A Comparative Study of Public & Private Life Insurance

Companies: A study in Indian context

Happy Sinha

Abstract

India’s insurance sector has been growing dynamically in the last couple of years especially since its
privatization in year 2000.The purpose of this study is to do a comparative study of public and private
life insurance companies in Indian context by taking under consideration some of the critical areas like
claim settlement and new business of both sectors. Study includes the research work to be done for
finding out the market share of private and public insurance sector. Study reveals that claim settlement
amount of public sector is on higher side as compared to private sector and the major cause behind is
the huge market share of public life insurance sector as against the private sector.

Keywords: Insurance, Annuities, IRDA, NAV, Lock-in period.

Introduction

Indian insurance sector got its’ life in actual sense in year 2000 with the privatization of insurance
sector. This all became possible following the recommendations of the Malhotra Committee report, in
1999 and because of this the Insurance Regulatory and Development Authority (IRDA) was constituted
as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as
a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so
as to enhance customer satisfaction through increased consumer choice and lower premiums, while
ensuring the financial security of the insurance market. Life Insurance sector plays a very important
role in providing tax benefits to individuals especially at the end of financial year people often go to
purchase policies. Due to privatisation many private players came in market with the aim of providing
better services to customers.
What Is Life Insurance?
Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the
happening of the event insured against.
The contract is valid for payment of the insured amount during:
» The date of maturity, or
» Specified dates at periodic intervals, or » Unfortunate death, if it occurs earlier
Indian Insurance Sector

Public Sector

Life Insurance Corporation of India

LIC of India was incorporated on 1st September, 1956 by amalgamating 243 Companies by the Act of
Parliament called Insurance Act, 1956. LIC is governed by the Insurance Act 1938, LIC Act 1956,
LIC Regulations 1959 and Insurance Regulatory and Development Authority Act 1999. As on 31st
March, 2016, LIC has 8 Zonal Offices, 113 Divisional Offices, 2048 Branch Offices, 73 Customer
Zones, 1401 Satellite Offices and 1240 Mini Offices in India.
The Corporation has Branch Offices in Fiji, Mauritius and United Kingdom. It also operates through
Joint Venture(JV) Companies in overseas Insurance Market, namely Life Insurance Corporation
(International) B.S.C.(c), registered in Manama (Bahrain); Kenindia Assurance Company Ltd.
registered in Nairobi; Life Insurance Corporation (Nepal) Ltd. registered in Kathmandu; Life
Insurance Corporation (Lanka) Ltd. registered in Colombo and Saudi Indian Company for Co-
operative Insurance(SICCI) registered in Riyadh. LIC has also formed a Joint Venture Company Life
Insurance Corporation (LIC) of Bangladesh Limited between Life Insurance Corporation of India,
Strategic Equity Management Ltd and Mutual Trust Bank Ltd on 14.12.2015. A Wholly owned
subsidiary, Life Insurance Corporation (Singapore) Pte Ltd. has been established on 30.4.2012.
Among the above two joint ventures (JVs), Kenindia Assurance Co. Ltd., Nairobi, Kenya and Saudi
Indian Company for Co-operative Insurance (SICCI), Riyadh, Kingdom of Saudi Arabia are
composite companies transacting life and non-life business; and two JVs, LIC (Nepal) Ltd. &SICCI
are listed on their respective Stock Exchanges.

Private Sector
As of now, Life insurance industry in India comprises 24 private
List includes,
1.Aegon Life Insurance Co. Ltd.
2.Aviva Life Insurance Co. India Ltd.
3.Bajaj Allianz Life Insurance Co. Ltd.
4.Bharti AXA Life Insurance Co. Ltd.
5.Birla Sun Life Insurance Co. Ltd.
6.Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.
7.DHFL Pramerica Life Insurance Co. Ltd.
8.Edelweiss Tokio Life Insurance Co. Ltd
9.Exide Life Insurance Co. Ltd.
10.Future Generali India Life Insurance Co. Ltd.
11.HDFC Standard Life Insurance Co. Ltd.
12.ICICI Prudential Life Insurance Co. Ltd.
13.IDBI Federal Life Insurance Co. Ltd.
14.IndiaFirst Life Insurance Co. Ltd
15.Kotak Mahindra Old Mutual Life Insurance Ltd.
16.Life Insurance Corporation of India
17.Max Life Insurance Co. Ltd.
18.PNB MetLife India Insurance Co. Ltd.
19.Reliance Life Insurance Co. Ltd.
20.Sahara India Life Insurance Co. Ltd.
21.SBI Life Insurance Co. Ltd.
22.Shriram Life Insurance Co. Ltd.
23Star Union Dai-Ichi Life Insurance Co. Ltd.
24.Tata AIA Life Insurance Co. Ltd.

Indian Life Insurance sector provides a wide range of products in both ulip and non-ulip categories.

ULIP being a market linked plan vary according with market fluctuations. Changed NAV plays a very
vital role in changing ulip returns.
Nowadays even customers are very well aware with NAV’s and they visit branches frequently to get
to know about fund performance.

In the second quarter of year 2010 ulip lock-in period raised to 5 years from 3 years which brought
major change in selling of ulip products in market insurance and also became very tough from the
sales point of view.

Review of Literature

(Dwivedi ,2019) made a comparative study of public and private life insurance companies in India in
post liberalization span wherein he found that Indian insurance industry has come a long way post
liberalization as it has reported increase in both life insurance density and penetration. The size of life
insurance market has been increased with growing economy.

(Kumar & Shinde 2011) did a SWOT analysis of Insurance industry of India wherein he analysed that
de-regulation has brought tremendous change in this sector due to excessive completion. Innovations
and distribution and improvements in market penetration will follow as public and private insurers
compete to market their products.
(Agarwal & Mishra, 2017) did a study on Indian Insurance sector and found that industry has faced
many challenges to reach to it’s present position.
(Krishna, 2015) made a comparative study of public and private life insurance companies of India.
Solvency ratio, current ratio and debt equity ratio have been calculated to measure financial
performance.

Research Methodology

Research Statement

This study compares a public life insurance sector and private life insurance companies in Indian
context.

Objectives of the Study

The main objective of this study is to do a comparative analysis of public and private life insurance
companies of India in Indian context.

Methods and Materials

The data used for this research is secondary in nature. The relevant and required data has been collected from
IRDA annual report 2020-21.
 Claim settlement of LIC and private insurance sector of India: Comparative study
for year 2019-20 and year 2020-21.

Claims of Life Insurers

(₹crore)
S. LIC Private Sector Total
Insurer
No. 2019-20 2020-21 2019-20 2020-21 2019-20 2020-21
1 Death Claim 17,505.36 23,878.62 12,288.51 18,079.81 29,793.87 41,958.43
2 Maturity 1,51,159.70 1,65,659.20 21,348.71 25,845.12 1,72,508.41 1,91,504.32
Surrender/
3 70,148.12 80,101.00 47,117.12 49,315.89 1,17,265.24 1,29,416.88
Withdrawal
Annuities/
4 13,015.29 14,571.36 949.42 1,406.32 13,964.71 15,977.68
Pensions
5 Others 932.15 911.63 17,002.32 19,003.52 17,934.47 19,915.15
Total 2,52,760.62 2,85,121.81 98,706.08 1,13,650.66 3,51,466.70 3,98,772.47

Source: Annual Report IRDA 2020-21

Comparison of claim amount paid by LIC Vs Private Sector for year 2019-20 and
20-21
The life insurance industry paid benefits of ₹3.99 lakh crore in 2020-21 (₹3.51 lakh crore in 2019-
20) constitutes 63.42 per cent of the gross premium underwritten (61.35 per cent in 2019-20). The
benefits paid by the private insurers was ₹1.13 lakh crore (₹98,706 crore in 2019-20) constituting
50.15 per cent of the premium underwritten (51.01 per cent in 2019-20). LIC paid benefits of ₹2.86 lakh
crore in 2020-21, constituting 70.85 per cent of the premium underwritten (₹2.53 lakh crore in 2019-20,
66.62 per cent of the premium underwritten).

The benefits paid on account of surrenders / withdrawals increased to ₹1.29 lakh crore in 2020-21
(₹1.17 lakh crore in 2019-20), of which LIC accounted for 61.89 per cent and remaining 38.11per cent
by private sector. In the current year, in case of LIC, out of the ₹80,101 crore surrenders, ULIP policies
accounted for ₹2,619 crore (3.27 percent) as against ₹3,106 crore (4.43 per cent) in 2019-20. In case
of the private insurers, the ULIP surrenders accounted for ₹40,025 crore (72.82 per cent) in 2020-21
as against ₹38,327 crore (73.96percent) in 2019-20
 Claims of Life Insurers (crores), Private Sector
60,000.00

49,315.89
50,000.00 47,117.12

40,000.00

30,000.00
25,845.12
21,348.71
20,000.00 18,079.81 19,003.52
17,002.32
12,288.51
10,000.00

949.42 1,406.32
0.00
2019-20 2020-21
Private Sector

Death Claim Maturity Surrender/Withdrawal

Annuities/Pensions Others

Claims of Life Insurers(crores), LIC

180,000.00
165,659.20
160,000.00 151,159.70

140,000.00

120,000.00

100,000.00
80,101.00
80,000.00 70,148.12

60,000.00

40,000.00
23,878.62
17,505.36 14,571.36
20,000.00 13,015.29

0.00
2019-20 2020-21

Death Claim Maturity Surrender/Withdrawal Annuities/Pensions Others

New Business premium for LIC and private insurance companies: A comparative study for
year 2019-20 and 2020-21

Segment-wise Premium Underwritten by Life Insurers

S.No. LIC Private Sector Total

Segment Item 2019-20 2020-21 2019-20 2020-21 2019-20 2020-21

Premium
(₹crore)
57,958.76 33,930.86 44,326.64 46,869.16 1,02,285.40 80,800.02
First Year Growth
1
Premium (%)
Market 85.02 -41.46 5.82 5.74 39.71 -21.01
Share (%) 56.66 41.99 43.34 58.01 100 100
Premium
(₹crore)
1,20,317.48 1,50,498.69 36,659.50 47,401.21 1,56,976.98 1,97,899.90
Single Growth
2
Premium (%)
Market 8.38 25.08 19.1 29.3 10.71 26.07
Share (%) 76.65 76.05 23.35 23.95 100 100
Premium
(₹crore)
New Business 1,78,276.24 1,84,429.55 80,986.14 94,270.37 2,59,262.38 2,78,699.92
Growth
3 Premium
(%)
(1+2)
Market 25.25 3.45 11.45 16.4 20.59 7.5
Share (%) 68.76 66.17 31.24 33.83 100 100
Premium
(₹crore)
2,01,113.36 2,18,857.00 1,12,534.45 1,31,174.11 3,13,647.81 3,50,031.11
Renewal Growth
4
Premium (%)
Market 3.05 8.82 14.88 16.56 7 11.6
Share (%) 64.12 62.53 35.88 37.47 100 100
Premium
(₹crore)
Total 3,79,389.60 4,03,286.55 1,93,520.59 2,25,444.48 5,72,910.19 6,28,731.04
Growth
5 Premium
(%)
(3+4) = (6+7)
Market 12.41 6.3 13.42 16.5 12.75 9.74
Share (%) 66.22 64.14 33.78 35.86 100 100
 New Business Premium (1+2)
80
2019-20(LIC); 68.76
70
60
50
40 2019-20(Private);
31.24
30
20
10
0
2019-20(LIC) 2019-20(Private)

New Business Premium (1+2) Premium ( ₹crore) Growth (%) Market Share (%)

New Business Premium (1+2)

70 2020-21(LIC); 66.17
60
50
2020-21(Private);
40 33.83
30
20
10
0
2020-21(LIC) 2020-21(Private)

New Business Premium (1+2) Premium ( ₹crore) Growth (%) Market Share (%)
 Opportunities

Aggressive marketing strategies of private sector enable them to capture big market share.
Policyholders now have access to many insurance companies. Cross selling also plays a very important
role wherein through banks customers are able to purchase policies.
Certified Insurance facilitators in banks guide customers about new insurance products.
Branches get commission by selling insurance products and even some lucrative offers are being given
to them on achieving targets. Banks employees are given targets and this also becomes the part of their
promotion norms.
This way private sector is getting opportunity to capture market share of India’s Insurance sector.
Private insurance sector has to go a long way to compete with LIC.

Challenges

Claim settlement is very challenging task as selling insurance products also involves the element of
mis-selling. Insurance hidden charges also pose challenge in front of customers as customers are not
at all aware with the technical language of policy bonds.
Early death claim is also another problem as most of the death claims are repudiated on account of
fake policies. The biggest challenge for public sector giant, the Life Insurance Corporation is one of
the sustaining the huge growths it has shown in the recent times.

References:
1. Naidu ,Paramasivan (2015), “A comparative study of private and public life insurance
companies in India”
2 Anand, M. (2002).Indian Insurance Industry. Channelizing growth, Chartered Financial
Analyst.
3 Chakraborty, Joy. “Private Life Insurance Companies in India – Growing Prospects and
Challenges”, Insurance.
4. Mishra, K. (2015). A Comparative Study of Public and Private Life Insurance
Companies in India. IJRFM Volume 5, Issue 9, Pp.16-19.

Websites:
https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo4615&flag=1
https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4&mid=2
https://www.elearnmarkets.com/financial-guides/download/guidebook-on-life-insurance#https://www.irdai.gov.in/
ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4&mid=2
https://financialservices.gov.in/insurance-divisions/Public-Sector-Insurance-Companies