Brief history of insurance sector

the insurance sector in India has completed all the facets of competition –from being an open
competitive market to being nationalized and then getting back to the form of a liberalized
market once again. The history of the insurance sector in India reveals that it has witnessed
complete dynamism for the past two centuries approximately.

With the establishment of the Oriental Life Insurance Company in Kolkata, the business of
Indian life insurance started in the year 1818.

Important milestones in the Indian life insurance business

 1912: The Indian Life Assurance Companies Act came into force for regulating the life
insurance business.

 1928: The Indian Insurance Companies Act was enacted for enabling the government to
collect statistical information on both life and non-life insurance businesses.

 1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding
the interests of the insuring public.

 1956: 245 Indian and foreign insurers and provident societies were taken over by the
central government and they got nationalized. LIC was formed by an Act of Parliament,
viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the
Government of India.

The history of general insurance business in India can be traced back to Triton Insurance
Company Ltd. (the first general insurance company) which was formed in the year 1850 in
Kolkata by the British.

Important milestones in the Indian general insurance business

 1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its
type to transact all general insurance business.

 1957: General Insurance Council, an arm of the Insurance Association of India, framed a
code of conduct for guaranteeing fair conduct and sound business patterns.

 1968: The Insurance Act improved for regulating investments and set minimal solvency
levels and the Tariff Advisory Committee was set up.
  1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated and grouped into four companies’ viz. the National Insurance Company
Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the
United India Insurance Company Ltd. GIC was incorporated as a company.

Insurance companies in India

IRDA has till now provided registration to 12 private life insurance companies and 9 general
insurance companies. If the existing public sector insurance companies are considered then
there are presently 13 insurance companies in the life side and 13 companies functioning in
general insurance business. General Insurance Corporation has been sanctioned as the "Indian
reinsurer" for underwriting only reinsurance business.
The Indian Insurance Industry
India insurance is a flourishing industry, with several national and international players
competing and growing at rapid rates. Thanks to reforms and the easing of policy regulations,
the Indian insurance sector been allowed to flourish, and as Indians become more familiar with
different insurance products, this growth can only increase, with the period from 2010 - 2015
projected to be the 'Golden Age' for the Indian insurance industry.

India Insurance Policies at a Glance

Indian insurance companies offer a comprehensive range of insurance plans, a range that is
growing as the economy matures and the wealth of the middle classes increases. The most
common types include: term life policies, endowment policies, joint life policies, whole life
policies, loan cover term assurance policies, unit-linked insurance plans, group insurance
policies, pension plans, and annuities. General insurance plans are also available to cover motor
insurance, home insurance, travel insurance and health insurance.

Due to the growing demand for insurance, more and more insurance companies are now
emerging in the Indian insurance sector. With the opening up of the economy, several
international leaders in the insurance sector are trying to venture into the India insurance
industry.

India Insurance: History

The history of the Indian insurance sector dates back to 1818, when the Oriental Life Insurance
Company was formed in Kolkata. A new era began in the India insurance sector, with the
passing of the Life Insurance Act of 1912.

The Indian Insurance Companies Act was passed in 1928. This act empowered the government
of India to gather necessary information about the life insurance and non-life insurance
organizations operating in the Indian financial markets.

The Triton Insurance Company Ltd formed in 1850 and was the first of its kind in the general
insurance sector in India. Established in 1907, Indian Mercantile Insurance Limited was the first
company to handle all forms of India insurance.

Indian Insurance: Sector Reform

The formation of the Malhotra Committee in 1993 initiated reforms in the Indian insurance
sector. The aim of the Malhotra Committee was to assess the functionality of the Indian
insurance sector. This committee was also in charge of recommending the future path of
insurance in India.
The Malhotra Committee attempted to improve various aspects of the insurance sector, making
them more appropriate and effective for the Indian market.

The recommendations of the committee put stress on offering operational autonomy to the
insurance service providers and also suggested forming an independent regulatory body.

The Insurance Regulatory and Development Authority Act of 1999 brought about several crucial
policy changes in the insurance sector of India. It led to the formation of the Insurance
Regulatory and Development Authority (IRDA) in 2000.

The goals of the IRDA are to safeguard the interests of insurance policyholders, as well as to
initiate different policy measures to help sustain growth in the Indian insurance sector.

The Authority has notified 27 Regulations on various issues which include Registration of
Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers
to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders'
interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for
issue of the Certificate of Registration to both life and non-life insurers. The Authority has its
Head Quarter at Hyderabad. Detailed information on IRDA is available at their web-site
www.irdaindia.org

Protection of the interest of policy holders:

IRDA has the responsibility of protecting the interest of insurance policyholders. Towards
achieving this objective, the Authority has taken the following steps:

 IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for:
policy proposal documents in easily understandable language; claims procedure in both
life and non-life; setting up of grievance redressal machinery; speedy settlement of
claims; and policyholders' servicing. The Regulation also provides for payment of
interest by insurers for the delay in settlement of claim.

 The insurers are required to maintain solvency margins so that they are in a position to
meet their obligations towards policyholders with regard to payment of claims.

 It is obligatory on the part of the insurance companies to disclose clearly the benefits,
terms and conditions under the policy. The advertisements issued by the insurers should
not mislead the insuring public.

 All insurers are required to set up proper grievance redress machinery in their head
office and at their other offices.
 The Authority takes up with the insurers any complaint received from the policyholders
in connection with services provided by them under the insurance contract.
Cover for some more swing in insurance
The insurance sector saw a series of changes in 2010, with the Insurance Regulatory and
Development Authority (Irda) finally deciding to clamp down on mis-selling of Ulips (unit-linked
insurance plans). Among the several steps that the regulator took included imposing ceiling on
Ulip charges. Ironically, the changes can be attributed more to the much reported duel between
capital market regulator Sebi and Irda rather than any consumer activism.

Whether the slew of Ulip-centric regulations, which came into effect from September 1, will
make any noticeable difference to the way insurance products are bought and sold, remains to
be seen.

In a separate development, public sector general insurers withdrew the cashless facility at
several leading corporate (or five-star) hospitals starting July 1, citing exorbitant charges. Oddly
enough, policyholders covered under corporate group mediclaim, which has been a loss-making
portfolio for most insurers, were spared. Last heard, a large number of corporate hospitals had
given in to the insurers’ demands to lower their charges, though many others in Mumbai
continue to remain defiant.

Nevertheless, the impact of the changes, or the lack of it, will be clearer in 2011. The New Year
is expected to herald several other changes, including guidelines on initial public offering (IPOs)
as well as mergers and acquisitions (M&As) by insurance companies. On that count, at least,
2011 is likely to be a worthy successor to 2010.

Here are some likely trends and developments identified by industry experts and watchers that
could affect you as a policyholder, next year:

Online is the way to go

Following Irda’s cap on Ulip charges that has hit the sales targets of several companies, insurers
are now looking at alternative distribution channels to bring down costs. Many companies have
taken to the online channel with gusto for selling term policies. As Irda allows differential rates
for offline and online products, some insurers offer online term policies that are significantly
cheaper (by up to 45% in some cases).

“The significant impact on profitability due to the new regulations on Ulips will lead to
companies exploring cost-effective modes of distribution. Though the online channel as of now
does not contribute significantly to the total sales pie, this mode of distribution is expected to
gain momentum in the coming years,” explains Sanjay Tripathy, executive vice-president and
head, marketing and direct channel, HDFC Life.

Traditional may be back in focus

Post September 1, there is a heightened need to promote traditional products, too. “There is a
growing need to further broad-base the product mix to include a healthy proportion of non-unit
linked products and cater to customer segments across their life cycle,” says Mayank Bathwal,
chief financial officer, Birla Life Insurance. Several distributors are recommending endowment
products over Ulips now.

While toning down the Ulip obsession is welcome, policyholders need to remain alert as the
scope for mis-selling is huge even in endowment products whose opaque structure makes it
difficult to ascertain the charges deducted and actual money invested.

Going public
Many insurance companies are gearing for initial public offers (IPOs) next year, when Irda is
expected to come up with detailed final guidelines in this regard. From a policyholder’s point of
view, you may not be affected greatly if your company goes public or decides to acquire or
merge with another insurer. However, you could hope for certain fringe benefits.

“Acquisitions and mergers may bring down the administration cost and policyholders can
expect higher returns from their insurance policies, ” says certified financial planner Pankaj
Mathpal. And what about health policies that have to be renewed annually? “For a
policyholder, if his insurance company is taken over by another, he will still enjoy continuity of
cover. The policyholder is also entitled to renewals without any break from the original
company or the merged company. This holds true for both retail and group policies,” says
Sanjay Datta, head, health insurance, ICICI Lombard.

Wider choices
So far, the regulations have prevented one bank from distributing policies of multiple life or
general insurers. Debate on whether an open architecture would be more appropriate is
currently on and some industry watchers expect Irda to take a decision next year.

“Presently, a bank can offer only one company’s insurance policies to its consumers through the
Bancassurance channel. Irda has set up a panel to review these rules. A revision would foster
competition and hence innovation and better service to consumers,” reckons Mark Meehan,
chief marketing and operations officer, Bharti-AXA Life.
If indeed banks are allowed to act as agents for more than one insurer, it may mean more
choices for you, but a few experts have expressed some reservations, including the bank staff’s
lack of in-depth product knowledge in such cases.

Term insurance rates may fall

“With innovation in distribution mechanism and online products, term policy rates are likely to
go down,” says Meehan. The same holds true for mortality rates as well. “Mortality rate will
come down and term plans will become more economical,” adds Mathpal.

In short, if you are looking for a pure protection cover to secure your family’s financial future in
your absence, this is the time to seal the deal. Health insurance, on the other hand, may not
offer any such respite. “Premiums for mediclaim are expected to rise in the quarter of April
2011,” cautions Sudhir Sarnobat, CEO of health insurance broking firm Medimanage.com.

Pay more for luxurious treatment

Some public sector insurers have already indicated that they would come out with health
products with a larger sum insured (and consequently, higher premiums) for those who are
keen on availing treatment at high-end hospitals. Such products may hit the market in 2011.

“Policies with higher sum insured and higher premium would get benefits like permission to
avail treatment at luxury hospitals (this would also mean that there would be products which
would be priced cheaper with lesser benefits),” says Sarnobat.

Also, things could become a little easier for policyholders who often have to grapple with
incomprehensible clauses in insurance contracts. Irda may come up with administrative reforms
to standardise terms and procedures. “For instance, a standard claim and pre-authorisation
form as well as list of exclusions and their interpretations,” he adds.

Employee benefits could shrink

Those enjoying the benefits of corporate group mediclaim, where the family including elderly
parents (and their pre-existing illnesses) are covered, may be in for an unpleasant surprise.
According to an annual employee benefits survey conducted by Marsh Insurance Brokers for
2009-10, employers are tightening the benefit packages and one of the key casualties has been
the cover extended to employees’ parents. The trend is likely to make its way into 2011 as well.
“In this segment, we are seeing an increasing trend of dependent parents of employees being
left out of the scope of coverage. This will result in a large number of parents going uncovered
in 2011,” says Mahavir Chopra of MediManage.com.

Alternatively, they could, like many others, introduce the co-pay clause, wherein 10-25% of the
approved claim has to be borne by the policyholders themselves. Therefore, it would be wise to
cover your parents under an individual mediclaim or a family floater policy to avoid nasty
shocks later.

To sum up, 2011 promises to be an eventful year like its predecessor and some prudent choices
and inquisitiveness will help you get the better of your agent and make the right decision to
secure your family’s needs.
Introduction
Global integration of financial markets resulted from de-regulating measures, technological
information explosion and financial innovations. Liberalisation and Globalisation have allowed
the entry of foreign players in the Insurance sector. With the entry of private and foreign
players in the Insurance business, people have got a lot of options to choose from. Radical
changes are taking place in customer profile due to the changing life style and social
perception, resulting in erosion of brand loyalty. To survive, the focus of the modern insurers
shifted to a customer-centric relationship. The paper focuses the current position of insurance
industry.

Liberalisation and Privatisation

India's economic development made it a most lucrative Insurance market in the world. Before
the year 1999, there was monopoly state run LIC transacting life business and the General
Insurance Corporation of India with its four Subsidiaries transacting the rest. In the wake of
reform process and passing Insurance Regulatory and Development Authority (IRDA) Act
through Indian parliament in 1999, Indian Insurance was opened for private companies.

Liberalisation on the Insurance sectors has allowed the foreign players to enter the market with
their Indian partners. Most of the foreign Insurers have joined within the local market. India
offers immense possibilities to foreign Insurers since it is the world's most populous country
having over a billion people.

Insurance industry had ten and six entrants in life and non-life sector respectively in the year
2000-2001. The industry again saw two and three entrants in the life and non-life business
respectively in the year 2001-2002. One additional entrant was made both in the life and in
non-life business in 2004 and 2005 respectively. At present there are fourteen companies each
in Life and General Insurance. The Funds earlier generated by the state owned insurers have
been diversified with other new insurers. We should wait and see how the new players are
going to boost up our economy.

Competition

Private and Foreign entrants in the Insurance Industry made others difficult to retain their
market. Higher customer aspirations lead to new expectations and compel him to move
towards the insurer who provides him the best service in time. It becomes less viable for them
even to maintain the functional networks or competitive standards and services. To survive in
the Industry they analyse, the emerging requirements of the policyholders / insurers and they
are in the forefront in providing essential services and introducing novel products. Thereby they
become niche specialists, who provide the right service to the right person in right time.
 The following table shows the market share of life and non-life insurers

 MARKET SHARE (%)  

 LIFE INSURERS  NON – LIFE INSURERS

 1. LIC 76.07 1. New India 21.41

2.  ICICI Prudential  6.91 2. National 17.11

3.  Bajaj Allianz  4.75  3. United India  17.11

 4.  HDFC Standard  2.98 4. Oriental 17.02

5.  Brila Sunlife  1.72 5. ICICI- 8.04

Lombard

 6. Tata AIG  1.66 6. Bajaj Allianz  6.15

 7.  SBI Life 1.46 7. IFFCO-Tokio 4.00

8. Max New York  1.28  8.  Tata-AIG  2.89

 9. Aviva 1.08  9. ECGC 2.50

 10. Kotak Mahindra Old Mutual 0.71  10. Royal 2.17

Sundaram

11. ING Vysya 0.54 11. Cholamandala 1.22

m

 12. AMP Sanmar 0.46 12. HDFC-Chubb 0.89

 13. Met Life 0.37 13. Reliance 0.75

General

14. Sahara Life 0.03 14. Agriculture --

Insurance Co.

 Private total  23.93 Private total  27.35

 Public total 76.07 Public total 72.65

 Grand total 100.00 Grand total   100.00

 Source : www.irdaindia.org  
In the above table shows, the private players in the life insurance business have increased their
market share to 23.93 per cent. Among them ICICI prudential is ranked first in capturing the
market followed by Bajaj Allianz and HDFC Standard. In the General Insurance sector the
private players have captured 27.35 per cent. Among them ICICI-Lombard is ranked first,
followed by Bajaj Allianz and IFFCO-Tokio.
The healthy competition in the sector enabled the State owned insurers of our mother country
to reduce its market share to 76.07 per cent and 72.65 percent in life and non-life business
respectively. Moreover, private insurers have planned to increase their market share in the next
five years. The public insurers have to enrich its approach to withhold its share.

Information Technology

Insurers are the earlier adopters of technology. Because of the Information revolution,
customers are free to choose from a wide range of new and innovative products. The Insurance
companies are utilizing the Information technology applications for better customer service,
cost reduction, new product design and development and many more.

New technology gives the policyholders / insured better, wider and faster access to products
and services. The impact of Information Technology in Insurance business is being felt at an
accelerating pace. In the initial years IT was used more to execute back office functions like
maintenance of accounts, reconciling broker accounts, client processing etc. With the advent of
"database concepts", these functions are better integrated in an administrative efficiency.

The real evolution is however emerged out of Internet boom. The Internet has provided brand
new distribution channels to the Insurers. The technology has enabled the Insurer to innovate
new products, provide better customer service and deeper and wider insurance coverage to
them. At present, Insurance companies are giving customers a distinct claim id to track claims
on-line, entertaining on-line enrollment, eligibility review, financial reporting, and billing and
electronic fund transfer to its benefit clan customers.

Product Innovations

Insurers are continuously innovating new products based on forward-looking models. They
have developed new products addressing the new challenges in society and products to
address the hazards from new environmental issues. Companies will need to constantly
innovate in terms of product development to meet ever-changing consumer needs.
Understanding the customer better will enable Insurance companies to design appropriate
products, determine price correctly and to increase profitability. Since a single policy cannot
meet all the Insurance objectives, one should have a portfolio of policies covering all the needs.
Product development is made possible by integrating actuarial, rating, claims and illustration
systems. At present, the Life Insurers are concentrating on the pension schemes and the Non-
Life Insurers on many innovative schemes of various realms and thereby enriching their market
share. Moreover, with increased commoditization of insurance products, brand building is
going to play a vital role.

Distribution Network

While companies have been successful in product innovation, most of them are still grapping
with right mix of Distribution Channels for capturing maximum market share to build brand
equity, building strong and effective customer relationships and cost effective customer service.
While the traditional channel of tied up advisors or agents would be the chief distribution
channel, insurer should innovate and find new methods of delivering the products to
customers. Corporate agency, brokerage, Banc assurance, e-insurance, cooperative societies
and panchayats are some of the channels, which can be tapped by the insurers to reach the
appropriate market segments. Now days, the urban masses are tapped with the new
techniques provided by Information Technology through Internet. Rural masses are attracted
by the consultative approach adopted by the Insurers. Moreover, they attract the customers
through telephone and mobile also.

Customer Education and Services

Insurance is a unique service industry. The key industry drivers are related to life style issues in
terms of perceiving insurance as a savings instrument rather than for risk cover, need based
selling, quality of service and customers awareness.

In the present competitive scenario, a key differentiator is the professional customer service in
terms of quality of advice on product choice along with policy servicing. Servicing focus is on
enhancing the customer's experience and maximizing his convenience. This calls the effective
CRM system, which eventually creates sustainable competitive advantage and enables to build
long lasting relationship.

MODERN MARKETING APPROACH

Marketing strategies for insurance in the emerging scenario could be understood in terms of
the following steps:

Having done market research and finalizing on segmentation, targeting and positioning the
strategy would focus on the marketing mix namely, Product, Price, Place and Promotion. While
determining the implementation methodology, the four characteristics viz. Intangibility,
Inseparability, Perish ability and Variability gives rise to certain unique requirements that
deserve careful attention while formulating the marketing strategy for insurance. After
implementation, the insurers should concentrate on the effective control that would enhance
their business.

In India Insurance is sold and not bought. The agents / Advisors by using various strategies sell
the product by convincing the customers. Moreover, they push Policies with the highest
premium to pocket a higher commission. The consultative approach to selling is the modern
approach, which helps customers and prospects to buy. A consultant makes calls and sells just
like any other sales person. The difference is in their attitude, their approach and their
commitment. Here, the customer is seen as a person to be served and not a person to be sold.
It helps the purchaser to make an intelligent decision. The four-step process includes:

* Need discovery
* Selection of the product
* Need satisfaction presentation, and
* Serving the sale

This approach to selling their products requires understanding of concepts and principles
borrowed from the fields of psychology, communications, and sociology and needs a lot of
personal commitments and self – discipline from the seller.

The commitments referred are:

 Finding and understanding the needs of the customers.

 Partnering with the customers.

 Helping the customers to achieve his business and other objectives by the purchase of
the product or service.

 Believing that your products / services are a great fit with your customer's needs, and

 Believing in yourself and your ability to help the customers in solving their problems.

Conclusion

A consultant is willing to forego short-term gains to achieve greater long – term benefit to him
and to the customers he serves. He builds relationships on a foundation of trust, respect and
performance. Moreover, consultants don't sell – they're specialists who make
recommendations to help the prospect to buy. They act as a professional and offer real–world
solutions that make sense to the customer. Today, the insurers adopt this technique and
thereby go on increasing their market share.