the end of 2002
which increased to 54754 crores at the end of 2017. Investment in these securities
grew at a CAGR of 13.81 %. Investments in state government or other approved
securities were Rs. 2094.64 crore at the end of 2002 which increased to Rs. 28239
crores at the end of 2017. CAGR stands 17.65 % for these securities investments.
 48

Table No.:4.4.4
Investment pattern of non- life insurance companies
(Amount in crore)
State
Central Government Housing
Infrastructure Approved Total
Year Government & other & PPF
Investments Investments Investments
securities Approved Investment
securities
2001-02 6907.92 2094.64 1892.97 5145.93 4386.87 23400.43
2002-03 8687.09 2362.49 2087.20 2739.21 10734.51 30334.3
2003-04 9987.22 3368.01 2347.32 3600.36 10578.32 34074.90
2004-05 10366.19 4598.05 2647.38 4389.70 11385.60 37411.97
2005-06 11675.34 5069.97 3107.78 4981.88 13417.92 42332.39
2006-07 13231.57 5635.29 3742.06 6102.33 17787.25 50382.81
2007-08 14053.74 6132.78 3890.53 7659.80 20200.89 56280.10
2008-09 14591.22 6076.92 4244.15 8979.82 21030.50 58893.27
2009-10 16038.12 6971.21 4789.74 10373.01 24256.10 66371.92
2010-11 19864.90 8191.11 6973.44 12215.89 31768.76 82520.18
2011-12 24241.07 9338.75 8178.67 15198.17 38562.68 99268.48
2012-13 30657.75 12986.50 10274.82 18997.33 44193.68 122991.95
2013-14 35877.31 14326.20 12742.38 24543.86 49263.79 139809.42
2014-15 42904.00 17120.00 14834.00 27277.00 53734.00 160714.00
2015-16 49994.00 22160.00 19503.00 31946.00 58311.00 188126.00
2016-17 54754.00 28239.00 23480.00 38172.00 67903.00 222344.00
CAGR 13.81% 17.65% 17.04% 13.34% 18.67% 15.11%
*Source: Compiled by researchers from various annual reports of IRDAI from 2002 to 2017

250000 Graph: 4.4.4

Investment Pattern of Non- Life Insurance Companies

200000 Central Government securities

State Government & other Approved securities
Housing & PPF Investment
150000
Infrastructure Investments
Approved Investments
100000
Total Investments

50000

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

*Prepared by Researcher on the basis of data from Annual reports of IRDAI from 2002 to 2017
 48

Housing sector and PPF investments were Rs. 1892.97 crore at the end of 2002 and
reached to Rs. 23480 at the end of 2017. These investments grew at a CAGR of
17.04%. Infrastructure investments were Rs.5145.93 crore at the end of 2002 and
reached to Rs.38172 at the end of 2017. Investments in infrastructure grew at a CAGR
of 13.34%. Approved investments were Rs. 4386.87 crore at the end of 2002 which
increased to Rs. 67903 crores at the end of 2017. These investments grew at a CAGR
of 18.67%.
4.5 Government Initiatives – Progress Report:
Latest government initiatives to boost insurance sector are presented in chart No. 4.5

4.5 GOVERNMENT INITIATIVES – PROGRESS REPORT

PMJDY
Enrolment:
• FY 16:
247.4 Mln PMSBY
• FY 17: Enrolment:
281.7 Mln • FY 16:
Claims Paid 93.7 Mln
PMJJBY
• FY 16: • FY 17: Enrolment:
Life - 86%; • FY 16:
Accident - 53%
99.4 Mln PMFBY
Claims Paid 29.4 Mln
• FY 17: • FY 17: Enrolment:
• FY 16: 60% • FY 17:
Life - 88%; • FY 17: 75% 31.0 Mln
40 Mln
RSBY
Accident - 70% Claims Paid Enrolment:
• FY 16: 87% Claims Paid
• FY 17: 32% • FY 16:
PMJDY – • FY
Pradhan 17: 95%
Mantri Jan
Dhan Yojana • 95% districts
PMSBY – Pradhan Mantri Suraksha Bima Yojana • 56%
families
PMJJBY–Pradhan Mantri Jeevan Jyoti Bima Yojana • FY 17:
PMFBY – Pradhan Mantri Fasal Bima Yojana • 96% districts
RSBY- Rashtriya Swasthya Bima Yojana • 61%
families

*Prepared by Researcher on the basis of data from Annual reports of Insurance, 2017 (IBEF)

Awareness about crop insurance in India is 38.8 per cent and still crop insurance
market in India is the largest in the world. Over 47.9 million famers were benefitted
under Pradhan Mantri Fasal Bima Yojana (PMFBY) in 2017-18. To provide crop
insurance to farmers, Government has launched various schemes like National
Agriculture Insurance Scheme (NAIS), Modified National Agriculture Insurance
Scheme (MNAIS) and Weather-based Crop Insurance Scheme (WBCIS).
 48

4.6 Conclusion
Privatization of Indian insurance sector covers formation of the committee for reform
in the insurance sector, establishment of IRDAI, entrance of private companies and
various milestones in post reform period. Impact of reforms in Indian insurance sector
have been explained in this chapter with the help of Table and Graphs. The chapter
highlighted that privatization opened newer vistas for the management especially
private players to grow and excel, but at the same time posed several challenges to
them as in reality they have been thrown into a system of full competition. For public
sector insurers, the changing scenario proved to be very challenging. The role of the
public sector has also undergone several changes as in pre liberalization period there
were few public sector entities ruling the whole market.
 48

4.7 Primary survey report on awareness of reforms in insurance sector:

To know awareness of reforms in insurance sector survey was conducted to collect

primary data. 70 samples are taken into consideration for the survey process.
demographic factor (gender, age, etc.) are also included.

1. Age:

2. Gender:
 48

3. Educational Qualification:

4. Occupation:

INSURANCE SECTOR
1. One must have a suitable insurance policy in these days of uncertainty
 48

2. Have you taken the Mediclaim policy for you?

3. Entry of private companies has widened the scope of insurance sector in India.
Yes/ No

4. I know about the IRDA, its duties and functions etc.

Yes / No
 48

5. Bancassurance is more beneficial and satisfactory in comparison with LIC

6. Death claims are promptly settled by insurance companies.

7. The intense competition brought about by deregulation/liberalisation has

encouraged the industry to innovate in all areas.
 48

8. IRDA is successful in ensuring equity and social justice in insurance sector?

9. Low income level of rural people is a major reason for low insurance
penetration in rural areas

10. The private sector general insurance companies are far ahead in marketing
when compared with the public sector general insurance companies.

11. Which of the following mode did you use to register your complaint?
 48

12. Which type of general insurance companies do you think have succeeded in
creating new business after globalization?

13. Life insurance in your opinion is important because of

(Give Multiple Response):

14. What is Bancassurance?

 48

15. What is a ULIP?  

SUMMARY OF SURVEY:
The most number of people who replied to survey are Students (others).
There are also people from Service, Business and Profession Occupation. Primary
data indicates people are aware of importance of insurance. Most of participants agree
that one should have insurance. People have their different viewpoints on
privatization of insurance sector. Most of participants agree privatization has
improved efficiency of insurance sector. Survey also tells about awareness of
Bancassurance, ULIP and IRADI

CHAPTER ⸎ 5
FINDINGS, CONCLUSIONS AND SUGGESTIONS
 48

5.1 Findings of study

5.2 Conclusions of study
5.3 Suggestions

FINDINGS, CONCLUSIONS AND SUGGESTIONS

5.1 Findings of study

 48

Insurance Penetration and Density in India:

The level of insurance density reached the maximum of USD 64.4 in the year 2010
from the level of USD 11.5 in 2001. During the year 2017, the insurance density was
USD 60 and insurance penetration was 3.50 %.

Premium underwritten by Life Insurance Companies in India

In Year 2016-17 Public sector premium collection was Rs.300487.36 crore an
increased at a CAGR of 11.89% during the period 2001 to 2017.
In Year 2016-17 Private sector premium collection was Rs.117989.26 crore an
increased at a CAGR of 46.14% during the period 2001 to 2017.
Total premium collection in year 2016-17 was Rs.418476.62 crore, an increased at
CAGR of 14.19% during the period 2001 to 2017.

Number of Life Insurance Offices in India:

In year 2016 - 17 number of public Life insurers’ offices were 4897 while private
sector life insurers’ offices were 6057.
Total Number of life insurance offices were 10954, expanded at a CAGR of 10.23%.

Increasing Private Sector Activity in Life Insurance Segment

As of March 2018, life insurance sector had 23 private players in comparison to only
4 in FY02. With 70.31 % share market share in FY18, LIC continues to be the market
leader. On the basis of total premium income, the market shares of LIC decreased
from 71.81% in 2016-2017 to 70.31% in 2017-18. The market share of private
insurers has increased from 28.19% in 2016-17 to 29.69% in 2017 - 18.

Expenses of Life Insurance Companies in India:

Total commission expenses of life insurance sector stood at Rs.22117.15 crore in

2016 - 17, as against Rs.4568.41 crore in 2001-02. It expanded at a CAGR
of 10.36%. Similarly, total operating expense of life insurance sector was increased
from 4679.75 crore in 2001-02 to 46138.88 crore in 2016-17. It expanded at a
CAGR of 15.38%

Premium Underwritten by Non-Life Insurance Companies in India

The total premium collection went to Rs.114023.32 crore in 2016-17 from

Rs.12385.24 crore in 2001-02. Non-life insurance industry expanded at a CAGR of
 48

14.88 %. Public sector non-life insurers recorded a premium income of

Rs.11917.59 crore in 2001-02 which was increased to Rs60218.36 crore in 2016-17.
Public sector non-life insurer’s premium collection increased at a CAGR of 10.66 %.
Private sector recorded a premium income of Rs.467.65 crore in 2001-02 which was
increased to Rs.5304.96 crore in 2016-17. Private sector non-life insurance premium
collection increased at a CAGR of 34.53 %.

Expenses of Non-Life Insurance Companies in India:

Total commission expense of non-life insurance sector increased from Rs. 663.32 in
2001-02 to Rs.5903.83 crore in 2016-17. Commission expenses of non-life insurance
industry increased at a CAGR of 14.64 %.
Similarly, total operating expense of non-life insurance sector increased from
Rs.2700.87 crore in 2001-02 to Rs.23532 crores in 2016-17. Total Operating expenses
of non-life insurance industry increased at a CAGR of 14.49 %

Higher private sector participation in Non –life segment:

The market shares of private sector companies in non-life insurance segment rose
from 15 % in FY04 to 48.01 % in FY18*.
The number of companies increased from 15 in FY04 to 24 in FY17; six of these
companies are in the public sector.
The public sector companies accounted for a cumulative share of about 51.99% of the
total Gross Direct Premium in the non-life insurance segment FY 18*.

Total Investment of Insurance Sector in India

Total investment of insurance sector was Rs.253769 crores at the end of 2002 and
touched Rs.3076537 crores at the end of 2017. It expanded at a CAGR of 16.88%.
Investment of life insurance sector was Rs.230369 crores at the end of 2002 and
reached Rs.2854193 crores at the end of 2017. It increased at a CAGR of 17.04 %.
Investment of non-life insurance sector was Rs.23400.4 crore at the end of 2002 and
reached to Rs.222344 at the end of 2017. It grew at a CAGR of 15.11%. Most of
investment has been in fixed income securities particularly in government securities.
 48

INDIAN INSURANCE FACT SHEET

MARKET SIZE
REGULATOR
Life: INR 4,18,487 Cr ( $ 65 Bln)
IRDAI - Insurance Regulatory
and General: INR 1,27,212 Cr ($ 20 Bln)
Development Authority of India Combined: INR 5,45,699 Cr ( $ 84
Bln)

PENETRATION & DENSITY INSURERS

Penetration: Life: 2.7 % General: 0.8 % Life: Govt-1; Pvt.-23
Density: Life: INR 3,047 ($ 47 ) General: Govt-6; Pvt.-18,
General: INR 843 ( $ 13) Pvt. Standalone Health-6

REINSURERS
Indian: Govt-1 ; Pvt. - 1
Foreign Branches : 7

*As on March 2018

5.2 Conclusions of study

Over the past century, Indian insurance industry has undergone through tremendous
changes. After the independence, the industry went to the other extreme. It became a
state-owned monopoly. In 1991, when rapid changes took place in many parts of the
Indian economy, nothing happened to the institutional structure of insurance, it
remained a monopoly. Only in 1999, a new legislation came into effect signalling a
change in the insurance industry structure. There are numerous reasons that promoted
the government to bring reforms in the insurance sector. Among other convincing
reasons, it was also realized that India has vast potentials, which is waiting to be
tapped, and this could only be achieved when sufficient competition is generated and
it is exposed to the developments in the rest of the world.

The Government of India liberalized the insurance sector which lifted the entry
restrictions for private insurance players, allowing foreign players to enter into the
 48

Indian market and start their operations in India. Each foreign company needed to
have a 26% equity capital to enter into the Indian insurance market. Many foreign
companies have joined their hands with the Indian companies and started their
operations in early 2001.

Now, FDI limit has increased to 49%. It is gratifying to note that the new insurance
companies have approached the business in a proper perspective. Both the life and
non-life business is growing beyond the normal expectations. The actual growth is
slightly beyond the forecasted growth of insurance sector. There is substantial
increase in the total premium collection by insurance companies in both life and
non-life sector after privatization. Insurance penetration and insurance density which
have been marginal in both life and non-life sector seems improving.

The share of private companies is continuously improving in both life and non-life
sector but an interesting fact is that the rate of growth of the PSEs in the sector has not
shown any trend of decline after privatization of the sector. The public sector in turn
has redrawn its priorities, redesigned their market strategy and together the public
sector and private sector have enlarged the market. However, insurance companies
have been following investment pattern stipulated by the provisions of the Indian
Insurance Act 1938 and investment regulations of IRDAI.
These regulations specify the amounts of their invested assets in government
securities, approved investments and other investments. Because of these regulations,
insurance companies are unable to utilize their fund according to their discretion.
Most of investment has been in fixed income securities particularly in government
securities. Therefore, the time has come to re-examine the regulations and move to
another model of investment.

The study further reveals that private life insurance companies’ investments in
government securities and housing & infrastructure investments have been declined
while approved & other investments have been increased over the years. These trends
are observed due to the introduction of ULIPs. ULIPs funds have no mandate
investment limit for investments in government securities and housing and
infrastructure investments which warrants freedom to insurance companies while
investing.
 48

5.3 Suggestions

Growth of insurance sector depends on their input resources (premium) and

investment efficiency. Investment efficiency of e insurance companies has been
improved over the years. The study offers some suggestions for insurance companies,
these are:

 Insurance companies should have a pool of investment managers and trustees

with a deep reservoir of skill sets. Insurance companies should not be overlook
regulatory constraints and investment managers have to naturally do a ‘tight
ropewalk’ and still end up successful. With product proliferation and increased
competition in the investment market, it is not easy for insurance companies to
compete without continuous improvement in skill of asset allocation, portfolio
design and investment research.

 Efforts should be done to improve insurance penetration. Keeping low income

people in mind, focus on micro insurance should be carried out in rural area.

 Insurance companies are unable to make investments in some highly profitable

projects because they do not come under approved investments. There should be
freedom for insurance companies to invest in broad range of securities.
 Regulator should permit insurance companies to put a higher percentage of their
investible funds in securities with credit rating below AAA. At present, regulatory
guidelines mandated that at least 75% of debt instruments, excluding government
and other approved securities, shall have an AAA or equivalent credit rating.
Because of this condition, insurance sector exposure to infrastructure projects get
confined to only AAA paper, most of which are issued by public sector
companies.

 Customers should have adequate, accurate and reliable information accessible in

the public domain which they can use to compare and take a good decision before
selecting any insurance fund. It is vital for the regulator to ensure adequate and
timely disclosure of information.

 Insurance companies should improve working efficiency and incorporate new IT

based working culture to reduce their operating expenses.
 48

5.4 Direction for Future Research

The present study is an attempt to analyse impact of reforms in insurance sector in

India. The study is also made an honest attempt to evaluate growth of insurance
sector. Although, the present study has contributed significantly, it has simultaneously
opened new frontiers for future research. There are various research issues which
have not been addressed in this study and need further investigation. Some of the
issues that have forward for future research are as follows:

 The study considers reforms in insurance sector in India. A cross country

comparison on reforms in insurance sector can also be carried out.

 Growth of Health and Motor insurance sector at state level may be also carried out.
 Coverage of crop insurance at interstate level may be studied.
 48

BIBLIOGRAPHY
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Mrunal Joshi, https://www.researchgate.net/publication/256054358
 48

GLOSSARY
 CAGR: Compound Annual Growth Rate
 IRDA: Insurance Regulatory and Development Authority
 IPO: Initial Public Offering
 FDI: Foreign Direct Investment
 LIC: Life Insurance Corporation of India
 GIC: General Insurance Corporation of India
 NBFC: Non-Banking Financial Company
 NGO: Non-Governmental Organization
 RSBY: Rashtriya Swasthya Bima Yojana
 PFRDA: Pension Fund Regulatory and Development Authority
 GDP: Gross Domestic Product
 ESIC: Employees State Insurance Corporation
 FY: Indian Financial Year (April to March)
So, FY12 implies April 2011 to March 2012
 GOI: Government of India
 INR: Indian Rupee
 PMJDY: Pradhan Mantri Jan Dhan Yojana
 PMSBY: Pradhan Mantri Suraksha Bima Yojana
 PMJJBY: Pradhan Mantri Jeevan Jyoti Bima Yojana
 PMFBY: Pradhan Mantri Fasal Bima Yojana
 RSBY: Rashtriya Swasthya Bima Yojana
 India Brand Equity Foundation (IBEF)

Terminology used in definition of Insurance

 Insurer or insurance company: The agency involved in Insurance business is
known as insurer
 Insured/Assured: The person who gets his property/life insured is known as
insured
 Policy: The agreement or contract which is put in writing is known as a Policy
 Premium: The consideration in return of which the insurer undertakes to make
goods the loss or give a certain amount in case of life insurance is known as
premium
 48

Appendixes
Appendix-I
Life Insurance Companies Operating as on 31st March 2018
Public Sector Private Sector
1. Life Insurance Corporation 1. Bajaj Allianz Life Insurance Company
of India Limited
2. Birla Sun Life Insurance Co. Ltd.
3. HDFC Standard Life Insurance Co. Ltd.
4. ICICI Prudential Life Insurance Co. Ltd.
5. Exide Life Insurance Company Limited
6. Max Life Insurance Co. Ltd.
7. PNB Metlife India Insurance Co. Ltd.
8. Kotak Mahindra Old Mutual Life Insurance
Limited
9. SBI Life Insurance Co. Ltd.
10. Tata AIA Life Insurance Company Limited
11. Reliance Life Insurance Company Limited
12. Aviva Life Insurance Company India
Limited
13. Sahara India Life Insurance Co. Ltd.
14. Shriram Life Insurance Co, Ltd.
15. Bharti AXA Life Insurance Company Ltd.
16. Future Generali India Life Insurance
Company Limited
17. IDBI Federal Life Insurance Company Ltd.
18. Canara HSBC Oriental Bank of Commerce
Life Insurance Company Ltd.
19. AEGON Life Insurance Company Limited.
20. DHFL Pramerica Life Insurance Co. Ltd.
21. Star Union Dai-ichi Life Insurance Co. Ltd.
22. India First Life Insurance Company Limited
23. Edelweiss Tokio Life Insurance Co. Ltd.

Appendix-II
Non-Life Insurance Companies Operating as on 31st March 2018
Public Sector Private Sector
1. National Insurance Co. Ltd. 1. Bajaj Allianz General Insurance Co. Ltd.
2. The New India Assurance 2. Bharti Axa General Insurance Co. Ltd.
Co.Ltd.
3. The Oriental Insurance 3. Cholamandalam MS General Insurance Co.
Co. Ltd. Ltd.
4. United India Insurance Co. Ltd. 4. Future Generali India Insurance Co. Ltd.
 48

Specialized Insurers 5. HDFC ERGO General Insurance Co. Ltd.

5. Agriculture Insurance Co. of 6. ICICI Lombard General Insurance Co. Ltd.
India Ltd.
6. Export Credit Guarantee 7. IFFCO Tokio General Insurance Co. Ltd.
Corporation of India Ltd.
7. Re –Insurer 8. L&T General Insurance Co. Ltd.
General Insurance Corporation of 9. Liberty Videocon General Insurance Co.
India Ltd.
10. Magma HDI General Insurance Co. Ltd.
11. Raheja QBE General Insurance Co. Ltd.
12. Reliance General Insurance Co. Ltd.
13. Royal Sundaram Alliance Insurance Co. Ltd.
14. SBI General Insurance Co. Ltd.
15. Shriram General Insurance Co. Ltd.
16. Tata AIG General Insurance Co. Ltd.
17. Universal Sompo General Insurance Co. Ltd
Standalone Health Insurers
18. Max Bupa Health Insurance Co. Ltd.
19. Religare Health Insurance Co. Ltd.
20. Cigna TTK Health Insurance Co. Ltd.
21. Apollo Munich Health Insurance Co. Ltd.
22. Star Health and Allied Insurance Co. Ltd.
Re –Insurer
23. ITI Reinsurance Limited
Foreign Reinsurance Branches
24. Munich Re
25. Swiss Re
26. SCOR SE
27. Hannover Ruck SE
28. RGA Life Reinsurance
29. XL Insurance Company SE
30. Lloyds India Reinsurance Branch
31. MS Amlin Reinsurers
32. General Reinsurance AG
33. AXA France ( added in 2018)
Appendix-III
INSURER RATINGS
Company Financial Strength/
Claims Paying Ability Rating
New India A-(Excellent) AM BEST
AAA (Stable) –CRISIL

United India B++ (Good) AM Best

iAAA: ICRA
 48

National B++ u (Good) AM Best

AAA (Negative) CRISIL

Oriental B++ (Good) AM Best

AAA/Stable CRISIL
iAAA: ICRA

ICICI Lombard iAAA: ICRA

Bajaj Allianz iAAA: ICRA

IFFCO Tokio AA- (Stable) CRISIL

HDFC ERGO iAAA: ICRA

SBI General iAAA: ICRA

ECGC ECGC iAAA: ICRA