Changes In The Insurance Sector In The Pre & Post Liberalization Scenario

S.Ramya M.Phil (Commerce) 2011-2012

INTRODUCTION:
People in all walks of life are exposed to risk and uncertainty. An early death, loss of goods due to theft and natural calamities like floods, earthquake are some of the examples of the risk that everybody on earth faces. As days progress, man is becoming exposed to more and more dangers both natural and man-made. Insurance is the universal solution that offers to protect against such risk and uncertainty. Insurance does not admit to eliminate loss but it compensates, to some extent, the loss, which arises from uncertain events.

HISTORY OF INSURANCE:
Oriental Life Insurance Company was incorporated at Calcutta. Bombay Life Assurance Company Triton Insurance Company, for General Insurance Insurance Act was passed Reviewed and comprehensive legislation was enacted The nationalization of life insurance business took place when 245 Indian and Foreign Insurance provident societies were merged. It paved the way towards the establishment of Life Insurance Corporation (LIC) General Insurance followed suit Non-life insurance business was nationalized and the General Insurance Business (Nationalization) Act, 1972 was publicized. 1818 1823 1850 1928 1938 1956 1968 1973

Due to concerns of relatively low spread of insurance in the country

the (Congress)

government set up an Insurance Reforms committee in April 1993. The Committee submitted its report in January 1994, recommended a phased program of liberalization, and called for private sector entry and restructuring of the LIC and GIC. The United Front government moved an insurance bill but it did not pass. The BJP government moved an insurance bill again in 1998, which had also to be referred back to a select committee of parliament. But now the parliament has given a nod to the Insurance Regulatory and Development Authority (IRDA) bill with some changes in the original structure.

The decision to allow private companies to sell insurance products in India rests with Indian Parliament. Opening up the insurance sector required to cross a legislative hurdle, i.e. the amendment of the LIC and GIC Acts, which would end their respective monopolies. Subsequently in the announcement made by the Union Finance Minister in his budget speech of 1998-99, The Insurance Regulatory and Development Regulatory Bill 1999 was passed. The bill was approved by the President and notified on December 29, 1999. Then the insurance industry was open for the private sector. The act provides for this establishment to protect the interest of the insurance policy holders and to regulate, promote and ensure systematic growth of insurance industry.

CHANGES IN THE INSURANCE SECTOR IN THE PRE AND POST LIBERALIZATION SCENARIO:
PRE PURCHASE PROCESS PRE-LIBERALISATION Through Friends, Colleagues, Relatives and Agent. Sources of information on insurance and product awareness Low awareness of several insurance products due to poor communication in spite of availability. Approach of agent through referral and informal. Approach of the agent and consumers experience Long term family type of relationship. Often selling insurance as commodity. Average communication skills. POST-LIBERALISATION Additionally from direct mailers, consumer meets, internet and media. Rising level of awareness of new products of both LIC and private companies. Approach more professional and sometimes aggressive. Take initiative in contacting persons directly. Conducts financial health checkup and then offers suitable products. Better communicator and handles large number of queries.

Motivational Factor Security Savings Tax Rebate

PreLiberalisation 43% 14% 43%

PostLiberalisation 50% 34% 16%

PURCHASE PROCESS

PRE-LIBERALISATION Medical examination: In several cases details filled by the agent, sometimes no formal examination. Purchase experience with agent reasonably satisfactory, but often agent not in touch later.

POST-LIBERALISATION Medical examination: Both LIC and private company customers undergo through formal medical examination arranged by agent. Experience more satisfactory, agent maintains regular contact in post purchase phase also. Products with multiple ridermedical, accidents, waiver of premium rider. Pension/ retirement benefit plan, flexi premium, saving and security plans. Mode: Registered post for LIC and Courier for private companies.

Role of agent and customers experience

Limited product choices. Product offering Choice often determined by agents push.

Policy Delivery

Mode: Registered post for LIC, hand delivered by agent in most cases.

In both the cases, policy comes in attractive, protective plastic jacket.

Time Taken Upto 1 Week One Month > One Month

PrePostPost-Liberalisation Liberalisation Liberalisation(LIC) (Pvt. Co.) 0% 65% 35% 5% 77% 18% 85% 15% 0%

POST PURCHASE PROCESS

PRE-LIBERALISATION Generally no communication from either company or agent except for late premium payment reminder from company. Agent maintained informal contact with close customers. Due to irregular receipt of premium notice from company/ reminder from agent the delay in payment is high.

POST-LIBERALISATION Mailers from both private companies and LIC on products and services, greeting cards on birthdays, anniversary and New Year. Agent in regular contact for offering new products. Due to regular receipt of premium notice from company/ reminder from agent the delay in payment is low

Communication (other than premium notice) from company / agent

Delay in premium payment

Premium Notice Intimation Company Agent

PreLiberalisation 47% 53%

PostLiberalisation 52% 48%

Mode of Premium Payment Cash Cheque Credit Card Internet

PrePostLiberalisation Liberalisation 43% 57% 0% 0% 41% 48% 10% 1%

Premium Deposited By Self Agent Salary Saving Scheme

PreLiberalisation 44% 49% 7%

PostLiberalisation 37% 49% 14%