AN OVERVIEW

With the largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. Its a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 1560.41 billion (for the financial year 2006 2007). Together with banking services, it adds about 7% to the countrys Gross Domestic Product (GDP). The gross premium collection is nearly 2% of GDP and funds available with LIC for investments are 8% of the GDP. Even so nearly 65% of the Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. A large part of our population is also subject to weak social security and pension systems with hardly any old age income security A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and strengthens the risk taking ability of individuals. It is estimated that over the next ten years India would require investments of the order of one trillion US dollars.

INSURANCE INDUSTRY IN INDIA

The Insurance sector in India initially took off with the establishment of the public sector insurance company known as, Life Insurance Corporation of India. The insurance sector in India has grown in leaps and bounds to become the most significant financial players in the Indian financial market. The popularity of the insurance sector has mainly evolved on account of the large investments flow from this sector that facilitates the growth of the overall economy of the country. The foreign insurance companies have stated forming pacts and collaborations with the Indian insurance companies to influence the Indian Insurance sector. The insurance companies offer protection to their clients, collect the small savings of the clients to turn into a huge capital to reinvest in priority sectors of the economy.

Insurance and Banking:

The insurance companies in India are constantly collaborating with the banking institution, following the foreign countries to impart more efficiency in the entire insurance sector. More and more insurance companies are signing Memorandum of Understanding (MOUs) with the Indian banks in order to carry on their marketing activities through the branches of the banks. The prominent Indian banks that have already signed such MOUs include the Vysya Bank, the State Bank and the Jammu and Kashmir Bank.

Products and Services offered by Insurance Companies in India:

The insurance companies in India dealing in life insurance are mainly engaged in offering two categories of life insurance products- the Endowment Assurance Products and the Money Back Products. The vehicle insurance products rank next to life insurance product in terms of demand. The up coming products comprise linked products. The products offer various facilities to the investors as for example they are available with free look facility so that the investor gets time to examine the policy within the free look period.

Structure of Insurance Industry: Snapshot

Prior to 1956 - 242 companies operating. 1956 2001 - Nationalization LIC monopoly player Government control. 2001 - Opened up sector.

Potential of Life Insurance Sector:

Total Population Total Population of Insurable Class Total Population Insured 1.4 billion 253 million 88.5 million

(Source: Financial Times)

Market Share Based on Premium:

Company Indian Promoter Foreign Partner Market Share based on Premium

Aviva Life

Dabur

Aviva, UK

1.12%

Bajaj Allianz

Bajaj Auto

Allianz, Germany

6.12%

Birla Sunlife

Aditya Birla

Sunlife, Canada

1.84%

HDFC Standard

HDFC

Standard Life, UK

2.96%

ICICI Prudential

ICICI Bank

Prudential, UK

7.11%

Max New York

Max India

New York Life, US

1.32%

MetLife

Jammu and Kashmir Bank

MetLife, US

0.40%

Tata AIG

Tata Group

AIG, US

1.78%

(Source: Financial Times)

CONTRIBUTION TO INDIAN ECONOMY

Life Insurance garners Long term savings:
Insurers are increasingly introducing innovative products to meet the specific needs of the prospective policyholders. An evolving insurance sector is of vital importance for economic growth. While encouraging savings habit it also provides a safety net to both enterprises and individuals.

Insurance Companies receive, without much default, a steady cash stream of premium or contributions to pension plans. Various actuary studies and models enable them to predict, relatively accurately, their expected cash outflows. Liabilities of Insurance companies being long-term or contingent in nature, liquidity is excellent and their investments are also long-term in nature. Since they offer more than the return on savings in the shape of life-cover to the investors, the rate of return guaranteed in their insurance policies is relatively low.

Consequently, the need to seek high rates of returns on their investments is also low. The risk-return trade off is heavily tilted in favour of risk. As a combined result of all this, investments of insurance companies have been largely in bonds floated by Government of India, PSUs, State governments, local bodies, corporate bodies and mortgages of long term nature.

Aggregation of Long Term Savings:

Total Assets of Life Insurance Companies 2006-2007 2,80,450Cr 2007-2008 3,52,608Cr 2008-2009 4,23,000 Cr
(Source: Financial Times)

Total Premiums generated 2006-2007 57,708 Cr 2007-2008 66,278 Cr 2008-2009 79,000 Cr

(Source: Financial Times)

The Life Insurance Industry is growing @ 19% per annum. So at this growth rate the future premium incomes generated will be as follows:

2006-2007 94,000 Cr

2007-2008 1,12000 Cr

2008-2009 1,33,000 Cr

(Source: Financial Times)

Life Insurance funds accounts for 15% of Household savings. So the industry has the potential to increase the share to 20% in the next 2 years.

Generation of Long term funds for Infrastructure:

For GDP to grow at 8 to 10%, qualitative improvement in infrastructure is essential. Estimates of funds required for development of infrastructure vary widely. An investment of 6, 19,600 crores is anticipated in the next 5 years. Tenure of funding required for infrastructure normally ranges from 10 to 20 years. The insurance industry also provides crucial financial intermediary services, transferring funds from the insured to capital investment, critical for continued economic expansion and growth, simultaneously generating long-term funds for infrastructure development.

In fact infrastructure investments are ideal for asset-liability matching for life insurance companies given their long term liability profile. According to preliminary estimates published by the Reserve Bank of India, contribution of insurance funds to financial savings was 14.2 per cent in 2005-06, viz., 2.4 per cent of the GDP at current market prices. Development of the insurance sector is thus necessary to support continued economic transformation. Social security and pension reforms too benefit from a mature insurance industry.

The insurance sector in India, which was opened up to private participation in the year 1999, has completed over seven years in a liberalized environment. With an average annual growth of 37 per cent in the first year premium in the life segment and 15.72 per cent growth in the nonlife segment, together with the largest number of life insurance policies in force, the potential of the Indian insurance industry is still large. Life insurance penetration in India was less than 1 per cent till 1990-91. During the 1990s, it was between 1 and 2 per cent and from 2001 it was over 2 per cent. The tenure of funding required for infrastructure normally ranges from 10 to 20 years. In 2005 it had increased to 2.53 per cent and now it is near to 3.21%. An investment of 6, 19,600 crores is anticipated in the next 5 years. The major portions of these funds are routed through debt/ private equity participation

Spread of Financial Services in Rural areas:

IRDA Regulations provide certain minimum business to be done - in rural areas. - in the socially weaker sections.

Life Insurance offices are spread over nearly 1400 centres. Presence of representative in every tehsil deeper penetration in rural areas. Insurance agents numbering over 6.24 lakhs in rural areas. Policies sold in rural areas (2008-09) - No. of policies - 55 lakhs, Sum assured 46,000 crores. Social security - No. of lives covered in 2007-08 was 17.4 lakhs whereas in 2008-09, it increased to 42.1 lakhs.

Employment Generation:
Employment generation in the country increased considerably in the eight-year period - 2001 to 2009, as compared to between 1990 and 2000, according to the Economic Census released by the government recently. Employment grew at the rate of 4.78 per cent in 2001-2009, which is much higher than the 1.75 per cent recorded during 1990-2000, the 5th Economic Census report said. The report, compiled by the Central Statistical Organisation, listed the top five states in India in terms of employment generation which includes Jammu and Kashmir, Haryana, Kerala, Andhra Pradesh and Maharashtra.

Life insurance industry provides increased employment opportunities. Employees in insurance sector as on 31st March, 2009 is around 9.5 lakhs. Many agents depend on insurance for their livelihood. No. of agents as on 31st March 2009 30.50 lakhs. Brokers, corporate agents, training establishments provide extra employment

opportunities. Many of these openings are in rural sectors.

Development of Capital Markets / Economic Growth:

A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets. The capital market includes the stock market (equity securities) and the bond market (debt). Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere. The primal role of the capital market is to channelize investments from investors who have surplus funds to the ones who are running a deficit. The capital market offers both long term and overnight funds. The financial instruments that have short or medium term maturity periods are dealt in the money market whereas the financial instruments that have long maturity periods are dealt in the capital market. Industry also contributes in economic development through investments in capital market. Present level of investments is over Rs. 40,000 crores. (Mark to Market basis around 80,000 Crores). Life Insurance makes an Annual Investment of around 9000 crores in capital markets. Contribution of Life Insurance to Five Year Plans is Rs.2, 30,900 Crores. It helps to inculcate a sense of security by protecting earning of people in case of untimely death and also provides benefits to Policy Holders. 2006-2007 20,800 Cr 2007-2008 24,200 Cr 2008-2009 28,700 Cr

(Source: Financial Times)

LIST OF LIFE INSURANCE COMPANIES IN INDIA And THEIR MARKET SHARE

List of Life Insurance Companies in India

1. Aegon- Religare 2. Aviva 3. Bajaj Allianz 4. Birla SunLife 5. Bharti- Axa 6. Future Generali 7. HDFC Standard Life 8. India First Life 9. ICICI Prudential 10. IDBI Fortis 11. ING Vysya 12. Kotak Mahindra Life 13. LIC 14. Max Newyork Life 15. Met Life 16. Reliance Life 17. Sahara India 18. SBI Life 19. Shriram Life 20. Tata AIG Life 21. DLF Pramerica 22. Canara HSBC OBC

MARKET SHARE
2% 3% 2% 3% 3% 7% 1% 6% LIC ICICI PRUDENTIAL BAJAJ ALLIANZ SBI LIFE RELIANCE HDFC STANDARD LIFE 9% 64% BIRLA SUNLIFE MAX NEWYORK LIFE KOTAK MAHINDRA OTHERS

POTENTIAL 0F LIFE INSURANCE BUSINESS IN INDIA

Indias life insurance market has grown rapidly over the past six years, with new business premiums growing at over 40% per year. The premium income of Indias life insurance market is set to double by 2012 on better penetration and higher incomes. Insurance penetration in India is currently about 4% of its GDP, much lower than the developed market level of 6-9%. In several segments of the population, the penetration is lower than potential. For example, in urban areas, the penetration of life insurance in the mass market is about 65%, and its considerably less in the low-income unbanked segment. In rural areas, life insurance penetration in the banked segment is estimated to be about 40%, while it is marginal at best in the unbanked segment. The total premium could go up to $80-100 billion by 2012 from the present $40 billion as higher per capita income increases per capita insurance intensity. The average household premium will rise to Rs 3,000-4,100 from the current Rs 1,300 as will penetration by the existing and new players. Indias ratio of life insurance premium to its GDP is around 4 per cent against 69 percent in the developed world. It could rise to 5.1-6.2 by 2012 in tandem with the countrys demographic profile. India has 21 life insurers and the state owned Life Insurance Corp. of India dominates the industry with over 60 percent market share, though private players have been growing aggressively. Considering the worlds largest population and an annual growth rate of nearly 7 per cent, India offers great opportunities for insurers. US based online insurance company ebix.com plans to enter the Indian market following deregulation of its insurance sector. Online insurer ebix.com expansion into India is a major step for the company to become a global supplier of internet-based insurance tools for consumers and insurance professionals. In a diverse country such as India it is imperative that a universal insurance infrastructure be created to maximize efficiency in the insurance industry. Online insurer ebix.com can offers the Indian market a business-to-consumer internet portal where consumers have more choice while purchasing insurance and an internet-based agency.

Foreign holding in Indian insurance companies is limited to 26 per cent. The government wants to increase the cap to 49 percent, but its communist allies oppose such a move. The market is moving beyond single-premium policies and unit linked insurance products which are easier to sell. The agency model is the dominant sales channel accounting for more than 85 per cent of fresh premiums but overall inactivity and attrition is much higher at 50-55 per cent than the global average of 25 per cent. Opportunities include health insurance and pensions, the report said; adding only 1.5-2 percent of total healthcare expenditure in India was currently covered by insurance. A life insurance policy covers ones personal self. Unlike with general insurance, it is not like insuring a vehicle. Having said that, if we consider that Indias population is over one billion and growing, we get a picture of the true potential of the life insurance sector in India. LIC has been in business for 50 years now and has not covered the entire population base yet. About 250 to 300 million Indians are still insurable. LIC has issued about 120 million policies till now, with new premium income of US$ 1 billion. Its assets have been estimated at $37 billion and in the last quarter it reported a 60 per cent growth in new business. LICs business is growing at the rate of 20 per cent every year. That is the kind of potential one is talking about in life insurance in India. It would not be wrong to say that a lot of the advantage of advertising by new private sector insurance companies has by default gone to LIC. While they have created a lot of awareness through private insurers advertisements, LIC have benefited because LIC has a much wider branch network, and buyers are surer of LIC because it has been in existence for long; they are more comfortable about its safety. Some LIC agents continue to follow the unethical practice of offering discounts from their commissions to new policy buyers; this makes a difference

LIC- AHEAD OF ALL

LIC of India has mobilized Rs 12,361 crores of new business premiums in March 07 the highest recorded by the corporation in any single month. This has enabled the corporation post new business premium of Rs 55,934 crores in 06-07, a 118% growth over the previous year. LICs premium collection in March 07 was higher than the premium collected in the whole of whole of 03-04. LICs has been the growth driver for the entire life insurance industry which grew 110.7% to Rs 75,406 crores from Rs 35,897 crores during the current financial year. The rise in premium gives LIC a market share of over 74% of the total new business premium mobilized in India, which is substantially higher than the 72% as on March 106. The rise in premium is on the back of unit-linked policies which account for nearly 70% of the total individual premium. The surge in sales in March attributed to higher sales of unit linked insurance and group insurance business. In March the corporation booked over Rs 4,826 crores in group insurance, which accounted for nearly 30% of total collections. Collection from single premium plans amount to Rs 24,927 crores, which is nearly 44% of the premium raised by the corporation during the current fiscal. Single premium plans are a demand of the market.

There are a large section of people who do not want to commit premium payments for every year. Meanwhile, the private life insurance industry has recorded a growth of 89% with total new business premium for the year standing at Rs 19,471 crores as against Rs. 10,252 crores in the corresponding period last year. ICICI Prudential continues to be the largest private life insurance player with a market share of 7% followed by Bajaj Allianz Life Insurance which has a market share of 5.7%. The companies that have recorded the fastest growth in the current year include Reliance Life Insurance, which grew 381% recording new business premium of Rs 931 crores, followed by SBI Life Insurance which grew 209% to Rs. 2,566 crores. The high growth has enabled SBI Life to move into the number three positions after Bajaj Allianz Life Insurance.

NEW JOINT VENTURE SET UPS

Canara Bank, Oriental Bank of Commerce (OBC) and HSBC Insurance (Asia-Pacific) Holdings Ltd. have signed an agreement to jointly establish a life insurance company in the country. The company has been christened Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. Canara Bank would take a 51 per cent stake in the company, while HSBC and OBC will hold 26 per cent and 23 per cent stake respectively. The new life insurance company will be capitalised at Rs 325 crores, of which Canara Bank will contribute Rs 102 crores, HSBC Rs 177 crores and OBC Rs 46 crores. Under the terms of the agreement, HSBC would provide a range of management services, which would include nominating executives for certain senior roles. While both Canara Bank and OBC offer an extensive client base, complementary distribution networks and broad local market knowledge, HSBC brings to the partnership its considerable insurance experience, product range and proven bancassurance capabilities. IRDA gave clearance to a joint venture between Kishore Biyanis Pantaloon Retail India and Italian insurance firm The Generali Group to start insurance businesses. The joint venture, Future Generali India Life Insurance Company Ltd, would transact life insurance business. Besides, it also granted approval to Future Generali India Insurance Company to transact general insurance business. Generali is one of the largest insurance groups in the world, operating in 40 countries through 107 companies. It ranks 22 in the list of Fortune 500 companies and is the largest corporation in Italy with an asset base of over 300 billion euro.

A COMPARATIVE ANALYSIS OF POTENTIAL OF LIC AND ICICI PRUDENTIAL

The potential of LIC and ICICI Prudential can be compared based on the following considerations:

(A) Total Premium:

(Rs. in Crores)

2009-10 LIC ICICI Prudential 127,822 7913

2010-11 149,789 13,561

(Source: www.licindia.in, www.iciciprulife.com)

The total premiums collected by LIC for the year ended 2009-10 were Rs. 149,789 crores as compared to that of ICICI Prudential was Rs 13,561 crores, is quite high. ICICI Prudential has collected more premiums if we compare with other private life insurers.

(B) Total Income:

(Rs. in Crores)

2009-10 LIC ICICI Prudential 174,425 16,860.48

2010-11 206,363 16,212.02

(Source: www.licindia.in, www.iciciprulife.com)

The total income of LIC for the year ended 2009-10 was RS. 206,363 crores as compared to that of ICICI Prudential which was Rs. 16,212 crores. All over Income is much more than of ICICI Prudential due to the fact that LIC being a government agency is being trusted by lot of companies and has large number of shares in big corporate.

(C) Number of Branches:

2009-10 LIC ICICI Prudential 2301 1645 2010-11 2522 1960

(Source: www.licindia.in, www.iciciprulife.com)

When the matter of total number of branches comes its very much obvious that LIC, being the oldest existing insurance company in India, has the large number of offices in the country by any single insurance company. ICICI Prudential is giving tough competition to LIC in case of number of branches with continuous expansion in their business.

(D) Market Share:

2% 2% 1% 3% 3% 3% LIC ICICI PRUDENTIAL 7% 6%

9%

64%

(Source: www.irdaindia.org)

LIC is still the market leader in insurance industry with 64 % share. But we cannot forget that in last five years market share of LIC has decreased. It was 73.9 % in year 2003-04 which came down to 64 % in 2009-10.

(E) Total Number of Policies:

2008-09 LIC
(

2009-10 51.23 million 10.23 million

30.76 million 8.12 million

ICICI Prudential

S (Source: www.licindia.in, www.iciciprulife.com)

LIC is an undoubted leader in the field of average number of policies per year in the last five years. It is seen that private insurance companies are gaining momentum and are trying to defeat LIC in case of new insurances. Main reason behind LIC having such a large number of policies is the trust of a common man. LIC being a government agency has got a faith of Indian mass. People are not yet prepared to give their savings in the hands of private players.

Thus from the above facts and figures it is seen that LIC is the clear market leader in the life insurance business while ICICI Prudential is trying to compete LIC in some

aspects of the business. Thus the potential of LIC in Indian Life Insurance Industry is comparatively more than six times higher than that of ICICI Prudential.