Comparative Study On Lic Vis-a-vis Its Competitors

Contents Abstract 3 Introduction 5

………………………………………………………….………… ……………………………………………………….…….…. About Insurance

……………………………………….…..5 Principles of Insurance ……………….

5 History of Insurance …………………....7 Types of Insurance …………………...8 Insurance Companies ……………………………..…….. 14 About Religare

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16 Their joint ventures

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17 Other Group Companies

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18 About LIC

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About RIBL …………………………..19 ……………………………………………….…21 History ………………………………..21 Nationalization ……………………….

Current Status ……………………….22 Subsidiaries ………………………….23 People ………………………………..23 Life Insurance Companies (Private) …………………….24 Objective and Methodology ………………………………………….… 25 1

Limitations Main Text 27

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………………………………………………………………..26 ……………………………………………………………….... Trends in Insurance business …………………….…27 Performance in the First Quarter (2008-09) …………..28 Paid-up Capital …………………………………………... Number of Offices ……………………………………..…29 New Policies ………………………….………………..…

30 Premium

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Market Share Expenses

………………………………………….….32 ………………………………………………….

Benefits Paid …………………………………………..…36 Investment Income …………………………………….... 36

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Profit of Life Insurers Returns to Shareholders

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Retention Ratio ……………………………………….….37 Findings and Conclusion …………………………………………….…. 38 Recommendations ………………………………………………………42 References …………….………………………………………………… 43 Questionnaire ……………………………………………………………. 44 2

ABSTRACT This study is based on a comparison between the Life Insurance Corporation of India with its competitors. The competitors are basically the private insurance companies for example- Bharti AXA, AEGON Religare, ICICI Prudential, Birla Sun Life etc. Private Players in the life insurance business are growing at a scorching pace. Within three years of their inception, they have seized about 14 percent of the market. There is another dimension to the insurance numbers game. While the private insurance companies have attained 13 to 14 percent share of the overall insurance market, their share in key metros (Mumbai and Delhi) is as high as 30 to 40 percent. Private insurance companies are essentially joint ventures with global insurance companies holding a maximum of 26 percent stake. The foreign partners are investing heavily in the Indian market and, thereby, driving sales, because they see India emerging as one of the biggest markets in the Asian region. Private players have certainly done their bit to increase the penetration levels of insurance, mainly by creating alternative distribution channels while in contrast most of the LIC policies continue to be sold through its tied agency network. The multi-channel approach adopted by private insurance companies has proved to be a boon in terms of costing and their ability to capture business. This partly explains why the LIC increased its advertising spend multifold since the insurance sector was privatized. Its ad spend more than doubled to Rs 81 crore in the fiscal 2003, against Rs 37 crore in 1999-2000, prior to the insurance industry being privatized. Of course, the private insurers sector also steadily increased their ad spend, from Rs 29 crore in fiscal 2001when the industry opened up, to Rs 92 crore the following year. In fiscal 2003, private insurers spent Rs 143 crore on advertising. According to the annual report 2007-2008, the major expense of private insurers were employee expenses at 39.08 percent; advertisement /publicity at 8.92 percent; training expenses at 5.96 percent. Employee remuneration and welfare benefits accounted for 60.75 percent of the operating expense of LIC (8309.32 crore). As the private insurers have leaner organizational structure their average worked out to be 47.93 percent as against 48.11 percent in 2006-2008. Advertisement and publicity expense of LIC accounted for 2.44 percent of the total operating expense; training expense accounted for 1.73 percent of the total operating expense. There is also a difference in the target client of the private and the LIC. While the private players are targeting the upper middle class and high net worth individuals, the 3

LIC aims for the masses through its 2048 branches spread across semi rural and rural towns. Life insurance industry recorded a premium income of Rs. 201351.41 crore during 2007-08 as against Rs. 156075.85 crore in the previous financial year. The first year premium (comprising of single premium and regular premium) amounted to Rs. 93712.52 in 2007-08 as against Rs. 75649.21 crore in 2006-07 recording a growth of 23.88 per cent as against a growth of 94.96 per cent in 2006-07. The first year premium growth in 2007-08 over a higher growth in 2006-07 has been on account of continued popularity of unit linked products. It is observed that LIC too has shifted its marketing strategy in favour of unit linked products since 2006-07 though LIC’s performance has slowed down in 2007-08. LIC reported growth of 24.17 per cent in single premium individual policies and decline of 6.48 per cent in non-single premium individual policies. As against these, private insurance companies reported growth of 39.45 per cent and 69.93 per cent in individual single and non-single policies respectively. The size of life insurance market increased on the strength of growth in the economy and concomitant increase in per capita income. This resulted in favourable growth in total premium for both LIC (17.19 per cent and private insurers (82.50 per cent) in 2007-08. Private insurers have improved their market share from 18.10 per cent in 2006-07 to 25.61 per cent in 2007-08 in the total premium collected during the year. The life industry paid gross benefits of Rs. 61780.02 crore in 2007-08 constituting 30.68 per cent of the gross premium underwritten (35.73 per cent in 2006-07). The benefits paid by the private insurers showed an increase of 111.28 per cent at Rs. 5212.24 crore, constituting 10.11 per cent of the premium underwritten (8.73 per cent in 200607). LIC paid benefits of Rs. 56567.78 crore in 2007-08, constituting 37.76 per cent of the premium underwritten (Rs. 53298.41 crore in 2006-07) constituting 41.70 per cent of the total premium underwritten. However a certain part of the market has been captured by the private players, LIC has not lost its position. LIC remains by far the largest player in the market. Among the private sector banks ICICI Prudential is the largest followed by Bajaj Allianz. It was reported that the customers resorted to LIC after the awareness about insurance increased as a result of the marketing efforts of the new players, because they were attracted by the ‘security factor’ attached with the state owned insurer.

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INTRODUCTION About Insurance Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium.

Principles of insurance Commercially insurable risks typically share seven common characteristics: 1. A large number of homogeneous exposure units. The vast majority of

insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004. The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd’s of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable. 2. Definite Loss. The event that gives rise to the loss that is subject to the insured,

at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time,

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place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements. 3. Accidental Loss. The event that constitutes the trigger of a claim should be

fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.

4. Large Loss. The size of the loss must be meaningful from the perspective of the

insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is little point in paying such costs unless the protection offered has real value to a buyer. 5. Affordable Premium. If the likelihood of an insured event is so high, or the cost

of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that anyone will buy insurance, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance.

6. Calculable Loss. There are two elements that must be at least estimable, if not

formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim. 7. Limited risk of catastrophically large losses. The essential risk is often

aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurer's appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane

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zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

History of insurance In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union). Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Chinese and Babylonian traders as long ago as the 3rd and 2nd millenia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practised by early Mediterrenean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen. Achaemenian monarchs of Iran were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.The purpose of registering 7

was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. A thousand years later, the inhabitants of Rhodes invented the concept of the ‘general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage. The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies. Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post Renaissance Europe, and specialized varieties developed. Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Edward Llyod opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Llyod’s of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance. Insurance as we know it today can be traced to the Great fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes. The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contribution for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become 8

centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners’ organization.

Types of insurance Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). 1. Business Insurance: - It can be any kind of insurance that protects

businesses against risks. Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, and (b) the business owner's policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs.

2. Auto Insurance: -Auto insurance protects you against financial loss if you

have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage: a. Property coverage pays for damage to or theft of your car. b. Liability coverage pays for your legal responsibility to others for bodily injury or property damage. c. Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses. An auto insurance policy is comprised of six different kinds of coverage. Most countries require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have requirements. Most auto policies are for six months to a year. 3. Home Insurance: - It provides compensation for damage or destruction of

a home from disasters. In some geographical areas, the standard insurances excludes certain types of disasters, such as flood and earthquakes, that require additional coverage. Maintenance-related problems are the homeowners' responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people

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who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets. 4. Health Insurance: - Health insurance policies by the National Health

Service (U.K.) or other publicly-funded health programs will cover the cost of medical treatments. Dental insurance, like medical insurance, is coverage for individuals to protect them against dental costs. In the U.S., dental insurance is often part of an employer's benefits package, along with health insurance.

5. Disability Insurance: - Disability Insurance policies provide financial

support in the event the policyholder is unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgages and credit cards. Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work. Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance. Workers’ compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a jobrelated injury. 6. Casualty Insurance: - Casualty insurance insures against accidents, not necessarily tied to any specific property. Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement. Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss. 7. Life Insurance: - Life insurance provides a monetary benefit to a

decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities 10

and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance. Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed. In many countries, such as the U.S. and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death. 8. Property Insurance: - Property insurance provides protection against risks

to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. Driving School Insurance provides cover for any authorized driver whilst undergoing tuition, cover also unlike other motor policies provides cover for instructor liability where both the pupil and driving instructor are equally liable in the event of a claim. Aviation insurance insures against hull, spares, deductibles, hull wear and liability risks. Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to equipment or machinery. Builder’s risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage due to any cause (including the negligence of the insured) not otherwise expressly excluded. Crop insurance: "Farmers use crop insurance to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease, for instance." Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowners insurance policies do not cover

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earthquake damage. Most earthquake insurance policies feature a high deductible. Rates depend on location and the probability of an earthquake, as well as the construction of the home. A fidelity bond is a form of casualty insurance that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees. Flood insurance protects against property loss due to flooding. Many insurers in the U.S. do not provide flood insurance in some portions of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort. Landlord insurance is specifically designed for people who own properties which they rent out. Most house insurance cover in the U.K will not be valid if the property is rented out therefore landlords must take out this specialist form of home insurance. Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of the cargo that may be on them. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss. Surety bond insurance is a three party insurance guaranteeing the performance of the principal. 9. Liability insurance: - It is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured. 12

Directors and officers liability insurance protects an organization (usually a corporation) from costs associated with litigation resulting from mistakes made by directors and officers for which they are liable. In the industry, it is usually called "D&O" for short. Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants. Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament. Professional liability insurance, also called professional indemnity insurance, protects insured professionals such as architectural corporation and medical practice against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called malpractice insurance. Notaries public may take out errors and omissions insurance (E&O). Other potential E&O policyholders include, for example, real estate brokers, Insurance agents, home inspectors, appraisers, and website developers. Credit insurance: It repays some or all of a loan when certain things happen to the borrower such as unemployment, disability, or death. Mortgage insurance insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name credit insurance more often is used to refer to policies that cover other kinds of debt. 10. Other Types: Collateral protection insurance or CPI, insures property (primarily vehicles) held as collateral for loans made by lending institutions. Defense Base Act Workers' compensation or DBA Insurance provides coverage for civilian workers hired by the government to perform contracts outside the U.S. and Canada. DBA is required for all U.S. citizens, U.S. residents, U.S. Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, Foreign Nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits. Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits. Financial loss insurance protects individuals and companies against various financial risks. For example, a business might purchase coverage to protect it 13

from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover the failure of a creditor to pay money it owes to the insured. This type of insurance is frequently referred to as "business interruption insurance." Fidelity bonds and surety bonds are included in this category, although these products provide a benefit to a third party (the "obligee") in the event the insured party (usually referred to as the "obligor") fails to perform its obligations under a contract with the obligee. Locked funds insurance is a little-known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorized parties. In special cases, a government may authorize its use in protecting semi-private funds which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is required. Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level. Pet insurance insures pets against accidents and illnesses - some companies cover routine/wellness care and burial, as well. Pollution Insurance, which consists of first-party coverage for contamination of insured property either by external or on-site sources. Coverage for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded. Purchase insurance is aimed at providing protection on the products people purchase. It can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy. Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction. Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, personal liabilities, etc.

Insurance companies Insurance companies may be classified into two groups:

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Life insurance companies, which sell life insurance, annuities and pensions products.

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Non-life, General, or Property/Casualty insurance companies, which sell other types of insurance.

General insurance companies can be further divided into these sub categories. •

Standard Lines

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Excess Lines

In most countries, life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature- coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year. In the United States, standard line insurance companies are "mainstream" insurers. These are the companies that typically insure autos, homes or businesses. They use pattern or "cookie-cutter" policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies. Excess line insurance companies typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers not to be available through standard licensed insurers. Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well. Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). 15

Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices. The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance. Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background: •

heavy and increasing premium costs in almost every line of coverage;

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difficulties in insuring certain types of fortuitous risk;

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differential coverage standards in various parts of the world;

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rating structures which reflect market trends rather than individual loss experience;

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insufficient credit for deductibles and/or loss control efforts.

There are also companies known as 'insurance consultants'. Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client. Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have. The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating 16

agencies, such as Best’s, Fitch, Standard & Poor’s, and Moody’s Investors Service, provide information and rate the financial viability of insurance companies.

About Religare Religare Enterprises Limited (REL), is one of the leading integrated financial services groups of India. REL’s businesses are broadly clubbed across three key verticals, the Retail, Institutional and Wealth spectrums, catering to a diverse and wide base of clients. The vision is to build Religare as a globally trusted brand in the financial services domain and present it as the ‘Investment Gateway of India’. All employees of the group guided by an experienced and professional management team are committed to providing financial care, backed by the core values of diligence and transparency. REL offers a multitude of investment options and a diverse bouquet of financial services with its pan India reach in more than 1550 locations across more than 460 cities and towns. REL also currently operates from 10 countries globally following its acquisition of London’s oldest brokerage and investment firm, Hichens, Harrison & Co. plc. With a view to expand, diversify and introduce offerings benchmarked against global best practices, Religare operates its Life Insurance business in partnership with the global major- Aegon. For its wealth management business, Religare has partnered with Australia based financial services major- Macquarie. Religare has also partnered with Vistaar Entertainment to launch India’s first SEBI approved Film Fund offering a unique alternative asset class of investments.

Their Joint Ventures

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AEGON Religare Life Insurance Company Life Insurance business (AEGON as a partner)

Religare Macquarie Wealth Management Ltd. Private Wealth business (Macquarie, Australian Financial Services major as a partner)

Vistaar Religare -The Film Fund India's first SEBI approved Film Fund (Vistaar as a partner)

Other group companies Fortis Healthcare Limited, established in 1996 was founded on the vision of creating an integrated healthcare delivery system. With 22 hospitals in India, including multispecialty & super specialty centres, the management is aggressively working towards taking this number to a significant level in the next few years to provide quality healthcare facilities and services across the nation. 18

Super Religare Laboratories Limited (formerly SRL Ranbaxy) within 11 years of inception has become the largest Pathological Laboratory network in South Asia. It started a revolution in diagnostic services in India by ushering in the most specialized technologies, backed by innovation and diligence. The current footprint extends well beyond India in the Middle East and parts of Europe.

Religare Wellness Limited (formerly Fortis Healthworld) is one of the leading players in the wellness retail space with a footprint of over 100 stores across India. The group envisages setting up a pan India world class retail network of wellness stores that would provide comprehensive solutions under one roof. Religare Technova Limited is the holding company for global IT business of the promoter group, offering Enterprise IT Solutions, Knowledge Management Solutions and software products and services. Currently with over 1500 employees and presence in over 10 countries, Religare Technova is poised to be a leader in the global IT space. Religare Voyages Limited is the holding company for the promoter group’s integrated aviation and travel businesses. The Air Charter business is one of the largest in the nonscheduled space in the country with its own top-of-the-line fleet that comprises jets, helicopters and turbo props. The travel business is duly accredited for complete management of both in-bound and out-bound domestic and international travel.

19

Vision: - To build Religare as a globally trusted brand in the financial services domain and present it as the ‘Investment Gateway of India'. Mission: - Providing complete financial care driven by the core values of diligence and transparency. Brand Essence: - Core brand essence is Diligence and Religare is driven by ethical and dynamic processes for wealth creation.

About RIBL (Religare Insurance Broking Ltd.) Religare Insurance Broking Limited (RIBL), a Religare Enterprises Limited venture is one of India's leading insurance broking firms, with one of the largest retail networks in the country. The company holds a composite broker's license operating in the Life, General and Reinsurance domains. RIBL not only provides customized solutions to individual clients but also to some of the leading corporate houses and institutions across the country. RIBL team across the country is driven by the core philosophy of creating and delivering value to its customers. Our strengths are a team of passionate professionals, a robust IT infrastructure and strong risk analysis teams adept at identifying & analyzing your risks and providing you with tailor made solutions.

Value Proposition Presence

Pan India foot print

Strong Domain Expertise

Rich domain knowledge and Industry experts

Comprehensive Management

Risk

Portfolio Expertise to meet all your Insurance needs

Flexibility

Market understanding, proactive and customer centric

Stability

Part of a large diversified Indian trans-national group with presence in over 1550 locations

20

across more than 460 cities & towns in India and globally across 10 countries. Infrastructure

Human, technical, physical presence, CRM

Quality

Best business practices and highest quality service

Strategic Partnerships

Alliance with global and national players to get you the best deals

Their Service Offerings

21

About LIC The Life Insurance Corporation of India (LIC) is the largest life insurance company in India and also the country's largest investor. It is fully owned by the government of India. It also funds close to 24.6% of the Indian Government's expenses. It was founded in 1956. Headquartered in Mumbai, which is considered the financial capital of India, the Life Insurance Corporation of India currently has 8 zonal Offices and 101 divisional offices located in different parts of India, at least 2048 branches located in different cities and towns of India along with satellite Offices attached to about some 50 Branches, and has a network of around one million and 200 thousand agents for soliciting life insurance business from the public

History The Oriental Life Insurance Company, the first corporate entity in India offering life insurance coverage, was established in Calcutta in 1818 by Bipin Behari Dasgupta and others. Europeans in India were its primary target market, and it charged Indians heftier premiums. The Bombay Mutual Life Assurance Society, formed in 1870, was the first native insurance provider. Other insurance companies established in the preindependence era included •

Bharat Insurance Company (1896)

•

United India (1906)

•

National Indian (1906)

•

National Insurance (1906)

•

Co-operative Assurance (1906)

•

Hindustan Co-operatives (1907)

•

Indian Mercantile

•

General Assurance

•

Swadeshi Life (later Bombay Life)

The LIFE INSURANCE Act and the Provident Fund Act were passed in 1912, providing the first regulatory mechanisms in the Life Insurance industry. The Indian Insurance Companies Act of 1928 authorized the government to obtain statistical information from 22

companies operating in both life and non-life insurance areas. The subsequent Insurance Act of 1938 brought stricter state control over an industry that had seen several financially unsound ventures fail. A bill was also introduced in the Legislative Assembly in 1944 to nationalize the insurance industry.

Nationalization In 1955, parliamentarian Feroze Gandhi raised the matter of insurance fraud by owners of private insurance companies. In the ensuing investigations, one of India's wealthiest businessmen, Ram Kishan Dalmia, owner of the Times of India newspaper, was sent to prison for two years. Eventually, the Parliament of India passed the Life Insurance of India Act on 19/06/1956, and the Life Insurance Corporation of India was created on 01/09/1956, by consolidating the life insurance business of 245 private life insurers and other entities offering life insurance services. Nationalization of the life insurance business in India was a result of the Industrial Policy Resolution of 1956, which had created a policy framework for extending state control over at least seventeen sectors of the economy, including the life insurance. The company began operations with 5 zonal offices, 33 divisional offices and 212 branch offices.

Current status Over its existence of around 50 years, Life Insurance Corporation of India, which commanded a monopoly of soliciting and selling life insurance in India, created huge surpluses, and contributed around 7 % of India's GDP in 2006. The Corporation, which started its business with around 300 offices, 5.6 million policies and a corpus of INR 459 million, has grown to 25000 servicing around 180 million policies and a corpus of over INR 3.4 trillion. The organization now comprises 2048 branches, 105divisional offices and 8 zonal offices, and employs over 1 million agents. It also operates in 12 other countries, primarily to cater to the needs of Non Resident Indians. With the change in the India's economic philosophy from the early 1990s, and the subsequent relaxation of state control over several sectors of the economy, the monopolistic position of the Life Insurance Corporation of India was diluted, and it has had to compete with a number of other corporate entities, Indian as well as transnational Life Insurance brands. However, it still manages to be the largest player in the Indian market, with the lion's share of 55%. The recent Economic Times Brand Equity Survey rated LIC as the No. 1 Service Brand of the Country.

23

In the financial year 2006-07 Life Insurance Corporation of India's number of policy holders are said to have crossed a whopping 200 million (fourth in terms of population of the countries of the world)

Subsidiaries LIC owns the following subsidiaries: •

Life Insurance Corporation of India International: This is a joint venture offshore company promoted by LIC which commenced operations in July, 1989 with the objectives of offering US$ denomimated policies to cater to the insurance needs of NRI’s and providing insurance services to holders of LIC policies currently residing in the Gulf. LIC International operates in all GCC countries.

•

LIC Nepal: A joint venture company formed in 2001 with the Vishal Group of Industries, Nepal.

•

LIC Lanka: A joint venture company formed in 2003 with the Bartleet Group of Companies, Sri Lanka.

•

LIC Housing Finance: Incorporated in 19 June 1989, its main objective is to provide long term finance for construction or purchase of houses or apartments. It has a Dubai office.

•

LICHFL Care Homes: A wholly owned subsidiary of LIC Housing Finance, it builds and operates "Assisted Community Living Centres" for senior citizens.

People LIC is one of the largest employers in India. The organization is headed by 4 officers, namely the Chairman and three Managing Directors. The top brass is appointed by the Government of India after an intensive selection procedure. Though the company was accused to go by mere seniority in number of years for the selection of the senior management, this has changed as seen in the case of Thomas Mathew and A. Dasgupta (Managing Directors). The Chairman assumes authority of the CEO and chairs the board while the Managing Directors are allotted the three main categories of the organization's functioning. The current Chairman, Mr. T.S. Vijayan, is particularly responsible for the major IT infrastructure turnaround that the organization has witnessed and for its advanced EDMS structure. D.K. Mehrotra manages the Marketing Units of LIC, which also happens to be one of the largest spenders on advertising in India.

24

Thomas Mathew manages the close to $187 billion investment portfolio of the company, which is the largest investor in the country. Dasgupta manages the engineering and other functions, many of which are very advanced in the Indian corporate scenario.

Life insurance companies (private) S. No.

Insurers

1

HDFC Standard Life Insurance Co. Standard Life Assurance, 2000-01 Ltd. UK

2

Max New York Life Insurance Co. New York Life, USA Ltd.

2000-01

3

ICICI Prudential Life Insurance Co. Prudential, UK Ltd.

2000-01

4

Om Kotak Life Insurance Co. Ltd.

Old Mutual, South Africa

2001-02

5

Birla Sun Life Insurance Co. Ltd.

Sun Life, Canada

2000-01

6

Tata-AIG Life Insurance Co. Ltd.

American International 2000-01 Assurance Co.

7

SBI Life Insurance Co. Ltd.

BNP Paribas SA, France

8

ING Vysya Life Insurance Co. Ltd.

ING International, Netherlands

9

Allianz Bajaj Life Insurance Co. Ltd.

Allianz, Germany

10

Metlife India Insurance Co. Ltd.

Metlife International 2001-02 Holdings Ltd., USA

11

Reliance Life Insurance Co. Ltd.

12

AVIVA

13

Sahara Life Insurance Co.Ltd.

25

Foreign partners

Year of Operatio n

Assurance 2001-02 Insurance 2001-02 B.V., 2001-02

2001-02 AVIVA International 2002-03 Holdings Ltd., UK 2004-05

14

Shriram Life Insurance Co. Ltd.

Sanlam, South Africa

2005-06

15

Bharti AXA Life Insurance Co. Ltd.

AXA Holdings, France

2006-07

16

Future Generali India Life Insurance Pantaloon Retail Ltd; Sain 2007-08 Company Ltd. Marketing Network Pvt. Ltd.; Generali, Italy

17

IDBI Fortis Life Insurance Company Fortis, Netherlands Ltd.

2007-08

18

Canara HSBC OBC Life Insurance HSBC, UK Company Ltd.

2008-09

19

DLF Pramerica Life Insurance Co. Prudential of America Ltd.

2008-09

20

Aegon Religare Company Ltd.

2008-09

Life

Insurance Religare, Netherlands

OBJECTIVE The study aims: a. To understand insurance at a very closer perspective b. To study various insurance companies (their history, their advertising budgets etc.) c. To understand customer perception regarding their preference towards LIC or private insurance companies.

METHODOLOGY The study would be carried out in two parts: a. Secondary data would be preferred to study the companies for their advertising budgets, penetration in the market etc. b. Primary data would be preferred to study the customer perception from which the conclusions would be drawn thereof. Secondary data is the data that already exists which has been collected by some other person or organization for their use, and is generally made 26

available to other researchers free or at a concessional rate. In this study it would include books, government publications, directories, internet, hard copy etc. Primary data is collected directly from respondents using data collection methods. Here in this study the data collection method which would be used is questionnaires. A questionnaire has been developed which would help to identify customer preference towards LIC or private insurers. The questionnaire includes open and closed ended questions, also likert attitude scale of measurement has been used to measure the customer preference. The customers are also being asked to rank some of the insurance companies. Before deciding on to collect the primary data there is a need to select a sample for conducting the study. The sample would consist of 75 individuals of Dehradun (simple random sample).

LIMITATIONS As fitting to every research As fitting to every research work here also there are certain limitations to the study which must be mentioned beforehand so that the reader might perceive it in those regards:Resources limited: As the study is conducted in individual groups and no additional help has been provided by the company in terms of financial support hence the best probable study is conducted in the given small resource pellets.

Geographical: The study is relevant only under the geographical inbounds of Dehradun, i.e. the urban settlements. No rural visits are scheduled for this study.

27

Time constraints: The time required to conduct the research study is a constraint as we have also to sell insurance policies so conducting the research alone becomes somewhat hectic.

Monetary constraints: As there is no stipend which is provided by the company, it does not lead to any motivation. This study is totally about meeting people, which involves moving within the city, which certainly requires money.

Errors: There are always some chances of errors creeping in such as non response errors, biased response errors etc. Some errors might also creep in during interpretation.

MAIN TEXT Private insurers vs LIC Trends in insurance business After opening of the insurance sector, unit linked insurance policies (ULIPs) have become increasingly popular. Below is the growth pattern of unit linked and non linked business.

Unit Linked Business (%) Non Linked Business (%) As reflected in the bar diagrams above it is the unit linked business which is driving the growth of premiums over the last 2-3 years. While the private players have taken the lead in this segment, LIC has also made strong strides in the sale of ULIPs during the last three years.

Performance in the first quarter 2008-09 Life insurance: The life insurers underwrote a premium of Rs.14320.20 crore during the first quarter in the current financial year as against Rs. 12511.80 crore in the 28

comparable period of last year recording a growth of14.45 per cent. Of the total premium underwritten, LIC accounted for Rs.7524.56 crore and the private insurers accounted for Rs. 6795.64 crore. The premium underwritten by LIC declined by 12.31 per cent while, that of private insurers increased by 72.88 per cent, over the corresponding period in the previous year. The number of policies written at the industry level declined by 7.78 per cent. While the number of policies written by LIC declined by 23.36 per cent, in the case of private insurers they grew by 44.00 per cent. Of the total premium underwritten, individual business accounted for Rs. 10995.90 crore and group business for Rs. 3324.30 crore. In respect of LIC, individual business was Rs. 5275.71 crore and group business was Rs. 2248.85 crore. In the case of private insurers, they were Rs. 5720.19 crore and Rs. 1075.45 crore respectively. The market share of LIC was 52.55 per cent in the total premium collection and 63.88 per cent in number of policies underwritten, lower than 68.58 per cent and 76.87 per cent respectively, reported in the previous year. Under the group scheme 56.13 lakh lives were covered recording a growth of 8.51 per cent over the previous period. Of the total lives covered under the group scheme, LIC accounted for 38.96 lakh and private insurers 12.77 lakh. The life insurers covered 12.50 lakh lives in the social sector with a premium of Rs17.10 crore and underwrote 13.53 lakh policies with a premium of Rs. 1275.78 crore in the rural sector. Non-Life Insurers: During the first quarter of the current financial year, the non-life insurers underwrote a premium of Rs. 8778.18 crore recording a growth of 17.85 per cent over Rs. 7448.74 crore underwritten in the same period of last year. The private non-life insurers witnessed higher growth of 22.43 per cent by underwriting premium to the tune of Rs. 3541.78 crore as against Rs. 2892.89 crore underwritten in the same quarter of the last year. The public non-life insurers underwrote a premium of Rs. 5236.40 crore, higher by 14.94 per cent in the first quarter of 2007-08. The market shares of public and private insurer were 59.65 and 40.35 per cent respectively. ECGC underwrote credit insurance of Rs. 164.70 crore as against Rs. 88.09 crore in the previous year resulting in a significant growth of 86.98 per cent. Segment-wise, the premium underwritten in the Fire, Marine, Motor, Health and Miscellaneous segments by the non-life insurers were Rs. 1208.15 crore, Rs. 572.99 crore, Rs. 3624.23 crore, Rs. 1772.57 crore and Rs 1600.24 crore respectively. The Health segment recorded the highest growth (49.67 per cent) in the first quarter of the current financial year over the corresponding quarter of 2007-08. The Fire segment witnessed negative growth (-13.80 per cent) over in the same period. ln terms of number of policies, Fire and Marine, recorded negative growth rates (-5.14 per cent and -4.37 per cent respectively) over the one year period. In the Motor segment, the public insurers witnessed positive growth rate (23.09 per cent) in the premium underwritten despite issuing lesser number of policies. The premium underwritten in the Motor segment in the first quarter of the current financial year was Rs. 3624.23, constituting 41.29 per cent in the total premium underwritten. The contribution from the Public and 29

Private life insurer in the Motor premium was Rs. 2151.19 crore (59.36 per cent) and Rs. 1473.04 crore (40.64 per cent) respectively. The premium collection in the Health segment went up to Rs. 1772.57 in the first quarter of the current year, constituting for 20.19 per cent in the total premium. The number of policies, issued in this quarter, as a ratio of total number of policies worked out to 12.20 per cent. The shares of public and private non-life insurers in the Health segment remained similar to the Motor segment, which constituted 58.72 per cent (Public) and 41.28 per cent (Private) respectively in the first quarter of the current financial year. In terms of number of policies issued Health segment recorded a growth of 12.95 per cent. This growth was sharper in the public insurers with 20 per cent.

Paid up Capital The total capital of the life insurers at end March 2008 stood at Rs. 12296.42 crore. The additional capital brought in by the existing private insurers during 2007-08 was Rs. 3787.01 crore and the two new entrants, brought in equity of Rs. 385 crore making the total additional capital brought in 2007-08 by the private insurers to Rs. 4172.01 crore. Of this, the domestic and the foreign joint venture partners added Rs. 3160.12 crore and Rs. 1011.88 crore respectively. PAID UP CAPITAL: LIFE INSURERS (Rs. Crore) Insurer

March 31, 2007

Additions 2007-08

during March 31, 2008

LIC

5.00

0.00

5.00

Private Sector

8119.41

4172.01

12291.42

Total

8124.41

4172.01

12296.42

There has been no infusion of capital in the case of LIC which stood at Rs.5 crore.

Number of offices By the end of March 2008, there were eighteen life insurance companies operating in India. Subsequently, Aegon Religare Life Insurance Company Ltd., Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd., DLF Pramerica Life Insurance Company Ltd. were given Certificate of Registration by the Authority. With these two new companies the total number of life insurance companies operating in India rose to 21. The number of offices of the life insurers has increased dramatically in the year 200708 from 5373 at the beginning of the year to 8913 by the end of the year, showing a growth of over 65 per cent. A major portion of this expansion was in the private sector whose offices more than doubled from 3072 to 6391. LIC’s offices increased at a more modest 10 per cent from 2301 offices to 2522. 30

LIFE INSURANCE OFFICES (AS ON MARCH 31, 2008) Insurer

2001

2002

2003

2004

2005

2006

2007

2008

Private

13

116

254

416

804

1645

3072

6391

LIC

2186

2190

2191

2196

2197

2220

2301

2522

Industry 2199 Total

2306

2445

2612

3001

3865

5373

8913

Note: Office as defined under Section 64 VC of the insurance Act, 1938

Significantly, the number of offices of private life insurers in semi-urban and smaller locations put together increased the highest, by over 140 per cent, from 1908 to 4592 in 2007-08. DISTRIBUTION OF OFFICES OF LIFE INSURERS AS ON MARCH 31, 2008 Insurer

Metro

Urban

Semiurban

Others

Total

Private

628

1169

2692

1902

6391

LIC

311

468

848

895

2522

Industry Total

939

1637

3540

2797

8913

Note: Based on HRA classification of places done by Ministry of Finance. Metro: Delhi, Mumbai, Chennai, Kolkata, Hyderabad and Bangalore Urban: A, B-1 and B-2 class cities of the HRA classification Semi-urban: C class cities of the HRA classification Others: Places not listed in the HRA classification

New Policies New policies underwritten by the industry were 508.74 lakh in 2007-08 as against 461.52 lakh during 2006-07 showing an increase of 10.23 per cent. While the private insurers exhibited a growth of 67.40 per cent, (previous year 104.64 per cent), LIC showed a decline of 1.61 per cent as against a growth of 21.01 per cent in 2006-07. NEW POLICIES ISSUED: LIFE INSURERS 31

Insurer

2006-07

2007-08

LIC

38229292 (21.01)

37612599 (-1.61)

Private Sector

7922274 (104.64)

13261558 (67.40)

Total

46151566

50874157

Note : Figure in brackets indicate growth rate (in per cent) The market shares of private insurers and LIC, in terms of number of policies underwritten, were 26.07 per cent and 73.93 per cent as against 17.17 per cent and 82.83 per cent respectively in 2006-07.

Premium Life insurance industry recorded a premium income of Rs. 201351.41 crore during 2007-08 as against Rs. 156075.85 crore in the previous financial year, recording a growth of 29.01 per cent. Regular premium, single premium, renewal premium in 200708 were Rs. 54888.16 crore (27.26 per cent); Rs. 38824.36 crore (19.28 per cent); and Rs. 107638.89 crore (153.46 per cent), respectively. The first year premium (comprising of single premium and regular premium) amounted to Rs. 93712.52 in 2007-08 as against Rs. 75649.21 crore in 2006-07 recording a growth of 23.88 per cent as against a growth of 94.96 per cent in 2006-07. The first year premium growth in 2007-08 over a higher growth in 2006-07 has been on account of continued popularity of unit linked products. It is observed that LIC too has shifted its marketing strategy in favour of unit linked products since 2006-07 though LIC’s performance has slowed down in 2007-08. While at the industry level, there has been a growth because of slow down in the premium underwritten by LIC the growth levels in 2007-08 were lower than 2006-07. LIC reported growth of 24.17 per cent in single premium individual policies and decline of 6.48 per cent in non-single premium individual policies. LIC reported a growth of 9.11 per cent in Group Single Premium. As against these, private insurance companies reported growth of 39.45 per cent and 69.93 per cent in individual single and non-single policies respectively. The growth in the number of policies underwritten in the Group Single and Non- single segments by the private insurers stood at 54 and 1 per cent respectively. A shift in the shares of first year premium and renewal premium to the total premium was observed in 2007-08. In 2007-08 renewal premium accounted for 53.46 per cent of the total premium underwritten slightly higher than 51.53 per cent in 200607. PREMIUM UNDERWRITTEN BY LIFE INSURERS (Rs. crore) Insurer

2006-07 Regular Premium

32

2007-08

LIC

29886.35 (117.70)

26222.00 (-12.26)

Private Sector

15474.83 (105.59)

28666.15 (85.84)

Total

45361.17 (113.40)

54888.16 (21.00)

Single Premium LIC

26337.22 (78.10)

33774.56 (28.24)

Private Sector

3950.82 (44.04)

5049.80 (27.82)

Total

30288.04 (72.60)

38824.36 (28.18)

First Year Premium LIC

56223.56 (97.17)

59996.57 (6.71)

Private Sector

19425.65 (89.08)

33715.95 (73.56)

Total

75649.21 (94.96)

93712.52 (23.88)

Renewal premium LIC

71599.28 (14.97)

89793.42 (25.41)

Private Sector

8827.36 (83.37)

17845.47 (102.16)

Total

80426.64 (19.87)

107638.89 (33.83)

Total Premium LIC

127822.84 (40.79)

149789.99 (17.19)

Private Sector

28253.01 (87.31)

51561.42 (82.50)

Total

156075.86 (47.38)

201351.41 (29.01)

Note:

Figure in brackets indicate the growth (in per cent)

Increase in the renewal premium is a good measure of the quality of business underwritten by the insurers. It reflects increase in persistency ratio and enables insurers to bring down the overall cost of doing business. The renewal premium underwritten by the life insurance industry, during 2007-08 grew by 33.83 per cent as against 19.87 per cent in 2006-07. Private insurers and LIC reported growth rates of 102.16 per cent and 25.41 per cent respectively during the year under review.

Market share The size of life insurance market increased on the strength of growth in the economy and concomitant increase in per capita income. This resulted in favourable growth in total premium for both LIC (17.19 per cent) and private insurers (82.50 per cent) in 2007-08. Private insurers have improved their market share from 18.10 per cent in 2006-07 to 25.61 per cent in 2007-08 in the total premium collected during the year. Segregation of the first year premium underwritten during 2007-08 indicates that Life, 33

Annuity, Pension and Health contributed 59.54, 2.75, 37.61 and 0.10 per cent respectively in the previous year. The shift in favour of pension products is visible for the third consecutive year. MARKET SHARE OF LIFE INSURERS (Per cent) Insurer LIC Private Sector Total LIC Private Sector Total LIC Private Sector Total LIC Private Sector Total LIC Private Sector Total

34

2006-07 Regular Premium 65.89 34.11 100.00 Single Premium 86.96 13.04 100.00 First Year Premium 74.32 25.68 100.00 Renewal Premium 89.02 10.98 100.00 Total Premium 81.90 18.10 100.00

2007-08 47.77 52.23 100.00 86.99 13.01 100.00 64.02 35.98 100.00 83.42 16.58 100.00 74.39 25.61 100.00

35

Expenses As against the industry average of 16.25 per cent (16.59 per cent in 2006-07), LIC incurred an expense ratio of 17.01 per cent (16.03 per cent in 2006-07) towards commission on first year premium (excluding Single Premium). For the private insurers this ratio worked out to be 15.56 per cent (17.68 per cent in 2006-07). The commissions paid by LIC towards the single premium was 1.49 per cent as against industry average of 1.43 per cent. The corresponding ratio for private insurers averaged to 1 per cent. The total commission paid bythe life insurers in 2007-08 amounted to Rs. 14704.3 crore as against Rs. 12258.99 crore in 2006-07. It was observed that commissions paid by the life insurance companies for procurement of new business has increased competition in the sector. Management expense of private insurers had stabilized in 2006-07. In 2007-08, six companies namely Bharti AXA, Aviva, ING Vysya, Reliance and new entrants- Future Generali and IDBI Fortis exceeded the prescribed limits. Out of 18 companies which underwrote business during 2007-08, 12 companies complied with the stipulations on expenses of management. However, Bharti AXA which started business in 2006-07 exceeded the prescribed limits in the year 2007-08. In the case of Future Generali, IDBI Fortis and Bharti AXA, the excess was within the norms for the life insurance industry. In the case of LIC, the expenses of management continued to be within the allowable limits.

COMMISSION EXPENSES OF LIFE INSURERS (Rs. crore) Insurer LIC Private Sector Total LIC Private Sector Total 36

2006-07 Regular 4789.74 2735.70 7525.43 Single Premium 414.05 42.51 456.57 First Year

2007-08 4459.48 4460.49 8919.97 504.33 50.65 554.98

LIC Private Sector Total LIC Private Total LIC Private Sector Total

5203.79 2778.21 7982.00 Renewal 3969.79 307.19 4276.99 Total 9173.58 3085.40 12258.99

4963.81 4511.15 9474.95 4650.89 578.46 5229.35 9614.69 5089.61 14704.3

The major expense heads for the private insurers were employee expenses at 39.08 per cent (37.93 per cent in 2006-07); advertisement and publicity at 8.92 per cent (8.89 in 2006-07); training expenses (including agents training and seminars) at 5.96 per cent (6.92 per cent in 2006-07). Employee remuneration and welfare benefits accounted for 60.75 per cent of the operating expenses of LIC in 2007-08 as against 57.49 per cent in the previous year. As the private insurers have leaner organizational structures compared to LIC their average worked out to be 47.93 per cent as against 48.11 per cent in 2006-07. Advertisement and publicity expenses of LIC accounted for 2.44 per cent of the total operating expenses (3.03 per cent in 2006-07). Training expenses in the case of LIC accounted for 1.73 per cent of the operating expenses (1.93 per cent in 2006-07). OPERATING EXPENSES OF LIFE INSURERS (Rs. crore) Insurer LIC Private Sector Total

2006-07 7085.84 6500.01 13585.85

2007-08 8309.32 12032.46 20341.78

Operating expenses as a per cent of gross premium underwritten for the private insurers worked out to 23.34 more or less at the same level as in 2006-07. In the case of LIC, operating expenses constituted 5.55 per cent of the gross premium underwritten in 2007-08 same as in 2006-07.

Benefits Paid 37

The life industry paid gross benefits of Rs. 61780.02 crore in 2007-08 (Rs. 55765.35 crore in 2006-07)constituting 30.68 per cent of the gross premium underwritten (35.73 per cent in 2006-07). The benefits paid by the private insurers showed an increase of 111.28 per cent at Rs. 5212.24 crore (Rs. 2466.94 crore in 2006-07), constituting 10.11 per cent of the premium underwritten (8.73 per cent in 2006-07). LIC paid benefits of Rs. 56567.78 crore in 2007-08, constituting 37.76 per cent of the premium underwritten (Rs. 53298.41 crore in 2006-07) constituting 41.70 per cent of the total premium underwritten. The benefits paid by the life insurers net of re-insurance were Rs. 61687.77 crore (Rs. 55715.01 crore in 2006-07). There has been a significant increase in the benefits paid on account of surrenders/withdrawals amounting to Rs. 21677.25 crore as against Rs. 17690.32 crore in 2006-07.

Investment income In the case of LIC, the investment income including capital gains was higher at Rs. 56595.06 crore in 2007-08 compared to Rs. 46784.71 crore in 2006-07. As a percentage of total income, it increased to 37.78 per cent in2007-08 from a decline of 36.6 per cent in 2006-07. The investment income of the private insurers, inclusive of capital gains, was Rs. 6602.62 crore in 2007-08 as against Rs. 2478.48 crore in 200607. The share of investment income in the total income for the private life insurers increased to 23.37 per cent in 2007-08 (4.81 per cent in 2006-07).

Profits of life insurers In 2007-08, four of the private sector companies reported net profits. SBI Life insurance company was the first private company to report net profit of Rs. 2.02 crore in 2005-06. It reported higher net profit of Rs. 3.83 crore in 2006-07 and further increased its net profit level to Rs. 34.38 crore in 2007-08. The company has succeeded in achieving an early break even on account of its lower cost of operations due to the large network of its Indian partner, the State Bank of India. However, the insurer still continues to report a deficit in the Revenue Account. Shriram Life, which commenced operations in February, 2006, too reported net profit for the third successive year of operations. However, it reported a lower net profit of Rs. 5.58 crore in 2007-08 as against Rs. 9.5 crore in 2006-07. With the total premium underwritten at Rs. 184.16 crore, the company’s operations have, however still to take off in a significant manner. In 2007-08, Metlife and Sahara life have reported net profits of Rs. 21.25 crore and Rs. 3.34 crore respectively. As against net loss of Rs. 11.96 crore in 2006-07, Metlife reported net profit of 21.25 crore in 2007-08. The company has reported profits by carrying deficit of Rs. 488 crore in the revenue account. Sahara Life has reported maiden net profits in 2007-08 at Rs. 3.34 crore, against net loss of Rs. 51.44 lakh in 2006-07. All the private insurance companies reported deficit in their respective Revenue Accounts in 2007-08. Some of these companies reported surpluses in some segments of their business in 2006-07. The deficits in Revenue account necessitated injection of further capital by the shareholders (except for Shriram Life). 38

Returns to shareholders During 2007-08, the net losses reported by the private insurers stood at Rs.4324.52 crore (Rs. 1950.12 crore in 2006-07). The net profits in the Profit & Loss account of the five insurers, including LIC, stood at Rs. 909.19 crore (Rs. 786.95 crore in 2006-07). The continued financial support through equity injections reflected the promoters’ commitment towards stabilizing the respective insurer’s operations. DIVIDEND PAID: LIFE INSURERS (Rs. crore) Insurer

2006-07

2007-08

LIC

757.81

829.59

Private Sector

-

-

Total

757.81

829.59

LIC continued to report surplus in the Policyholders’ Account (Revenue Account in 2007-08). Surplus in the said account, adjusted for interim bonus and allocation of bonus to policyholders was Rs. 829.59 crore as against Rs. 757.81 crore in 2006-07. LIC transferred Rs. 829.59 crore to the Government of India (Rs. 757.81 crore in 200607) complying with the provisions of Section 28 of the LIC Act, 1956.

Retention Ratio LIC traditionally re-insures a small component of its business. During 2007-08, Rs. 87.95 crore was ceded as re-insurance premium (Rs. 41.67 crore in 2006-07). Similarly, in the case of private insurers, a small component of the business was re-insured, with group business forming the major component of the re-insurance cessions. The private insurers together ceded Rs. 231.23 crore (Rs. 160.05 crore in 2006-07) as premium towards re-insurance.

FINDINGS AND CONCLUSION A sample consisting of 75 respondents was taken randomly. It included individuals of almost all age groups. These respondents were given a questionnaire to be filled by them and on the basis of that questionnaire some findings were drawn out. Below is the percentage of likelihood for various companies based on the perception in the mind of customer.

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Now, based on the perception of the customer about various companies a pie chart can be drawn out which would show the likeliness/preference of the customer for a company while choosing his/her insurance policy.

The pie chart clearly indicates that the customers prefer LIC as their insurance provider followed by SBI Life, ICICI Prudential, MAX New York, Bajaj Allianz, Birla Sun Life, TATA AIG,HDFC Standard Life, Bharti AXA, AEGON Religare. The lowest preference is for Aegon Religare as most of the people do not know much about it. There might be another reason to it that as Aegon Religare has just entered the insurance industry most of the customer are not aware of it. Another dimension mentioned in the questionnaire were the factors that influence an individual while selecting an insurance policy. These factors were Rate of Return, Tax Benefit, Flexibility, Services Provided, Risk cover, Charges and Goodwill. These factors 40

have been reflected in the pie chart below with their respective percentage based on the perception of the customer.

From the pie diagram it may be concluded that most of the people prefer LIC because of its goodwill (17%). LIC is in the market since several years (1956) and has created a good position in the minds of the customers. However, as we know that the rate of return offered by LIC in its policies is much lower as compared to the private life insurers, yet the customers go for LIC as they consider it to be more safe and has less risk. It is because of the rate of return, services provided, lower charges that the private insurers are able to snatch a certain portion of market of LIC. The market share of LIC and Private insurers in 2006-07 was 81.9% and 18.10%, however, because of the advertisements, higher rate of return, high flexibility, lower charges their market share in 2007-08 increased to 25.61% whereas that of LIC lowered to 74.39%. Despite the fact that some portion of the market has been overtaken by private insurers, LIC continues to be a market leader and bears goodwill in the minds of the customers.

RECOMMENDATIONS As we are undergoing training in Religare, it becomes important for us to recommend something good for the company itself. Religare entered the insurance industry in 2008-09 with global major Aegon as its partner. However, with Aegon as its partner it has failed to enhance its image in the eyes of the customer. Most of the people still do not know about the company. The company’s management hasn’t made efforts to build the company’s image.

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The people of Dehradun were astonished to hear that Aegon Religare is an insurance company. The results shown above prove this statement. As mentioned above, simple random sampling was done and 75 respondents perspective was collected. On the basis of that perspective Aegon Religare has 3.63% share in the minds of the customers. This clearly shows the management’s leanness in projecting the company as another insurance company.

Personal experience: - while the respondents were filling the questionnaire they were asked as to whether they knew about Aegon Religare and to my astonishment they responded “WHICH COMPANY IS IT? / IS IT ALSO AN INSURANCE COMPANY?” . it was such a shame on my side that the company I was working with was never heard of.

So it is strongly recommended on my part that the company should resort to advertising, launch exciting policies, organize trade fairs, sporting events etc. One thing that I would like to clarify is that nowadays IPL is going on and to my surprise not a single ad of Aegon Religare was shown. As we know that when a company is new in the market it should spend a considerable amount on advertisement to create awareness in the minds of customers. Not many people know that Irfan Khan is the brand ambassador of Aegon Religare.

REFERENCES Websites:• www.licindia.com • www.wikipedia.org • www.icallinsurance.com • www.bimaonline.com 42

• www.irdaindia.org • http://www.religareinsurance.com • www.censusofindia.org Books:• Insurance Fundamentals, Environment and Procedures by B S Bodla, M C Garg, K P Singh. •

Life insurance and General Insurance from ICMR.

Others:• T.S. Ramakrishna Rau, Insurance Chronicle, January 2009 • Endowment plans now, Business India, March 2009 • Niraj Bajaj , ‘insuring a bright future’ ,business India, April2008 •

Articles related to insurance from various news papers like The Times of India, The Hindu, Economic Times, Business Standard etc.

• ICMR books on Financial Management and Business Research Methods. • IRDA Journal

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