A

PROJECT SYNOPSIS

ON

A STUDY ON ANALYSIS OF THE INSURANCE INDUSTRY IN INDIA

AT

APEX INSURANCE BROKING SERVICES PVT. LTD.

SUBMITTED BY

G. ALEKYA

1175-23-672- 076

DEPARTMENT OF BUSINESS MANAGEMENT

SAROJINI NAIDU VANITHA MAHA VIDHALAYA
(AFFILIATED TO OSMANIA UNIVERSITY)
EXHIBITION GROUNDS, NAMPALLY
HYDERABAD - 500001
(2023-2025)
 DECLARATION

I, G. ALEKYA hereby declare that this project synopsis titled " ANALYSIS OF THE

INSURANCE INDUSTRY IN INDIA” in “APEX INSURANCE BROKING SERVICES PVT.

LTD.” submitted by me to the Department of Business Management, Osmania University, is a

Bonafede work undertaken by me and it is not submitted to any other University of Institution for

the award of any degree/diploma/certificate or published any time before.

G. ALEKYA
1175-23-672-076 Signature of the Student
 CERTIFICATE

This is to certify that GYARA. ALEKYA (H.T.NO. 1175-23-672-076) is a bonafide student of this

college for the academic years 2023-2025. She has submitted the project synopsis titled “A STUDY

ON ANALYSIS OF INSURANCE INDUSTRY IN INDIA” undertaken at “ APEX

INSURANCE BROKING SERVICES PVT. LTD.”

GUIDE DIRECTOR
 Index

Chapter 1

 INTRODUCTION
 EVOLUTION OF INSURANCE INDUSTRY
 INDUSTRY PROFILE
 NEED OF STUDY
 OBJECTIVES OF STUDY
 RESEARCH METHODOLOGY
Chapter 2
 PROFILE OF INSURANCE COMPANIES IN INDIA
 LIC VS PRIVATE PLAYERS

Chapter 3

 STRATEGIC ANALYSIS
 KEY FACTORS FOR FUTURE SUCCESS
 PORTER’S FIVE FORCES MODEL
 PEST ANALYSIS
 SWOT ANALYSIS

Chapter 4

 FINANCIAL ANALYSIS
 RATIO ANALYSIS
 BALANCE SHEET

Chapter 5

 CONCLUSIONS

Chapter 6
 BIBLOGRAPHY

4
CHAPTER – 1:

 INTRIDUCTION
 INDUSTRY PROFILE
 NEED OF STUDY
 OBJECTIVES OF STUDY

5
INTRODUCTION TO THE STUDY

Everyone is exposed to various risks. Future is very uncertain, but there is way to protect
one’s family and make one’s children’s future safe. Insurance industry in indiacompanies
help us to ensure that our family’s future is not just secure but also prosperous.

Insurance industry in indiais particularly important if you are the sole breadwinner for your
family. The loss of you and your income could devastate your family. Insurance industry
in indiawill ensure that if anything happens to you, your loved ones will be able to
manage financially.

This study titled “Study of Consumers Perception about Insurance industry in indiaPolicies”
enables the Insurance industry in indiaCompanies to understand how consumer’s
perception differs from person to person. How a consumer selects, organizes and
interprets the service quality and the product quality of different Insurance industry in
indiaPolicies, offered by various Insurance industry in indiaCompanies.

Insurance is a tool by which fatalities of a small number are compensated out of

funds (premium payment) collected from plenteous. Insurance companies pay back for
financial losses arising out of occurrence of insured events e.g. in personal accident
policy death due to accident, in fire policy the insured events are fire and other allied
perils like riot and strike, explosion etc. hence insurance safeguard against uncertainties.
It provides financial recompense for losses suffered due to incident of unanticipated
events, insured with in policy of insurance. Moreover, through a number of acts of
parliament, specific types of insurance are legally enforced in our country e.g. third party
insurance under motor vehicles Act, public liability insurance for handlers of hazardous
substances under environment protection Act. Etc.

WHAT IS INSURANCE
It is a commonly acknowledged phenomenon that there are countless risks in every sphere of
life .for property, there are fire risk; for shipment of goods. There are perils of sea; for

6
human life there are risk of death or disability; and so on .the chances of occurrences of
the events causing losses are quite uncertain because these may or may not take place.
Therefore, with this view in mind, people facing common risks come

7
together and make their small contribution to the common fund. While it may not be
possible to tell in advance, which person will suffer the losses, it is possible to work out
how many persons on an average out of the group, may suffer losses. When risk occurs,
the loss is made good out of the common fund .in this way each and every one shares the
risk .in fact they share the loss by payment of premium, which is calculated on the
likelihood of loss .in olden time, the contribution make the above-stated notion of
insurance

DEFINITION OF INSURANCE
Insurance has been defined to be that in, which a sum of money as a premium is
paid by the insured in consideration of the insurer’s bearings the risk of paying a large
sum upon a given contingency. The insurance thus is a contract whereby:

a. Certain sum, termed as premium, is charged in consideration,

b. Against the said consideration, a large amount is guaranteed to

be paid by the insurer who received the premium,
c. The compensation will be made in certain definite sum, i.e., the
loss or the policy amount which ever may be, and
d. The payment is made only upon a contingency

More specifically, insurance may be defined as a contact between two parties, wherein
one party (the insurer) agrees to pay to the other party (the insured) or the beneficiary, a
certain sum upon a given contingency (the risk) against which insurance is required.

TYPES OF INSURANCE
Insurance occupies an important place in the modern world because of the
risk, which can be insured, in number and extent owing to the growing
complexity of present day economic system. The different type of insurance
have come about by practice within insurance companies, and by the
influence of legislation controlling the transacting of insurance business,
broadly, insurance may be classified into the following categories:

8
1. Classification from business point of view
a) Life insurance, and
b) General insurance

9
 2. Classification on the basis of nature of insurance

a) Life insurance
b) Fire insurance
c) Marine insurance
d) Social insurance, and
e) Miscellaneous insurance

3. Classification from risk point of view

a) Personal insurance
b) Property insurance
c) Liability insurance
d) Fidelity general insurance

THE IMPORTANCE OF INSURANCE

Insurance benefits society by allowing individuals to share the risks faced by many
people. But it also serves many other important economic and societal functions. Because
insurance is available and affordable, banks can make loans with the assurance that the
loan’s collateral (property that can be taken as payment if a loan goes unpaid) is covered
against damage. This increased availability of credit helps people buy homes and cars.
Insurance also provides the capital that communities need to quickly rebuild and recover
economically from natural disasters, such as tornadoes or hurricanes.

Insurance itself has become a significant economic force in most industrialized

countries. Employers buy insurance to cover their employees against work-related
injuries and health problems. Businesses also insure their property, including technology
used in production, against damage and theft. Because it makes business operations safer,
insurance encourages businesses to make economic transactions, which benefits the
economies of countries. In addition, millions of people work for insurance companies and
related businesses. In 1996 more than 2.4 million people worked in the insurance industry
10
in the United States and Canada. Insurance as an investment that offers a lot more in
terms of returns, risk cover & as also that tax concessions & added bonuses

11
Not all effects of insurance are positive ones. The possibility of earning insurance
payments motivates some people to attempt to cause damage or losses. Without the
possibility of collecting insurance benefits, for instance, no one would think of arson, the
willful destruction of property by fire, as a potential source of money.

THE INSURANCE INDUSTRY TODAY

Since the 1970s, the insurance business has grown dramatically and undergone
tremendous changes. As a result of the deregulation of financial services businesses—
including insurance, banking, and securities trading—the roles, products, and services of
these formerly distinct businesses have become blurred. For instance, citizens in the U.S.
state of California voted in 1988 to allow banks to sell insurance in that state. In Canada,
banks may also soon be allowed to sell insurance.

Advances in communications technology have also allowed traditionally

distinct financial businesses to keep instantaneous track of developments in other
businesses and compete for some of the same customers. Some insurance companies now
offer deposit accounts and mortgages. In the United States, Insurance industry in india
companies now sell more pension plans and other asset management services than they
do conventional life insurance.
Developments in computer technology that have given insurance providers
the ability to quickly access and process information have allowed them to custom-design
policies to fit the needs of individual customers. But the increasing complexity of policies
has also made some aspects of buying and selling insurance more difficult.
In addition, improvements in geological and meteorological technology have the
potential to change the way property insurers calculate risks of damage. For example, as
scientists improve their abilities to predict severe weather patterns, such as hurricanes,
and geological disturbances, such as earthquakes, insurers may change how they provide
protection against losses from such events.

EVOLUTION OF INSURANCE IN INDIA

12
 The marine insurance is the oldest form of insurance. If we trace
Indian history there are evidence that marine insurance was practiced here
about three thousand years ago. The code of Manu indicates that there was the
practice of marine insurance carried out by the traders in India with those of
Srilanka, Egypt and Greece .it is wonderful to see that Indians had even
anticipated the doctrine of average and contribution. Fright was fixed
according to season and was then very much at the mercy of the wind and
other elements. Travelers by sea and land were very much exposed to the risk
of losing their vessels and merchandise because of piracy on open seas and
highway robbery of caravans was very common. The practice of insurance
was very common during the rule of Akbar to Aurangzeb, but the nature and
coverage of the insurance in this period is not well known. It was the British
insurer who introduced general insurance in India in the modern form. The
Britishers opened general insurance in India around the year 1700 .the first
company known as the sun insurance office was set up in Calcutta in the year
1710. This was followed by several insurance companies like London
assurance and royal exchange assurance (1720), Phoenix Assurance Company
(1782). Etc. General insurance business in the country was nationalized with
effect from 1st January 1973 by the General Insurance Business
(Nationalization) Act, 1972. More than 100 non-Insurance industry in india
companies including branches of foreign companies operating within the
country were amalgamated and grouped into four companies, viz., the
National Insurance Company Ltd., the New India Assurance Company Ltd.,
the Oriental Insurance Company Ltd., and the United India Insurance
Company Ltd. with head offices at Calcutta, Bombay, New Delhi and Madras,
respectively.
Insurance industry in india in the current form came in India

13
from united kingdom with the establishment of a British firm, oriental life
assurance company in 1818 followed by Bombay life assurance company in
1823, the madras equitable Insurance industry in indiasociety in 1829 and
oriental life assurance company in 1874.prior to 1871, Indian lives were
treated as sub standard and charged an extra premium of 15% to 20%.
Bombay mutual life assurance society, an Indian insurer that came in to
existence in 1871, was the first to cover Indian lives at normal rates. The
Indian insurance company Act 1923 was enacted inter alia, to enable the
government to collect statistical information about life and non-

14
Insurance industry in indiabusiness transacted in India by Indian and foreign insurer, including
the provident insurance societies.
The first half of the 20th century marked by two world war, the adverse affects
of the World War I and World War II on the economy of India, and in between them the
period of worldwide economic crises triggered by the Great depression. The first half of
the 20th century was also marked by struggles for India’s independence. The aggregate
effect of these events led to a high rate of bankruptcies and liquidation of life insurance
companies in India. This had adversely affected the faith of the general public in the
utility of obtaining life cover

In this background, the Parliament of India passed the Life Insurance of India Act on 19th
June 1956, and the Insurance industry in indiaCorporation of India was created on 1st
September, 1956, by consolidating the Insurance industry in indiabusiness of 245 private
life insurers and other entities offering Insurance industry in indiaservices

Since 1972, the insurance sector has been totally under the control of
government of India through LIC and GIC and its subsidiaries. As a result, revenue of
both of them increased in the last years .the amount of savings pooled by LIC increased
from Rs.2704 crores in 1974 to Rs .57670 in 1994 with an annual growth rate of 16.53%
.similarly premium underwritten by GIC rose from 280 crores in 193 to 7647 crores in
1998 showing an annual growth rate of 25.18%.

Despite increase in premium collected by both LIC and GIC their were inefficiency

and red tapeisum creeped in to the insurance sector. Apart from that a major policy shift
by the Narasimha Rau government during 1990’s.the Indian economy opened for foreign
competition .In this background The government of India in 1993 had set-up a high
powered committee by R.N Malhothra ,former governor reserve bank of India, to
examine the structure of Indian insurance sector and recommended changes to make it
more efficient and competitive keeping in view structural changes in other part of the
financial system of the country.
Insurance sector has been opened up for competition from Indian private insurance
companies with the enactment of Insurance Regulatory and Development Authority Act,

15
1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and
Development Authority (IRDA) was established on 19th April 2000 to protect the

16
interests of holder of insurance policy and to regulate, promote and ensure orderly growth
of the insurance industry. IRDA Act 1999 paved the way for the entry of private players
into the insurance market, which was hitherto the exclusive privilege of public sector
insurance companies/ corporations.

EVOLUTION OF INSURANCE ORGANIZATION

With a view to serve the society, the insurance organizations have been developed
in different forms with innovation of insurance practice for social welfare and
development; some of these forms are outlined here.

a) Self-insurance
The arrangement in which an individual or concern sets up a private fund to meet
the future risk. If some losses happened in the future the firm meets the loss out of the
fund. While it may be called ‘self insurance’ it is not a single matter of fact, insurance at
all because there is no hedge, no shifting, or distributing the burden of risk among larger
Persons. It is merely a provision to meeting the unforeseen event. Here the insured
become the insurer for the particular risk. But it can be effectively worked only when
there is wide distribution of risks subjected the same hazard.

b) Partnership
A partnership firm may also carry on the insurance business for the sake of profit. Since
it is not an entity distinct from the persons comprising it, the personal liability of partners
in respect to the partnership debts is unlimited. In case of huge loss the partners may have
to pay from their own personal funds and it will not be profitable to them to starts
insurance business .in the early period before the advent of joint stock companies many
insurance undertakings were partnership firms or unincorporated companies

c) Joint stock companies

The joint stock companies are those, which are organized by the shareholders who
subscribe the necessary capital to start the business. These are formed for earning profits
17
for the stockholders who are the real owners of the companies. The management of a

18
company is entrusted to a board of directors who is elected by the shareholders from
amongst themselves. The company can operate insurance business and policyholders
have nothing to do with the management of the concern. But in Insurance industry in
indiait is the practice to share certain portion of profit among the certain policyholders.

d) Mutual fund companies

The mutual fund companies are co- operative association formed for the
purpose of effecting insurance on the property of its members. The policyholders are
themselves the shareholders of the companies each member is insured as well as insured.
They have power to participate in management and in the profit sharing to the full extent.
Whenever the income is more than the expenses and claims, it is accumulated I the form
of saving and is entitled in reducing the rate of premium. Since the insured are insurers
also, they always try to reduce the management expenses and to keep the business at
sound level.

e) Co-operative insurance organizations

Cooperative insurance organizations are those concerns, which are
incorporated and registered under Indian cooperative societies Act. The concerns are also
called ‘co operative insurance societies’ these societies like mutual fund companies are
non profit organization .the aim is to provide insurance protection to its members at the
lowest reasonable net cost .the Indian insurance Act. 1938, has provided special
provisions for the co-operative insurance societies, but after nationalization the societies
have ceased to exist.

f) Lloyd’s Association

Lloyd’s association is one of the greatest insurance institutions in the world.

Taking its name from the coffee house Lloyd where underwriters assembled to transact
business and pick-up news. The organization traces its origins to the latter part of the
seventeenth century .so it is the oldest insurance organization in existing form in the

19
world. In 1871,Lloyds Act was passed incorporating the members of the association into
a single corporate body with perpetual succession and a corporate seal .the powers of

20
Lloyds corporation were extended from the business of marine insurance to the other
insurance and guarantee business. The Lloyds Association also publishes, Lloyds list and
register of shipping for the information of insuring public and the insurers

g) State Insurance
The government of a nation, some times, owns the insurance and runs the
business for the benefit of the public. The sate insurance is defined as that insurance
which is under public sector. In Brazil, Japan and Mexico, the insurance are largely
nationalized. Previously, the state undertook only those insurances, which were regarded
as vital for the national interest.

INSURANCE SECTOR REFORMS

Having looked at the insurance sector, the efforts made by the government to
make the industry more dynamic and customer friendly. To begin with, the Malhotra
committee was set up with the objective of suggesting changes that would achieve the
much required dynamism.

The Malhotra Committee Report

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI

Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and
recommend its future direction. In 1994, the committee submitted the report and gave the
following recommendations:

Structure
Government stake in the insurance Companies to be brought down to 50%
Government should take over the holdings of GIC and its subsidiaries so that these
subsidiaries can act as independent corporations
All the insurance companies should be given greater freedom to operate

21
Competition

22
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter
the industry
No Company should deal in both Life and General Insurance through a single entity
Foreign companies may be allowed to enter the industry in collaboration with the
domestic companies.
Postal Insurance industry in indiashould be allowed to operate in the rural market.
Only one State Level Insurance industry in indiaCompany should be allowed to operate in each
stat
Regulatory Body
The Insurance Act should be changed.
An Insurance Regulatory body should be set up.
Controller of Insurance (Currently a part from the Finance Ministry)
Investments
Mandatory Investments of LIC Life Fund in government securities to be reduced from
75% to 50%.
GIC and its subsidiaries are not to hold more than 5% in any company (There current
holdings to be brought down to this level over a period of time).
Customer Service
LIC should pay interest on delays in payments beyond 30 days.
Insurance companies must be encouraged to set up unit linked pension plans.
Computerization of operations and updating of technology to be carried out in the
insurance industry.
Overall, the committee strongly felt that in order to improve the customer services and
increase the coverage of the insurance industry should be opened up to competition.

But at the same time, the committee felt the need to exercise caution as any failure on the
part of new players could ruin the public confidence in the industry

Few Insurance industry in indiapolicies are:

Whole life policies - Cover the insured for life. The insured does not receive
money while he is alive; the nominee receives the sum assured plus bonus upon death of
the insured.

23
 Endowment policies - Cover the insured for a specific period. The insured receives
money on survival of the term and is not covered thereafter.

Money back policies - The nominee receives money immediately on death of the
insured. On survival the insured receives money at regular intervals during the term.
These policies cost more than endowment with profit policies.

Annuities / Children's policies - The nominee receives a guaranteed amount of

money at a pre-determined time and not immediately on death of the insured. On survival
the insured receives money at the same pre-determined time. These policies are best
suited for planning children's future education and marriage costs.

Pension schemes - are policies that provide benefits to the insured only upon
retirement. If the insured dies during the term of the policy, his nominee would receive
the benefits either as a lump sum or as a pension every month. Since a single policy
cannot meet all the insurance objectives, one should have a portfolio of policies covering
all the needs

1.2 BACKGROUND OF THE STUDY

“Insurance industry in indiais a contract for payment of a sum of money to the person
assured on the happening of the event insured against”. Usually the insurance contract
provides for the payment of an amount on the date of maturity or at specified dates at
periodic intervals or at unfortunate death if it occurs earlier. Obviously, there is a price to
be paid for this benefit. Among other things the contracts also provides for the payment
of premiums, by the assured.
Insurance industry in indiais universally acknowledged as a tool to eliminate risk,
substitute certainty for uncertainty and ensure timely aid for the family in the unfortunate
event of the death of the breadwinner. In other words, it is the civilized world’s partial
solution to the problems caused by death. Insurance industry in indiahelps in two ways
dealing with premature death, which leaves dependent families to fend for themselves
24
and old age without visible means of support.

25
The most common types of Insurance industry in indiaare whole Insurance industry in
indiaand term life insurance. Whole Insurance industry in indiaprovides a lifetime of
protection as long as you pay the premiums to keep the policy active. They also accrue a
cash value and thus offer a savings component. Term Insurance industry in indiaprovides
protection only during the term of the policy and the policies are usually renewable at the
end of the term

There are many Insurance industry in indiaCompanies like

INSURANCE INDUSTRY IN INDIACORPORATION OF INDIA

BAJAJ ALLIANZ INSURANCE INDUSTRY IN INDIACOMPANY

ICICI PRUDENTIAL INSURANCE INDUSTRY IN INDIACOMPANY

HDFC STANDARD INSURANCE INDUSTRY IN INDIACOMPANY

BIRLA SUN-INSURANCE INDUSTRY IN INDIACOMPANY

ING VYSYA INSURANCE INDUSTRY IN INDIACOMPANY

METINSURANCE INDUSTRY IN INDIACOMPANY

TATA AIG INSURANCE INDUSTRY IN INDIACOMPANY

MAX NEW YORK INSURANCE INDUSTRY IN INDIACOMPANY

OM KOTAK MAHINDRA INSURANCE INDUSTRY IN INDIACOMPANY

1.3 INDUSTRY PROFILE

History and Development of Life Insurance

Life Insurance, in its present form, came to India from the United Kingdom with
establishment of a British firm, Oriental Insurance industry in indiaCompany in Calcutta
in 1818, followed by Bombay Life Assurance Company in 1823, the Madras Equitable
26
Insurance industry in indiasociety in 1829 and Oriental Government security Assurance
Company in 1874. Prior to 1871, Indian Lives were treated as sub-standard and
charged an extra

27
premium of 15% to 20%. Bombay Mutual Life Assurance Society, a Indian insurer which
came into existence in 1871 was the first to cover Indian lives at normal rates.

The Indian life Assurance Companies Act, 1912 was the first statutory measure to
regulate Insurance industry in indiabusiness. Later, in 1928, the Indian Insurance
Companies Act was enacted, to enable the government to collect statistical information
about both life and non-Insurance industry in indiabusiness transacted in India by Indian
and foreign insurers, including the provident insurance societies. Comprehensive
arrangements were, however, brought into effect with the enactment of the Insurance Act,
1938.

By 1956, 154 Indian insurers, 16 non-Indian insurers and 15 provident societies were
carrying online insurance business in India. On 19th January 1956, the management of the
entire Insurance industry in indiabusiness of 229 Indian insurers and provident insurance
societies and the Indian Insurance industry in indiabusiness of 16 non-Indian Insurance
industry in indiacompanies then operating in India, was taken over by the central
Government and then nationalized on 1st September 1956 when the Insurance industry in
indiaCorporation came into existence.

With largest number of Insurance industry in indiapolicies in force in the world,

Insurance happens to be a mega opportunity in India. It’s a business growing at the rate
of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with
banking services, it adds about 7 per cent to the country’s GDP. Gross premium
collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8
per cent of GDP.

Yet, nearly 80 per cent of Indian population is without Insurance industry in

indiacover while health insurance and non-Insurance industry in indiacontinues to be
below international standards. And this part of the population is also subject to weak
social security and pension systems with hardly any old age income security. This itself
is an indicator that growth potential for the insurance sector is immense.
28
 A well-developed and evolved insurance sector is needed for economic
development as it provides long-term funds for infrastructure development and at the
same time strengthens the risk taking ability. It is estimated that over the next ten years
India would require investments of the order of one trillion US dollar. The Insurance

29
sector, to some extent, can enable investments in infrastructure development to sustain
economic growth of the country.

INSURANCE AND BUSINESS ENVIRONMENT

Insurance is considered as one of the important segment of the economy for its growth
and development. This industry provides long term funds which are essential for the
growth and development of the nation .so the growth of insurance industry largely
depends up on the environment in which they exists. Here I would like to mention about
Indian business environment and their impact on insurance sector. There are two type of
environment which affect the business one is environment which is internal to the
organization (internal environment) and the other one which is external to the
organization (external environment). Internal environment includes management,
technology, competitors, employees, shareholders, policyholders, marketing intermediary
etc. The external environment of insurance business has been classified in four parts,
namely legal, economic, financial, and commercial. let us discus them in detail by taking
one by one.

THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)

The Malhotra Committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to act as independent
companies with economic motives. For this purpose, it had proposed setting up an
independent regulatory body- The Insurance Regulatory and Development Authority.
Based on the Malhotra committee report in April 2000 IRDA was incorporated. Since
being set up as an independent statutory body the IRDA has put in a framework of
globally compatible regulations. Section 14 of the IRDA Act 1999, lays the duties, power
and functions of the authority .the authority shall have the duty to regulate, promote and
ensure orderly growth of the insurance business and reinsurance business.

Reforms and Implications

30
The liberalizations of the Indian insurance sector has been the subject of much heated
debate for some years. The sector is finally set to open up to private competition. The

31
Insurance Regulatory and Development Authority bill will clear the way for private entry
into insurance, as the government is keen to invite private sector participation into
insurance. To address those concerns, the bill requires direct insurers to have a minimum
paid-up capital of Rest. 1 billion, to invest policyholder’s funds only in India; and to
restrict international companies to a minority equity holding of 26 percent in any new
company. Indian Promoters will also have to dilute their equity holding to 26 percent
over a 10-year period.
Over the past three year, around 30 companies have expressed interest in entering the
sector and many foreign and Indian companies have arranged alliances. Whether the
insurer is old or new, private or public, expanding the market will present challenges. A
number of foreign Insurance Companies have set up representative offices in India and
have also tied up with various asset management companies. Some of the Indian
companies, which have tied up with International partners, are.

Indian Partners International Partners

Bombay Dyeing General Accident, UK
Tata American Int. Group, US
Dabur Group Liberty Mutual Fund, US
ICICI Prudential, UK
Sundaram Finance Winterthur Insurance,
Switzerland
Hindustan Times Commercial Union, UK
Ranbaxy Cigna, US
HDFC Standard Life, UK
CK Birla Group Zurich Insurance, Switzerland
DCM Shriram Royal Sun Alliance, UK
Godrej J Rothschild , UK
M A Chidambaram Met Life
Cholamandalam Guardian Royal Exchange, UK
SK Modi Group Legal and General, Australia
20th Century Finance Canada Life

32
Alpic Finance Allianz Holding, Germany
Vysya Bank ING

33
 Kotak Mahindra Chubb, US

The likely impact of opening up of India’s insurance sector is that private players may
swamp the market. International insurers often derive a significant part of their
business from multinational operations. Multinational insurers are indeed keenly
interested as; perhaps there home markets are saturated while emerging countries have
low insurance penetration and high growth rates

Type of Insurance industry in indiapolicies

Whole life insurance

Whole life is a form of permanent insurance, with guaranteed rates and guaranteed
cash values. It is the least flexible form of permanent insurance.

Universal life insurance

Universal life is similar to whole life, except that you can change the death benefit
(the money paid to the beneficiary when the insured person dies), the amount of
premiums and how often you pay the premiums.

Variable life insurance

Variable Insurance industry in indiais the riskiest form of permanent insurance, but it
can also give you the best return for your money. Essentially, the Insurance industry in
indiacompany will invest your insurance premiums for you. If the investments do well,
the death benefit and cash value of the policy go up. If they do poorly, they go down.
It's a little like putting your savings into the stock market.

Group life insurance

Many companies allow their employees to buy group Insurance industry in indiathrough
the company. Usually, you can get very good rates for this insurance but you have to give
the insurance up when you stop working there. For that reason, group insurance can be a
good way to buy a little extra life insurance, but it does not make sense to make it your
34
main policy.

35
There are a number of policies for specific insurance needs. Some of these include:

1. Family income life insurance.

This is a decreasing term policy that provides a stated income for a fixed period
of time, if the insured person dies during the term of coverage. These payments
continue until the end of a time period specified when the policy is purchased.

2. Family insurance.
A whole life policy that insures all the members of an immediate family --
husband, wife and children. Usually the coverage is sold in units per person, with
the primary wage-earner insured for the greatest amount.

3. Senior life insurance.

Also known as graded death benefit plans, they provide for a graded amount to
be paid to the beneficiary. For example, in each of the first three to five years
after the insured dies, the death benefit slowly increases. After that period, the
entire death benefit is paid to the beneficiary. This might be appropriate if the
beneficiary is not able to handle a large amount of money soon after the death,
but would be in a better position to handle it a few years later.

4. Juvenile insurance.
This is Insurance industry in indiaon a child. Coverage is paid for by an adult,
usually the parents or guardians. Such policies are not considered traditional
Insurance industry in indiabecause the child is not producing an income that
needs to be protected. However, by buying the policy when the child is young,
the parents are able to lock in an extremely low premium rate and allow many
more years of tax-deferred cash value buildup
5. Credit life insurance.
This insurance is designed to pay off the balance of a loan if you die before you have
repaid it. Credit Insurance industry in indiais available for many kinds of loans
including student loans, auto loans, farm equipment loans, furniture and other
36
personal loans including credit cards. Credit Insurance industry in indiacan be
purchased by an individual. Usually it is sold by financial institutions making loans,
like banks, to borrowers at the time they

37
 take out the loan. If a borrower dies, the proceeds of the policy repay the loan
directly to the lender or creditor.
6. Mortgage insurance
This decreasing term coverage is designed to pay off the unpaid balance of a
mortgage if you die before the mortgage is paid off. Premiums are generally level
throughout the term of the policy. The policy is usually independent of the mortgage,
meaning that the financial institution granting the mortgage is separate from the
insurance company issuing the policy. The proceeds of the policy are paid to the
beneficiaries of the policy, not the mortgage company. The beneficiary is not
required to use the proceeds to pay off the mortgage

7. Annuity
An annuity is a form of insurance that enables you to save for your retirement.
Basically, you give the insurance company money for a certain period of time, and
then after you retire they will pay you a certain amount of money every year until you
die. There are many different forms of annuities. . Most people who buy annuities are
55 or older

STATEMENT OF THE PROBLEM

In India nearly 80 percent of population is without Insurance industry in
indiacover, health insurance and non-life insurance. In other words, insurance
coverage is far below the international standards. However, there is an immense
growth potential for insurance sector in India. Further, it indicates that there is a
huge potential for insurance business in the country. At this juncture, it is required
to evaluate the performance of Insurance industry in indiaindustry in India. The
present study is mainly aimed to investigate the operational, financial and
managerial performance for a period of ten years

SCOPE OF THE STUDY

The study will be able to reveal the importance, needs, perception of the
customers regarding the Insurance industry in indiaproducts, It also help to

38
analyse the financial performance

39
OBJECTIVE OF THE STUDY
The paper probes in to the Indian Economy and observes the characteristics of
Insurance Industry in India based on Strength of Insurance Industry in India and
Weakness of Insurance Industry in India. Further making literature survey, it is
essential to re-look into the Private and Public Players in insurance industry in
India as insurance companies are mushrooming after liberalisation. The paper
attempts to study the following:
• To observe the current status of Insurance Industry in India
• To examine the growth of business of public and private insurers
• To analyse the operating and financial performance of lic Insurance Company

Research Methodology

Data Collection

The study had used both primary and secondary data.

 Primary data was collected from investors by questionnaire method. The study area

is Delhi NCR. The researcher undertook Random Sampling for choosing the

respondents from LIC Insurance in Delhi city. Data was collected from 300

investors.

 Secondary data was collected from books, journals, websites (www.iciciprulife.com,

www.bseindia.com, www.irda.org, www.swissre.org, www.ssrn.org, www.rbi.org,

www.mospi.gov.in, www.traderji.com), articles and annual reports.

Hypotheses
1) Ho = Fluctuations in stock market do not adversely affect the NAV of ULIP
2) Ho = Income of the investors does not affect the fund option selected by the investors.
3) Ho = Age does not affect the preference for type of insurance (traditional or unit –
linked) selected by the investors.

40
Statistical Tools for Analysis

The collected data were analyzed through:

1) Net Asset Value (NAV)
2) Karl Pearson’s Coefficient of Correlation
3) Chi-square Test

41
CHAPTER -2

Analysis of Insurance companies in India

LIC vs. Private players

42
 Insurance industry in indianot plays an important role in national economy but
also in international economy. Marine cargo insurance provides risk coverage for
shippers and the banks, which finance international trades. This role becomes all the
more important in the context of an active government policy to encourage exports.
Indian life insurer operates in more than 30 countries through agencies, branches,
associates companies. These operations earn foreign exchange.

The insurance business is concerned with North America, Western Europe,

Japan and Oceania. Together these region’s accounts for about 91 % of the world annul
premium.

By region’s North America and western Europe are growing moderately while
oceanic, Latin America, eastern Europe and Africa display growth above lone –term
trends to a global context globalization of Insurance industry in indiahelps companies
practices underwriting discipline in one regions globalization of the insurance industry
received a big boost.

Countries Insurance Penetration Insurance Density (Per Capita

(premium as a% of GDP) Premiums in USD)
United Kingdom 12.71 3028.5
Japan 8.70 3165.1
United States 4.48 1611.4
South Africa 14.04 392.9
Australia 6.04 1193.5
South Korea 9.89 935.6
India 1.77 7.6
China 1.12 9.5
Malaysia 2.13 86.4
Indonesia 0.54 4.0
Brazil 0.36 12.9

India and the world market:

Unfortunately, the progress achieved by the Insurance industry in indiaindustry
43
in India, it compares unfavorably not just with the developed countries. But also
even with the

44
developing world. The global market for the Insurance industry in indiais estimated to be
around $ 1412.3 billions.

About the various player of Insurance industry in indiasector:

Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. In the private sector 12 Insurance industry
in indiaand 6 general insurance companies have been registered than after remaining
companies are registered.

Here we have described the private Insurance industry in indiacompanies

registered in which year wise.

Private Player in Insurance industry in indiaindustry:

Sr. Registration Date of Name of the Company

No. Number Reg.
1 101 23.10.2023 HDFC Standard Insurance industry in
indiaCompany Ltd.
2 104 15.11.2000 Max New York Insurance industry in indiaCo. Ltd.
3 105 24.11.2000 ICICI Prudential Insurance industry in
indiaCompany Ltd.
4 107 10.01.2001 OM Kotak Mahindra Insurance industry in
indiaCo. Ltd.
5 109 31.01.2001 Birla Sun Insurance industry in indiaCompany Ltd.
6 110 12.02.2001 Tata AIG Insurance industry in indiaCompany Ltd.
7 111 30.03.2001 SBI Insurance industry in indiaCompany Limited.
8 114 02.08.2001 ING Vysya Insurance industry in indiaCompany
Private
Limited
9 116 03.08.2001 Allianz Bajaj Insurance industry in indiaCompany
Ltd.
10 117 06.08.2001 MetLife India Insurance Company Pvt. Ltd.
11 121 03.01.2002 AMP SANMAR Assurance Company Ltd.
12 122 14.05.2002 Aviva Insurance industry in indiaCo. India Pvt. Ltd.
13 127 06.02.2004 Sahara India Insurance Company Ltd.

45
PROFILE OF THE INSURANCE COMPANIES IN INDIA

INSURANCE INDUSTRY IN INDIACORPORATION OF INDIA

Insurance industry in indiaCorporation of India was formed in September 1956 by

passing LIC Act, 1956 in Indian parliament. On the nationalization of the Insurance
industry in indiain 1956, the premium rating of Oriental Government security life
Assurance company were adopted by LIC with a reduction of 5% of the tabular
premium or Re. 1 per thousand sum assured, whichever was less. This reduction
was made in anticipation of economies of scale that would emerge on the merger
of different insurers in a single entity.

Insurance industry in indiaCorporation Of India - there are many things to consider

as Insurance industry in indiaCorporation of India offers various insurance
products which are very complex, but underlying this complexity is a simple fact.
The building blocks for all Insurance industry in indiaCorporation of India are (1)
investment return; (2) mortality experience; and (3) expense management; for your
Insurance industry in indiaCorporation Of India

Objectives of LIC
• Spread Insurance industry in indiamuch more widely and in particular to the rural
areas and to the socially and economically backward classes with a view to
reaching all insurable persons in the country and providing them adequate
financial cover against death at a reasonable cost.
• Maximize mobilization of people's savings by making insurance-linked savings
adequately attractive.
• Bear in mind, in the investment of funds, the primary obligation to its
policyholders, whose money it holds in trust, without losing sight of the interest
46
of the community as a whole; the funds to be deployed to the best advantage of

47
 the investors as well as the community as a whole, keeping in view national priorities
and obligations of attractive return.
• Conduct business with utmost economy and with the full realization that the
moneys belong to the policyholders.
• Act as trustees of the insured public in their individual and collective capacities.
• Meet the various Insurance industry in indianeeds of the community that would
arise in the changing social and economic environment.
• Involve all people working in the Corporation to the best of their capability in
furthering the interests of the insured public by providing efficient service with
courtesy.
Promote amongst all agents and employees of the Corporation a sense of participation, pride
and job satisfaction through discharge of their duties with dedication towards
achievement of Corporate Objective

Various policies offered by Insurance industry in indiacorporation of India are

1) Whole Life Schemes
• Whole life with profit
• Limited payment whole life
• Single Premium whole life
• Convertible whole life plan
2) Endowment Schemes
• Endowment plan with profit
• Limited payment Endowment
• Jeevan Mitra (Double Cover)
• Jeevan Mitra (Triple cover)
• Bhavishya Jeevan
• Jeevan Anand
• New Jana Raksha

3) Term Assurance Plan

• Anmol Jeevan
• 2 Year Term Assurance

48
• Covertible Term
• New Bima Kiran

49
 4) Plan for needs of Children
• Komal Jeevan
• Jeevan Sukanya
• Jeevan Kishore
• Jeevan Balya
• Jeevan Chaya
• Marriage/educational annuity
• Deffered Endowment

5) Periodic Money Back Plan

• Jeevan Samridhi
• Jeevan Rekha Plan
• Money Back Plan
• Jeevan Surabhi
• Jeevan bharathi

6) Medical benefits linked insurance

• Asha Deep II
• Jeevan Asha II

7) For benefits to Handicapped

• Jeevan Aadhar
• Jeevan Vishwas

8) Plans to cover housing loans

• Mortagage redemption
9) Joint life plan
• Jeevan sathi

10) Investment plan

• Bima Nivesh Triple cover
50
11) Capital market linked plan
• Bima plus.

51
Description of the LIC Policies
Whole life plan are those policies which life assured has to pay premiums till his death the
sum assured will be paid to his dependent generally 70 years is assumed as a maximum
age for payment of premium.
Under the whole life premium are payable throughout the life time of the life assured and this
is the cheapest form of policy.
This plan is ideally suited to person who wants maximum provision for his family at
minimum cost. It also meets the needs for funds required for funeral, religious rites and
ceremonies to be performed, tax liabilities if any and expenses connected with the last
sickness and hospital charges etc.

Endowment Assured Plan:

Endowment plans are not covering the risk for whole life of the life assured. The term of risk
cover under this plan is as per the need of life assured.
Endowment assurance plan are the most popular. They are eminently
Suited to meet it one policy the twin demands of old age provision and risk cover for family.
The sum assured is payable on maturity or at death if earlier. Thus an Endowment
Assurance Policy provides for retirement and also serves as a means of family provisions.

Term Assurance
Under the term assurance the risk cover is generally for specific short term. Such term
assurance is maximum for 2 years. Generally this type of assurance is useful for air
traveling.

Money Back Plans

Under this plan specific percentage of sum assured will be backed to the life assured after
specific period of time. This plan is of special interest to person who besides desiring to
provide for their own old age and family feels the need for lump sum benefits at
periodical intervals. Under these policies part of the sum assured is paid to the life
assured in installments at selected intervals.

Children Plan

52
Under the children plans the risk on the life of the children where covered generally this type
of plans are helpful in education and marriage of the children.

53
Jeevan Balya:
This plan is designed to enable a parent to provide for the child by payment of a very low
premium an Endowment Assurance Policy, the risk under which will commence from the
vesting date. In addition, Premium benefit and income benefit are included as additional
benefit by payment of appropriate additional premium during the deferment period.
This policy shall be cancelled in case the life assured shall die before the deferred dates
and in such an event provided the policy is then in full force in for a reduced cash option.

Marriage Endowment/ educational annual plan

Every father desires to see that his children are well settled in life through sound
education, leading to good jobs and happy marriage. These needs arise at ages which can
be approximately anticipated. Say when the children are between 18 to 25 year of age.
This plan provides for a sum assured to keep aside to meet marriage educational expenses
of children. Under this plan the S A along with the vested bonus shall be payable at the
end of the selected term either is lump sum or in ten half yearly installment, at the option
of the life assured nominee beneficiary.

Jeevan Mitra
This plan provides additional insurance cover equal to the sum assured in the even of
death during the term of policy so that the total insurance cover in the event of death is
twice the basic sum assured. i.e. The basic sum assured is doubled and the accrued bonus
is also paid.

ING VYSYA LIFE INSURANCE

ING Vysya Insurance industry in indiaCompany Private Limited entered the private
Insurance industry in indiaindustry in India in September 2001, and in a short span of 18
months has established itself as a distinctive Insurance industry in indiabrand with an

54
innovative, attractive and customer friendly product portfolio and a professional advisor
force. It also distributes products in close cooperation with its sister company ING Vysya
Bank through Bank assurance.

55
Currently, it has over 3000 advisors working from 22 locations across the country and
over 300 employees.
ING Vysya Insurance industry in indiaCompany is headquartered at Bangalore and has
established a strong presence in the cities of Delhi, Mumbai, Kolkata, Hyderabad and
Chennai. In addition ING Vysya Life operates in Vizag, Vijaywada, Mangalore, Mysore,
Pune, Nagpur, Chandigarh, Ludhiana and Jaipur.
ING Vysya Life has pioneered product innovations in the Indian Insurance industry in
indiamarket with customer-oriented cash bonus endowment and money back products.
(Reassuring Life and Maximising Life), the first anticipated whole life product (Fulfilling
Life) and the first Term/Critical Illness combination product (Conquering Life).
Conquering Life is an innovative term and critical illness product that has been launched
recently.
Conquering Life provides affordable term cover and critical illness coverage for 10
critical illnesses of upto 50% of the Sum Assured. ING Vysya Life declared a bonus in
September 2002 of 5% (cash bonus - payable immediately) and 4% (reversionary bonus -
payable at the end of the term).
The company has over 25,000 customers at the end of 2002 and has achieved a first
premium income of Rs. 17 crores in 2002.
ING Vysya Insurance industry in indiais a joint venture between ING Insurance
International BV a part of ING Group, the world's largest Insurance industry in
indiacompany (Fortune Global 500, 2002), ING Vysya Bank, with 1.5 million customers
and over 400 outlets and GMR Technologies and Industries Limited, part of GMR Group
also based in Bangalore and involved in the field of power generation, infrastructural
development and several other businesses.
ING Vysya Life has a paid up capital of Rs.140 crores and an authorised capital of Rs.
200 crores.
Insurance industry in indiaproducts offered by the company are:
1) Protection plan
• Critical illness plan
• Endowment plan
2) Savings plan

56
• Endowment plan
• Child protection plan
• Money back plan

57
 3) Investment Plan

• Whole life plan

• Limited payment endowment plan

• Anticipated whole life plan

TATA-AIG Life Insurance

Tata-AIG Insurance industry in indiaCompany is a joint venture between the

Tata Group and American International Group Inc (AIG), the leading US-based
international insurance and financial services organization and the largest underwriter
of commercial and industrial insurance in America. Its member companies write a
wide range of commercial, personal and Insurance industry in indiaproducts through
a variety of distribution channels in approximately 130 countries and jurisdictions
throughout the world. AIG’s global businesses also include financial services and
asset management, including aircraft leasing, financial products, trading and market
making, consumer finance, institutional, retail and direct investment fund asset
management, real estate investment management, and retirement savings products.
TATA holds 76% shares and AIG holds 24% shares in the total share capital of
TATA AIG.

Tata AIG Insurance industry in indiaCompany Ltd. "Tata AIG Life" offers a
broad array of Insurance industry in indiaproducts to individuals, associations and
businesses of all sizes, with a wide variety of additional coverage to ensure our
customers can find an insurance product to meet their needs. Tata-AIG Insurance
industry in indiaand Tata-AIG General Insurance, both joint ventures between the Tata
Group and American International Group (AIG), provide life and general insurance
policies and solutions to companies, institutions and organizations across India. It is
licensed to operation on 12th February 2001. TATA-AIG life is spread over28 branch

58
offices and 39 training offices across the country.

Tata-AIG Life offers a broad array of Insurance industry in indiaproducts and

solutions to corporate and other organizations. These products and solutions have various
value- added benefits and options that deliver flexibility and choice to the company's
clients.

59
Tata AIG Life has completed its 4th year of operations and registered a Total Premium
of Rs. 497 Crores for the period April 2004 - March 2005.
The company has some 20 Insurance industry in indiaproducts with over 250 product
combinations, including endowment to term, pension to group life and credit life, money
back to whole life plans, etc. Tata-AIG Life uses different distribution channels,
including direct marketing, brokerage and banc assurance, to service client groups in 19
Indian cities.

Tata-AIG Life is the first private insurer in India to offer group retirement
schemes. Additionally, the company's group management division focuses on
providing employee benefit solutions.

PRODUCTS

The product range of TATA-AIG Life is wide-spread across different segments.

Some of the products are mentioned below.

Maha life
Invest Assure
Health Protector
Star Kid

Shubh Life
Nirvana
Nirvana Plus
Money Saver Plan
Health First
Assure Golden Life
Assure 10, 20, 30 years – Security and Growth
Assure Educate at 18, 21
Assure Career Builder Plan at
27 Assure Golden Years Plan
Assure 21 Money Saver Plan
Assure 1/5/10/15/20/25 years/ to age
60
lifelines TROP

61
BIRLA SUN INSURANCE INDUSTRY IN INDIACOMPANY
LTD. :

The Birla Sun Insurance industry in indiaCompany, is a 74.26 joint venture

between the Aditya Birla Group and Sun Life Financial Services of Canada, and has
an equity capital of Rs 1.5 billion.

The Aditya Birla Group is one of India’s largest business houses, with a
turnover of over $4.75 billion and an asset base of $3.8 billion. The Group is a well-
diversified conglomerate spanning 40 companies spread across 17 countries.

Sun Life Assurance Co., of Canada, established in 1871, has a strong

presence in Canada, the USA, the Philippines, Hong Kong, and the UK. Its major
lines of business are life insurance, annuities and mutual fund and investment
services. In Canada, the company is especially strong in the corporate life and health
insurance and savings markets.

HDFC STANDARD INSURANCE INDUSTRY IN

INDIACOMPANY LTD. :

HDFC Standard Insurance industry in indiaCompany Ltd. was incorporated

o August 14, 2000. HDFC is the majority stakeholder with an 81.4 per cent stake.
Standard Life holds a stake of 18.6 per cent.

Incorporated in 1977 with a share capital of Rs 100 million, HDFC has since
emerged as the largest residential mortgage finance institution in the country, raising
its capital to Rs 1.19 billion and an asset base of Rs 150 billion. It operates through
75 locations throughout India, and has an international office in Dubai, UAE, with
service associates in Kuwait, Oman and Qatar.

Standard Life, which has been in the Insurance industry in indiabusiness for
the past 175 years, is Europe’s largest mutual life assurance company. With an asset
base of Rs 6000 billion, it has the distinction of being accorded the ‘AAA’ rating by
Standard & Poor for the past six years.

ICICI-PRUDENTIAL INSURANCE INDUSTRY IN INDIACOMPANY LTD. :

62
 The ICICI-Prudential Insurance industry in indiaCompany ltd, with ICICI’ s
share at 74 per cent and Prudential plc. UK’s share of 26 per cent was incorporated o
July 20, 2000, with an authorized capital of Rs 2.3 billion. The paid up capital
is Rs 1.9

63
billion. It commenced commercial operations on December 19, 2000, becoming one
of the first few private sector players to enter the liberalized arena.

The World Bank, the Government of India and the Indian Industry, to
promote industrial development in India by providing project and corporate finance
to the Indian industry, established ICICI LTD., in 1944. Since its inception, it has
grown from a development band to a financial conglomerate and has become one of
the largest public financial conglomerates and has become one of the largest public
financial institutions in India, financing all the major sectors of the economy.
Founded in 1848, Prudential plc. has grown to become one of the largest
providers of a wide range of savings products for the individual, including life
insurance, pensions, annuities, unit trusts and personal banking. It has a presence in
over 15 countries, and manages assets of over US $259 billion (approximately Rs
11, 3956 billion) as of December 31, 1999. in fact, Prudential’s first overseas
operation was in India, way back in 1923, to establish life and general insurance
branch agencies.

ING-VYSYA INSURANCE INDUSTRY IN INDIACOMPANY PVT. LTD. :

As per the joint venture agreement, Vysya Bank holds 49 per cent, ING 26 per
cent, and the GMR Group, which has wide ranging interests in fields which as power
generation, infrastructure, manufacturing, software and banking, holds 25 per cent. This
joint venture is expected to be the first Banc assurance venture in the country.

The Vysya Bank, which has equity participation from Bank Brussels
Lamberts, is one of the largest private banks in India with 480 retail outlets, the
bank, given its significant branch penetration, has a high degree of retail focus.

The ING Group, with an asset base of over Rs 284.2 billion is a global
financial institution of Dutch origin, which is active in the field of banking,
insurance and asset management in over 60 countries. ING Insurance is the world’s
second largest Insurance industry in indiacompany as per the latest Fortune
rankings. It is the third largest financial services company in Europe, and the tenth
largest financial services company in the world.

64
MAX NEW YORK INSURANCE INDUSTRY IN INDIACOMPANY LTD. :

65
 Max New York Life is a partnership between Max India Limited, one of
India’s leading multi-business corporations and New York Life. The paid-up capital
of the joint venture is Rs 2.5 billion.
Max India has significant presence in the most vital and fast growing sectors
of the Indian economy, viz., telecommunication services, Electronic components
distribution, specialty plastic films and bulk pharmaceuticals. It is also active in the
emerging knowledge-based areas of health care, financial services and IT.

In 1998, New York Life International Inc., had total revenues amounting to
almost US $20 billion, and was rated the number one provider of new Insurance
industry in indiapolicies in the USA. In the same year, New York Life was also the
leader in insurance sales to the growing Indian community in the USA.

MET LIFE INDIA INSURANCE COMPANY LTD.:

The Met Life India Insurance Company, joint venture between the US
insurance major Metropolitan Insurance industry in indiaCo., the Jammu and
Kashmir Bank Ltd., the Pallonji Group and some high net worth individuals, was
incorporated in India on April 11, 2001. The company started its operation with an
initial capital of Rs 1.25 billion.

The Metropolitan Insurance industry in indiaCo., established in 1867a, is a

member of the Metropolitan Life Group and is licenses in the USA, Canada and a
few other countries. Its major lines of business are individual and group life
insurance. Pallonji & Co. Pvt. Ltd., is primarily engaged in contracting and has
under taken major contract for power generating situation, chemical and fertilizer
factories petroleum refineries and gas platform. Ti has also diversified outside in
their main life of business in to the field of non- convention energy source.

OM KOTAK MAHINDRA INSURANCE INDUSTRY IN INDIACOMPANY LTD.

The joint venture OM KOTAK MAHINDRA Insurance industry in

indiastarted off with an initial capital of Rs. 1.5 billions, with a 74:26 stake between
Kotak Mahindra Insurance industry in indiaand old mutual plc.

Kotak Mahindra finance ltd is one of the India’s premier financial groups,
66
with a range of highly specialized products and services, and a very large client base
of Indian and international firms. Starting as are non-product company in the mid

67
eighties, it has evolved into a full service financial conglomerate, covering auto and
consumer finance, assets management, investment banking, securities trading and
equity research. It operates across 30 centers in India and in Dubai, London, New
York and Mauritius.

Old mutual plc. is a leading global financial services provider, providing a

broad range of financial services in the area of insurance, assets management and
banking. It is a leading life insurer in South Africa, with more than 30% market share.

SBI INSURANCE INDUSTRY IN INDIACOMPANY LIMITED:

This joint venture has 74% capital participation from the state bank of India
(SBI), with Cardiff contributing 26% in the paid capital of Rs. 2.5 billion.

The SBI is the largest bank in the country with more than 9000 branches. It
has seven associate banks and together they have 30% of the Indian market share. It
net worth as on March 2000 stood at Rs. 121.46 billion, with a deposit base of Rs.
196.803 billion. The insurance venture, SBI life, is a step aimed at being a universal
bank as the SBI already as subsidiary for housing finance, merchant banking, mutual
fund and primary dealership in government papers and factoring businesses.

BNP paribus, which is one among the three largest banks in Europe, is the
holding company of Cardiff, its insurance arm. It was set up in 1973 and specialized
in long term savings, protection products and creditors insurance. In 1999, its
premium income stood at US $ 4 billion, with assets worth over US $ 23 billion
under its management. Based in France, it has the expertise for selling insurance
products through bank and as operation in over 20 countries.

TATA AIG INSURANCE INDUSTRY IN INDIACOMPANY LIMITED:-

Tata AIG Insurance industry in indiacompany ltd, is capitalized at Rs. 1.85

billion of which 74% has been brought in by Tata sons and 26% by the American
partner.

Tata enterprise with 82 companies, spread over 7 sectors, have an annual

turnover exceeding US $ 8.8 billion. The Tata group has made pioneering

68
contribution in various fields including insurance, aviation, iron and steel. The group
has had a long association with India’s insurance sector, having set up the largest

69
insurance company viz. new Indian assurance company ltd. (1919), prior to the
nationalization of this sector.

The American insurance group (AIG) is the leading US based international

insurance and financial services organization and the largest underwriter of
commercial and industrial insurance in the USA. Its member companies write a
wide range of commercial and personal insurance products in over 130 countries and
jurisdiction throughout the world.

LIC vs Private Insurance industry in indiaCompanies

The industry of insurance is related to the safety and security of financial
value of the assets. It offers protection as well as peace of mind to an individual. It is
very important to understand the different products that life and general insurance
companies provide before they make a selection as to the product they want to
procure. As per the rules, insurance companies whether it is LIC or other private
insurance companies have to give the features of the policies at a point of scale.
They should also go through the terms and conditions of the policies.

Comparison between Insurance industry in indiaCorporation

(LIC) and Private insurance companies

 Insurance industry in indiaCorporation (LIC) is a substitute for the

government to bail out state-owned companies. It is a giant of the

insurance sector and its

size much more than the private life insurance companies. Though the

private companies are expanding and increasing their size but are still very

much behind LIC.

 The size of the balance sheet of private Insurance industry in

indiacompanies lags much behind LIC as balance sheet of LIC is seven

times bigger than these private companies.

 LIC due to its excellent service quality and reliability is high acclaimed
70
by the people. Whereas, private Insurance industry in indiacompanies are

also increasing its customer base but are not so much successful.

71
  The income of private Insurance industry in indiacompanies is

negligible when compared to LIC.

 LIC is the oldest player in the insurance market and have a large

customer base. The main reason that private Insurance industry in

indiacompanies lag behind LIC in case of business per branch is that in

previous years these have suffer from financial losses.

 When it comes to income per branch, LIC is a champion and is ahead

of all the private insurance companies.

 LIC have large number of policy holders, as it is a well established

company in the field of insurance. Hence, it is obvious that private

Insurance industry in indiaorganizations have low number of

policyholders.

 LIC has a high growth in the shareholders’ funds as compared to private

Insurance industry in indiacompanies.

 In LIC there is a biggest collection of group insurance schemes but

the private companies don’t have many schemes in comparison to the

LIC.

 The claim settlement ratio of LIC is much better than the private life

insurers and also scores better with a lapse ratio against them.

 LIC has superior customer friendly nature as compare to the private

life insurers.

Some facts about LIC that makes it superior from all the private insurance

companies are as following:

72
 This has as highest insurance professionals or club member agents.

 LIC is world’s number one insurance company in terms of agency

and have about 1.1 Million agents.

73
 This company offers prompt settlement of claims that is 2.21 claims per

second.

 In all across the world there are only four countries which have

more population than LIC`s policy holders.

 LIC expanding its distribution channel through corporate agencies,

Bancassurances, Chief Insurance industry in indiaAdvisor (CLIA) and

broker ship.

74
Chapter 3

STRATEGIC ANALYSIS
Industry Dominant Economic Feature
Key Factor for Future Competitive Success
Porter’s Five Forces Model
PEST Analysis
SWOT Analysis

75
Industry Dominant Economic Feature
The sustenance, growth and development of organizations, to a considerable
extent, depend on a few factors known as Key Success Factors (KSFs). In the
insurance sector, the KSFs are product benefits, competitive premiums,
products/plans differentiation through promotion and claims settlement. Among
these different KSFs, claims settlement is the major factor for the success of LIC
as its claims settlement operations are transparent and fair. The corporation looks
for reasons to settle claims rather than avoid making payments on claims. In
short, LIC's ability to withstand competitive pressure in the market can largely
be attributed to its positive and proactive claims settlement operations.

An industry's key success factors (KSFs) are those competitive factors that most
affect industry member's ability to prosper in the market place-the particular
strategy elements, product attributes, resources, competencies, competitive
capabilities and market achievements spell the difference between being a strong
competitor and a weak competitor. KSFs by their very nature are so important to
future competitive success that all firms in the industry must be competent at
performing or achieving them. Hence, identification of KSFs should be the top
priority of organizations to achieve sustainable competitive advantage. In the
insurance sector, the key success factors are product benefits (bonus or
guaranteed additions), competitive premiums, efficient distribution,
products/plans differentiation through promotion and claims settlement. Among
these different KSFs, claims settlement is the major key success factor due to the
fact that prompt and timely settlement of claims help in enhancing the
confidence of policyholders in insurance companies; thereby, the business of the
latter will increase manifold.

Insurance industry in indiais essentially an instrument for providing financial

compensation in case of unexpected death of the person taking the insurance
cover. It means claims settlement is very important for insurance companies.
Unlike tangibles, where it is possible to examine the product prior to purchase,
the real test of insurance is after purchase-at the time of claims settlement.
Claims can be classified into two types, Maturity claims, Death claims. The
settlement of maturity claims is simple because the policyholder is alive and he
or she can handle the problem, if any, directly. When it comes to settlement of
death claims, it is somewhat complicated. This is because the policyholder may
have a natural death or an unnatural death such as accident, murder, etc. In all
these cases, required proof in terms of documents has to be submitted. If the
insurer is satisfied with the proof, he will settle the claim or else he may further
cross- check the information leading to delayed settlement of the claim.

ECONOMICAL FACTORS AFFECTING INSURANCE

INDUSTRY IN INDIAINDUSTRY

76
 Interest rate at bank and interest rate of P.F variation very much affect to
life insurance industry, because people always attract by higher return.

77
Therefore, they do not prefer lower return policy. Unemployment also affects
insurance industry, because the unemployment people will not have earning, so
saving also affect to Insurance industry in indiasector Insurance industry in
indiaindustry will directly affected by Earthquake, Monsoon, and Natural
calamity. Because of these events turns into lots of death, so the Insurance
industry in indiacompanies have to pay claim against policy. Infant mortality rate
and maternity mortality rate are also affecting to life insurance. Typical Indian
want luxurious product against low income, so that they prefer installment or
annuity (EMI), so that they may not have extra saving to invest in life insurance.

Adequacy of capital:

Capital adequacy is a matter of attention in view of the nature of the

Insurance industry in indiabusiness, where in the case a contingency arises, the
insurers should be in a position to meet its long-term contractual obligations and
pay up the dues or claims. In that sense, Insurance industry in indiais a capital-
intensive business and must be backed by an adequate capital base on the part of
the owners and the companies should not be running their business purely on
other people’s money. So minimum start up amounts and long running capital
adequacy norms are absolutely essential, in consideration of this, the Malhotra
committee suggested and subsequently the IRDA stipulated a minimum capital
base of Rs 1 bn for any entity wanting to enter the Insurance industry in
indiabusiness.

Increased Economical Activity:

Although economic activity has slowed down since 1996, sooner or later there
will be an upswing. The increase in the growth rate in various sectors
accompanied by the growth in trade in the context of fulfilling of commitments
to the WTO will signal a growth in the demand for insurance covers of new
types. For example, aviation insurance cover will be on an increasing scale in
view of the need for more frequent
air travel for men and for transporting materials. This would necessitate
substantial property, liability and personal insurance.

78
 As far as cover against business interruption is concerned, the pace of
business and of change today is so fast that even the most careful assessment of

79
exposure time, and the most liberal coverage cannot protect the insured adequate
in the event of a loss be on the increase and insurance companies cannot afford
to ignore the vast potential in this business.

Interest Rates: -

During the last years the government has rationalized interest rate creates
better business opportunities for the Insurance industry in indiasector because the
substitute products are graded lower by the customers. On the other hand the
value of the holdings of the insurance companies will increase.

Rationalized of the interest rates is still expected, and it is an opportunity for

the company.

Low interested rates mean low investment return for reinsures causing
negative impact on their overall net profitability as pricing is to a certain extent
sensitive to interest rate fluctuations. The negative impact therefore, lead to
higher pricing level for reinsures in order to sustain their profitability. But, in
reinsurance market, which is characterized by over capitalization a resulting
intense competition. The opportunity for such rate increases practically remains
very slim and even non-existent. As a result, reinsures are under tremendous
pressure to cut their operational cost to safeguard profitability. Furthermore, low
interest rates discourage and even prevent any outflow of capital from
reinsurance business to capital markets, causing current over capitalization in
reinsurance market to continue. A positive outcome is that low inflation rates, if
sustained for a considerable period, usually bring some relief to reinsures from
the resulting lower than forecast claims payment. Also, this can lead stability to
reinsures administrative cost.

As interest rates fall, bond value rise, and insurers feel richer. On the liability
side, reserves are not explicitly discounted so lower interest rates do not increase
reserves, lower inflation means lower expected future claims payments which
lowers required reserves. This in turn increase surplus, again allowing insurers to
feel richer. Therefore, low interest rates and low inflation result in higher assets,
lower liabilities, hence greater surplus and greater risk capacity resulting in less

80
demand for, and greater surplus of reinsurance.

81
 Low interest rates and low inflation reduce the ability of reinsures to off set
technical losses by using financial products and should, as a consequences, force
market competition downloads. However, this will also serve to weaken the
balance sheets of insurers and create an increase in the demand for balance sheet
protections. Lastly, these conditions move risk from the liability side of the
balance sheet to the asset side while actually generating new needs for cover.

Inflation rate: -

Inflation can also be one of the causes to change the scenario of the insurance
sector. High inflation for instance, would tend to reduce the insurance business,
particularly life, because the real value of the money paid back to the
policyholder on maturity of the policy would go down and would, therefore, lose
its attraction for the investor. At the most, the insuring public may prefer pure
risk plans (terms insurance), which have a low premium outlay.

The response to an inflationary situation will depend on what benefit the

insured is looking for. In a situation of high inflation, clients would prefer
policies where the savings portion is periodically returned while the risk portion
is maintain for the duration of the contract. Those who prefer risk protection are
likely to opt for long term policies, which may also be preferred because they are
likely to be low premium policies. A flexible system, under which the sum
insured, is increased from time to time so that the real value of the cover is
maintained, and could give a boost to the market under conditions of high
inflation. Fortunately, the rate of inflation in India has been contained to less
than 5 percent for a fairly long time and unless it goes out of hand, it is not likely
to dampen the market.

Market related factors:

These are the factors, which governs the entire Insurance industry in
indiasector. This includes internal as well as the external factors. We
have seen the various factors like technological, economical and will see

82
the political and government factors, environmental factors and
competitive analysis of insurance sector in the next session.

83
 These all factors have changed the trend of Insurance industry in
indiasector, which is shown in the following figure.

Stage 1 Stage 2 Stage 3 Stage 4

Closed market, Barriers to entry Barriers to entry Entry costs are low
Entry is controlled are high expertise reduced systems and capital
by state. to operate is expertise can be requirements are
essential, license brought. same for all.
can be obtained.

Scarce Scarce Scarce Scarce

resource is resource is resource is resource is
→ → expertise → capital → brand
Permission

from state

From the above figure we can see that now day’s strength of brand is
very important aspect for the success in this sector. Of course you should
have strong distribution channel without which growth is not possible.

Customer satisfaction: -

Since the customer is the focus of any service industry, every such industry
continuously strives for greater variety and better quality of products,
improvement in its delivery system, cost effectiveness, easy access, and quick
response to perceived needs – in short qualitatively superior service. Indian
Insurance industry in indiacompanies already have a sizable line up of the
products. The difference between them and the foreign operators perhaps lies in
the service provided, because there is still not enough concern on the part of the
Indian companies, with customer satisfaction, on time renewals, claims
settlements, etc. if high standards have been achieved else where, it is not
impossible to attain the same in India too.

84
 The concept of “sales” is now redefined as a long – standing relationship.
The relationship does not end with the conclusion of the transaction, but has to
be durable and of a long term nature. Hence, improved in performance of the
company will not be synonymous with only basic cost reduction or larger
business, but the new measure of performance will be set in terms of service to
the customer. One can anticipate greater insistence from pressure groups like
customer forums to keep customer satisfaction at the top of the list of priorities
of the insurers.

SOCIO-CULTURAL FACTORS AFFECTING INSURANCE

INDUSTRY IN INDIAINDUSTRY:

The basic social factors that affect the Insurance industry in

indiasector are as under: - Population
Life style
Educational
level Level of
earning Societal
benefits

These are the major social factors, which affect the Insurance industry in
indiasector. We will discuss all of them in brief
Population:
Growth in the population is a major factor pushing up the demand. It is also
going to exert a special influence on the Insurance industry in indiamarket in
other ways. Apart from exerting pressure on demand for goods and services, and
through that, ill effects of uncontrolled growth of population also could spur the
growth of demand. For example, overcrowding in public places of entertainment,
public support, or too many vehicles on the road can result in hazards like
stampedes and pollution, which require covers and still are not sold on a large
scale today. Thus the positive as well as the negative aspects of population
growth are going to spur demand.
Life style:
The peculiar lifestyle of a country or an age also influences the insurance

85
business. Change therein produces different demands for life insurance. For e.g.
All over the world, family size is shrinking and the fact that in decades to come,

86
both presents are more frequently likely to work outside the home will mean that
there could be a greater possibility of property loss. Similarly, a larger number of
vehicles

on the roads for people commuting to their jobs or business would mean larger
incidence of accidents. This will increase the demand for Insurance industry in
indiaproducts.

Of course, there is also the other possibility that wherever it is possible, some
people will try to spend a part of their time working at home either because they
would like to be with their families or because they find it more convenient.
Activities like Insurance industry in indiaand financial services are particularly
well suited for such arrangements.

With time becoming scarcer for most people who pack in a full day, there is a
higher demand for convenience and service. Companies will respond by trying to
shorten the transaction time for the delivery of products and services and
creating distribution systems that can reach clients wherever they are and
whenever they want to use them, so as to ensure convenient access to service
providers.

In recent times, there has been a surge in the high end business of the LIC.
For instance, as against 90 policies each worth more than Rs 10 million in 1999-
2000, the number was as high as 900 policies in the next year. Or again, the
number of jeevan shri policies jumped from 88,000 to a total of 2,33,000 policies
in the same period.

However, consumers’ behavior cannot be adequately and accurately

predicted. The younger generation is overwhelmingly influenced by
consumerism. If this trend continues or increases with increasing income, there
will be fewer propensities to save or insure, as a result of which the increasing
purchasing poser may not be reflected in the Insurance industry in indiamarket.

Crumbling social values, the deteriorating law and order situation, the

87
growing incidence of crime, extortion, abduction, etc., are posing a new category
of risks which need to be covered through suitably designed policies.

88
 Thus these are how changing life style of the citizens is affecting the
Insurance industry in indiaindustry.

Level of education:
India is one of the developing countries: the level of education is very low
here. The literacy rate is very poor. More than 50% of the population is still
uneducated or more or less not educated. Thus the people are not able to
understand the concept of the life insurance. Among the educated people the
quality of the education is still a big question mark. Thus the awareness is not
created and it has become a big challenge for the industry. Thus one of the
factors, which affect the Insurance industry in indiasector, is low level of
education.
Level of earning:
Another factor, which affects the Insurance industry in indiasector, is the
level of earning. In India the rule of 80-20 is working. The 80% of the total
population is having the 20% of the wealth and the 20% of the total population is
having 80% of total wealth. Thus the richer are richer and poorer are poorer. Due
to this the Insurance industry in indiasector is affected very much

Societal benefits:
In view of the fact that large sections of India have inadequate Insurance
industry in indiacover, an important social responsibility of the government
relates to spreading it far and wide. In addition, the government attempts to
extent Insurance industry in indiawith certain social obligations in view in both
urban and the rural areas through such means special schemes for the weaker
sections, and by tilting of the Insurance industry in indiacompanies’ investments
in favour of social developments.

The social changes emerging in the country provide opportunities for

insurers to sell financial services products such as family health care
programmed, retirement plans disability insurance, long-term care for senior
citizens and different employee benefit plans.

It is not the total population but the insurable population which is material for

89
the conclusion of potential. Apart from the usual demographic and other well
known

90
factors such as age group, income level, sex-wise distribution, and literacy level,
a realistic assessment of this potential has to be based on several other relevant
factors. Many invisible factors like religious faiths and social values too need to
be considered. As such, there is considerable difficulty in accurately estimating
the potential and crude estimates can be misleading. The estimate will also vary
according to the criteria used to measure if.

In principal, every individual is a potential candidate for life insurance. In

reality, financial status limits this potential, not only because of the practical
consideration of the insurable worth of a person to the insurer in financial terms,
but more so due to the prospect’s capacity to pay Insurance industry in
indiapremium after meeting other pressing needs. Again, there are many
practical factor affecting ‘ insurability” such as old age, past and present illness,
and physical and mental impairments.

In addition, the cost of reaching out to a very large number of customers, if

they are dispersed, becomes important. In that sense, the cost and profitability of
exploiting the potential, which is otherwise attractive, limit the opportunity. The
sheer size of the numbers, there fore is not crucial itself.

For assessing the practical business potential of life insurance, the eligible
population needs to be “Qualified” in relation to other factors including those
mentioned above. Thus, in the opinion of some experts, out of the population in
the insurable age group,

Only the main workers (i.e., excluding marginal workers) with adequate
income may be considered as the actual insurable population.

The population in the age group 15-55 is usually regarded as the insurable
population, since this can be considered as the main “active” age group ( in the
sense of working, earning. And supporting others), and beyond this range life
risk may be considered to be not worth insuring.

There is one opinion, which suggests that in our country the age group 15-55
as the base is not totally suitable. Due to various factors including the
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unemployment problem, real earning starts from around the age of 25 for

92
salaried persons. For others, particularly small entrepreneurs, traders and
businessman, the starting age is a little higher. Only in the affluent sector of
society Insurance industry in indiacan be taken before personal earning starts.
Thus, number wise Insurance industry in indiabelow the age of 25 is not so
significant (although amount wise it need not be so). On the other hand, people
over the age of 50 rarely apply for fresh life insurance, mainly because in India
the normal retirement age is around 60 years. Also, a high percentage of the
population in the lower income group does not remain “insurable” after the age
of 50. thus, in our country the practical age range for insurable population
actually narrows down to 25 to 50.

TECNOLOGICAL FACTORS AFFECTING INSURANCE INDUSTRY

IN INDIAINDUSTRY:
Internet as an intermediary in the current Indian market customer is not
aware about the intrinsic value of insurance. He thinks of insurance only in the
mount of March as a tax saving measure. The security provide by an insurance
cover is rarely thought about. In such a scenario Internet can be an effective
medium for educating the consumers about insurance. It serves as a single
window for disseminating product, process and procedural information to the
consumers.

Product development and target marketing through the Internet: with

increase in the number of insurance companies there will be a need for market
segmentation and subsequently product designed for each of them. In such a
scenario Internet can be a effective channel for pushing product specific
information to a particular market segment. Consumer feedback about a
particular product as well as suggestions for different types or covers can also be
generated through the Internet.

Retail marketing is a commonly expected concept and the providers of the

retail products and service will try out for larger market and market share. There
would be cut through competition and the real benefit would be to the customers
in terms of better products, distribution, pricing, post transaction service and
technology. Technology will perhaps be the single largest driver of the retail
93
thrust. The entire strategy will evolve around the absolute ability of the
organization. The customer will demand for greater convenience of excess to the

94
product/ service and all at low cost of delivery. There fore the use of technology
and specifically the Internet with realigned strategies would be one of the key
factors to success. Constraints of locations, timing and accessibility would not be
a hurdle for either customers or businesses.

Maintaining the database

The most important facto that is affecting the insurance industry is the
marinating the database of the customers. The insurance industry having a huge
list of the customers.

In order to maintain it in manual format it is really the work of stupidity.

With the change in time the computers has taken the work of this things. Thus
with the development of the technology it has becoming possible to maintain
such huge database very easily. A person can switch over to the computer and
get the details of the customer very easily. Thus maintaining the database has
really become easy due to the development in technology.

E-business insurance in India: -

The Internet has played a vital role in transforming the business of the 21 st
century. Computers are now being used extensively for creating a storing data,
information with the help of complex and sophisticated technological tools in
every kind of business. This change having been widely accepted, the advantages
are numerous such as fast processing improved. Efficiency, cost reduction
among several other benefits. However, with every positive change, there is an
evil attached and technology is no exception. In technical is an evil attached and
technology is no exception. In technical terms, increased sophistications of
technology brings with it, an increased factor of risk involved. The risk can be of
various attributes, for example, the risk of data being lost due to a virus attack,
the theft of important and confidential information and so on, which ultimately
results in losses for the business entity. With this change in the business process,
insurers have to devise new methods for assessing, underwriting and servicing
claims for the so-called e-business insurance.

Insurers face challenges to ascertain risks, in order to quantify them because

95
such risks don’t have any past data, which makes it all the more difficult for
actuaries. Moreover, what financial impact a particular risk can have is very

96
difficult to be determined. For example, if some hackers obtain credit card
information of few customers, it’s a loss for banks, their credibility, customers
and also their brand. Will an insurance policy cover all of this is million dollar
question hence; the difficulty is to design a cover first of all, which really
answers the needs of customers. But even after designing and pricing such
products with difficulty, the challenge to underwrite and handle claims for such
policies remains existent.

97
 PORTER FIVE-FORCE ANALYSIS

One important component of industry and competitive analysis involves

delving into the industry’s competitive process to discover what the main
sources of competitive pressure are and how strong each competitive force is.
This analytical step is essential because managers cannot devise a successful
strategy without in-depth understanding of the industry’s competitive character.

Even though competitive pressures in various industries are never

precisely the same, the competitive process works similarly enough to use a
common analytical framework in gauging the nature and intensity of competitive
forces.

The state of competition in an industry is a composite of five competitive

forces.
1. The rivalry among competing sellers in the industry.
2. The potential entry of new competitors.
3. The market attempts of companies in other industries to win customers
over to their own substitute products.
4. The competitive pressures stemming from supplier-seller collaboration
and bargaining.
5. The competitive pressures stemming from seller-buyer collaboration and
bargaining.

98
 Figure shows porter’s five-forces model of competition.

Firms in other
industry offering
substitute products

Suppliers R

Of among Buyers
Raw-materials, competing
inputs sellers

Firms in other
industries
offering
substitute products

The five-force model developed by porter in 1980, guides the analysis

of an organization’s, Environment and attractiveness of the Insurance industry
in indiaindustry. The nature and degree of competition in an industry hinge on
five forces, which include the threat of substitute, bargaining power of buyers,
the bargaining power of suppliers, the threat of new entrants and degree of
rivalry between the existing competitors.
1. Threat new entrants: -
The future of Insurance industry in indiamarket scenario will be marked by the
active presence of many international players, beside several Indian players. As
far as Insurance industry in indiaindustry there would be fewer entries due to
more specialized firm with lower expenses ratios and better capitalization.
Threat of entry is determine by the entry barriers which act to prevents firms from
99
entering the industry. In Insurance industry in indiaindustry entry barriers is
moderate

100
so that it becomes profitable, it attracts new entrants, thereby increasing the
number of competitors.
The Indian market is highly brand oriented, it is difficult to introduce new brand.
The acceptability of new brand is also very low.
The capital requirement in Insurance industry in indiais Rs. 100 crores, which
attract more companies to invest in. promoters, can hold paid up equity capital
up to 26% in an Indian insurance company. In case promoters hold more than
26% of the paid up equity capital, they shall divest the excess shares in the
phased manner within a period of ten year.
Tax exemption structure makes the industry attractive.
High level of competition in Insurance industry in indiaindustry become giant
player came into the market.
High profit in Insurance industry in indiaindustry act as a magnet to firms
outside the industry motivating potential entrants to commit the resources
needed to hurdle entry barriers.
But again due to potential market, private giants and international player try to
enter in to the market in the large scale with their proper homework with
customized and products too. An Indian private are well – developed and has
capacity to face challenges, foreign companies foresee good prospects for new
business by alliances and partnership with domestic outfits .
Registration: Every insurer is required to obtain a certificate of registration from
the controller of insurance. The registration is required to be renewed after a
period of three years.
Economies of scale: Economies of scale is difficult to find in the initial stage
of entry into the market because of experience as evidence by the theory of
experience curve.
Legislation or government action: special permission is required from the
government to enter in the insurance sector. With the tariff advisory committee
to control the rates, rules and regulation, and with the control of IRDA and the
government’s attitude to serve to the needs of the people with social objectives,
the multinationals may face breathing and developmental problems.

2. Bargaining power of buyer: -

Now a day competition is increasing in the each and every sector, and as a

101
competition in the market increase the bargaining power of the buyer will get
increase. So buyers bargaining power is high.

102
 Market is highly segmented.
Buyers in this industry are very return oriented and it switches easily.
The switching cost of buyer over brand or close substitute products: The
Insurance industry in indiaindustry has the uniqueness of providing risk
protection, which does have any substitute. Thus the switching cost has no
place. As far as the substitute products are concerned they are providing the
service of saving and tax benefits but still they lag in the risk coverage factor.
If buyers buy insurance then switching cost become high. High switching cost
creates buyers lock in and makes a buyer’s bargaining power.
Buyers have a strong competitive force when they are able to exercise
bargaining leverage over premium, service or other terms of sale.

3. Bargaining power of Suppliers: -

Policy designer tend to have less leverage to bargain over premium and other
terms of sale when the company they are supplying a major customer.
Suppliers bargaining power increase if reduced administrative cost and also
reduced claim procedure time.
Insurance is tax exempted so that suppliers bargaining power increases.
Suppliers then have a big incentive to protect and enhance their customer’s
competitiveness via reasonable premium, better service and on going
advances in the technology of the item supplied.
Supplier’s ability to integrate forward: the private players can integrate
forward to increase the volumes of business by providing customized and
tailor-made policies whereas existing players whereas lack on this point.
Brand identity: there is certainty among the minds of people in relation to
existence and payment of claims from the existing players whereas the
solvency of private players is not certain.

4. Threat from Substitutes:-

Insurance industry in indiasector can be featured in three factors. They are
saving, risk and tax benefit.

SAVING:
As far as saving are concerned, Existences of a large number are saving
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through PPF, EPF. Most of customer saving their money in bank, post deposit.

104
Many customers invest their money in share market, purchase Gold & Silver
also.

The substitute products for the industry are as

follow: Term deposits in bank (5.25-8 %)
Investment in government securities. (4-
5%) Money market investment (for
corporate)
Capital market (around 13% p.a. for developing country like India)
There is threat of increasing market potential of NSC, Government
debenture etc.
If investments in insurance policies are made with the objective of tax
benefits then there are other investment avenues, which offer similar
benefits.
RISK COVERAGE:
For risk coverage, there is no close substitute of the products. The risk
protection is provided by this sector only. No other instrument provides
assurance against risk.

TAX BENEFIT:
There are various substitute of this feature of life insurance. Some of the
substitute which provides tax benefit is:
• PPF
• NSE
• POST OFFICE SECURITIES.
• INVESTMENT IN THE MUTIAL FUND.
• OTHER TAX SAVING INSTRUMENT.

Thus these are the substitute of the Insurance industry in

indiaindustry. But the core competency of this sector is the risk protection
providing capacity, which no other sector can provide.

105
 5. Rivalry among the exiting player:

As a result of privatization competitive conditions will prevail in which

entry of companies buyers will exercise control.

There is cut- thought competitions among rivals in Insurance industry

in indiaindustry. There are mainly 13 private organizations and one
public organization in Insurance industry in indiacompetition.
The insurance sector is showing high market growth rate, which enables
the insurance companies to achieve its own market growth through the
growth in market place. As per the study conducted by the monitor
group, the size of the Indian general insurance market was of the order
rs.10000 crores in 2001. The annual growth rate is expected to be 15%.

All the insurance companies deal in identical policies, as service levels offered
are similar. Hence, there is no product differentiation. Post- privatization,
product and service differentiation exist between public company-private
companies.

Ministry of finance controls all the insurance companies that are in the industry
at present. Hence, there are less chances of exit. Also, post privatization there
will be less chances of exit, as the ministry of finance and insurance regulatory
and development authority1999 will govern the insurance companies.

Nationalized players have negligible computerization and use of management

information system (MIS). Although they are planning to implement software
developed by CMC for fulfilling the MIS requirements across various levels of
offices. Private players will make extensive use of MIS as well as will have more
or less a paperless office.

106
 SWOT Analysis

STRENGTHS:

1. New Products- A range of new products had been launched to cater to different segments of
the market, while traditional agents were supplemented by other channels including the
internet and bank branches.
2. Business Growth- These developments were instrumental in propelling business growth, in
real terms, of 19% in life premiums and 11.1% in non life premiums between 1999 and 2003.
3. Rise in per capita Income- India has a large population with an increase in its per
capita income.
4. Emerging Middle Income Group- India’s middle income group is rapidly increasing
and would be emerging as a profitable market.

WEAKNESS:
1. Low investment- India is among the lowest-spending nations in Asia in respect of
purchasing insurance (China, which spent USD 36.3 per capita on insurance products & Indian
spent USD 16.4)
2. Dominance of Public sector- Even after the liberalization of the insurance sector, the
public sector Insurance companies have continued to dominate the insurance market.
3. Promotion as a Barrier- In the long run, other forms of non-price competition like
aggressive advertisement wars are likely to lead increasing costs, eventually harming the
interests of the consumers.
4. Old tariff structure- A key challenge for India’s non-Insurance industry in indiasector will
be to reform the existing tariff structure. From a pricing perspective, the Indian non-life
segment is still heavily regulated
5. Limited facilities- Reinsurance is only provided by GIC. Therefore limited facilities
hamper the insurance sector.

OPPORTUNITIES:
1. Creation of stronger demand- India’s improving economic fundamentals will support
faster growth in per capita income in the coming years, which will translate into stronger
demand for insurance products.
2. Strong future growth- Strong growth can be sustained for 30–40 years before the
market reaches saturation. There is plenty of room for growth in personal accident, health
and other liability classes.
3. Rise in Income and Awareness- Rising household income and risk awareness will be the key
catalysts to spurring more demand for these lines of business in the future.
4. Health insurance- Health insurance could potentially have an important role in
driving insurance market development forward.
5. Rural sectors- The largely underserved rural sector holds great promise for both life and
non- life insurers
THREATS:

1. Economic threats- Between 1985 and 2003, economic losses in India due to
natural catastrophes averaged around USD 1.2 billion or 0.4% of GDP every year.
2. Natural Perils- Floods were the main peril, accounting for 40% of cumulative losses over
the period, followed by storms (35%) and earthquakes (20%).
3. Pressure to manage Perils- Strong growth prospects pose pressure on the industry, and the
economy at large, to better manage the exposure to natural perils
 PEST ANALYSIS

POLITICAL FACTORS AFFECTING INSURANCE INDUSTRY IN

INDIAINDUSTRY:
Within India political ambitions and rise of communalism, fissiparous tendencies are on
the rise and may well continue for quite some time to time. Therefore, it expected that the
insurance companies might consider offering political risk coverage also. The only area where
Indian insurers consider giving cover is with regard to customs duty change under certain
conditions.

Certain type of political risk at the international level has serious implications for
exporters. The term ‘political risk’ has a wider connotation than commonly understood or
assumed. It covers events arising not just from politics, but risks in the course of international
transactions. In this connection, it may be noted that export credit insurance has evolved out of
uncertainties relating to international trade, particularly due to problems arising out of foreign
legal jurisdiction, political changes and currency exchange difficulties faced by many developing
countries.

Prohibition for Investment: -

The funds of policyholders are prohibited from being directly / indirectly invested outside
India as per section 27 – C.

Manner and conditions of investment: -

Subject to the above provisions contained in Section 27 -/ 27- A / 27 B, the IRDA may,
• In the interest of the policyholders, specify the time, manner and other conditions of
investment by insurer.
• Give specific directions applicable to all insurers for the time, manner and other
conditions subject to which the policyholder’s funds should be invested in the
infrastructure and social sectors.
• After taking into account the nature of business and to protect the interest of the
policyholders, issue directions to insurers relating to time, manner and other
 conditions of the investments provided the latter are given a reasonable opportunity of being
heard.

Insurance business in rural / social sector: -

All insurers are required to undertake such percentage of their insurance business, including
insurance for crops, in the rural social sector as specified by the IRDA. They should discharge
their obligations to providing Insurance industry in indiapolicies to persons residing in the rural
sector, workers in the unorganized sector or to economically vulnerable classes of society and
other categories of persons as specified by the IRDA.

Capital requirement: -
The paid up equity of an insurance company applying for registration to carry on
Insurance industry in indiabusiness should be Rs 100 Crores.

Renewal of registration: -
An insurer, who has been granted a certificate of registration, should have the registration renewed
annually with each year ending on March 31 after the commencement of the IRDA Act. The
application for renewal should be accompanied by a fee as determined by IRDA regulations, not
exceeding one forth of one percent of the total gross premium income in India in the preceding
year or Rs 5 Crores or whichever is less, but not less than Rs 50000 for each class of business as
per Section 3-A.

Requirements as to Capital: -
The minimum paid up equity capital, excluding required deposits with the RBI and any
preliminary expenses in the formation of the country, requirement of an insurer would be Rs 100
crore to carry on Insurance industry in indiabusiness and Rs 200 crore to exclusively do
reinsurance business as per Section 6.
Investment of funds outside India: -
Insurers outside India as per Section 27-C cannot invest the funds of policyholders.

Insurance business in Rural Sector: -

 After the commencement of the IRDA Act, 1999, every insurer would have to undertake
such percentage of Insurance industry in indiabusiness in the rural sector as may be specified by
the IRDA in this behalf. It is mandatory for the new companies to meet the obligations relating to
the rural and unorganized sector as per section 32-B.

Power to investigation or inspection: -

The IRDA may, at any time, order in writing a person as investigating authority to
investigate the affairs of any insurer and report to it.

Government has power to change the tax policy against Insurance industry in indiaindustry.
• Health insurance rebate,
• Pension saving rebate,
• Mede claim premium rebate,
• P.P.F., E.P.F., NSC all are tax exempted saving,
• All Insurance industry in indiapolicy are tax exempted saving ,
• Agricultural income is tax exempted,
• House rent allowances,
• Post office saving,
• Expenses on dreaded diseases are tax exempted.
• Recently there is issue to increase FDI level from 26% to 49%.

Role of the government: -

As insurance is an important service sector, hence it is highly regulated by government.
Since 1956 insurance sector was highly regulated by government of India. On March 16, 1999,
the Indian cabinet approved on Insurance Regulatory Authority Bills that was designed to
liberalize the insurance sector.
Two governments in India have fallen over the issue of liberalization of the insurance sector
(which was nationalized in 1971). But the government of A.B. Vajpayee as gone ahead to
announce the liberalization of this sector announcement was made in November 1998.

Government’s objectives for liberalization of insurance: -

The main objective of opening of insurance sector to the private insurers is as under:
 1. To provide better coverage to the Indian citizens.
2. To augment the flow of long-term financial resources to finance the growth of
infrastructure.

Important government guidelines for private players for entering into Indian Insurance
industry in indiamarket:
1. Private companies with a minimum paid-up capital of Rs. 1bn should be allowed to enter
the industry.
2. No company should deal in both life and general insurance through a single entity.
3. Foreign companies may be allowed to enter the industry in collaboration with the
domestic companies.
4. Postal Insurance industry in indiashould be allowed to operate in the rural market.
5. Only one state level Insurance industry in indiacompany should be allowed to operate in
each state.
6. Foreign investors can invest up to 26% of the equity of their joint venture with Indian
firms.

Government will prevail on grounds that the Rs. 4.5 billion India needs for infrastructure
development in the five years from 1997-98, cannot materialize if the insurance sector is not
opened up.

BODIES THAT REGULATE THE SECTOR:

For better regulation purpose of the insurance sector the government has established
following bodies;
1. IRA: Insurance Regulatory Authority.
2. IRDA: Insurance Regulatory and Development Authority.
3. TAC: Tariff Advisory Committee.

1. IRA: Insurance Regulatory Authority:

The IRA, under the chairmanship of Rangachary, was set-up in January 1996. the IRA Bill
has to be passed by parliament to make the IRA a statutory body.
 Comprehensive legislation aimed at reviewing the insurance Act of 1938 and repealing
the Insurance industry in indiacorporation Act of 1956 have to be passed.

The IRA is also preparing an internal rating system to screen all applications, as entry
will be in phases. The joint venture status of Insurance industry in indiacompanies (with
majority holding of the domestic partner) is likely to be approved by the parliament.
Consensus also seems to be emerging on the minimum of Rs. 1 bn capital stipulations for
new insurance companies.

The IRA has stipulated a minimum rural presence for all companies. The exhaustive
guidelines have been issued for the appointment of intermediaries (brokers, agents, surveyors
and actuaries).

Feature of IRA:
1. The Bill allowed for up to 26% foreign equity participation in the insurance sector.
2. The current India monopoly companies were required to bring down their equity holding
to 26% within a period of 10 years.
Government pronouncement:
1. IRA will be sole Authority, which will be responsible for awarding of, licenses i.e. little
or no government or political interference in licensing process.
2. No restriction on the number of licenses.
3. No composite license for Insurance industry in indiabusiness.
4. Licensing to be only on national basis (no city by city approach)
5. IRA allowed for up to 26% foreign equity participation in the Insurance industry in
indiasector.
6. The current Indian monopolies companies are required to bring down their equity holding
to 26% within a period of 10 years.

IRA proposals:

1. New player should start their business within 15-18 months.

2. Trafficking of licenses not to be permitted.
3. IRA to seek business plan with 5-year protection for all applicants.
4. A system of direct brokers to be introduced.
 5. IRA to vet top management appointments.

2. IRDA: Insurance Regulatory and Development Authority:-

The Insurance Regulatory and Development Authority, constituted under the IRDA Act,
1999, provide for the establishment of an authority to protect the interest policyholders, to
regulate, promote and ensure orderly growth of the Insurance industry in indiaindustry.

Business Requirement:-
A company will not be issued a license unless the IRDA is satisfied with the sound
financial condition, the general character of management, the volume of business, the capital
structure, earning prospects for the insurers and that the interests of the general public will be
served if registration is granted to the insurer.
Foreign insurance companies have been allowed to have a maximum 26% share holding. No
Insurance industry in indiacompany can be registered under the Act unless they have a paid up
capital of Rs. 100 crores. Every life insurer shall deposit with the reserve bank of India one
percent of the total gross premium written in India in any financial year, not exceeding Rs. 10
crores.
This amount would not be susceptible to any assignment or charge nor would it be
available for the discharge of any liabilities other than liabilities arising out of policies issued, so
long as any such liabilities remain undercharged.

Investment of Assets:-
Every insurer is required to invest, and keep invested, assets equivalent to not less than
the net liabilities as follows: (a) 25 % in government securities, (b) a least 25% of the said sum in
government securities or other approved securities and (c) the balance in any approved
investment rated as “very stron” or more by reputed rating agencies, which include various debt
instruments on which dividend on its ordinary shared for the five years immediately preceding or
for at least five out of the six or seven years immediately preceding have been paid and which
have priority in payment over ordinary shares of the company in winding up.

The IRDA may in the interest of the policyholder’s directions relation the time, manner
and other conditions and investments of assets to be held by an insurer. The IRDA may also
direct the insurer to realize the investment, if it sees the investments to be unsuitable or
undesirable. The Act prohibits an insurer from directly or indirectly investing policyholder funds
outside India.

Further, every insurer has to always maintain an excess of the value of his assets over the
amount of his liabilities of not less than Rs. 50 crores in the case of an insurer carrying of
Insurance industry in indiabusiness. If at any time an insurer does not maintain the required
solvency margin, he is required to submit a financial plan, as per directions issued by the IRDA,
indicating a plan of action to correct the deficiency within three months.
In order to ensure that the company does not risk the money of the policyholder’s, the Act
provides that an insurer who does not comply with the aforesaid provisions may be deemed to be
insolvent and may be would up by the court.

Insurers are required to get an actuary to investigate the financial conditions of the
Insurance industry in indiabusiness including a valuation of liabilities every year in order to
ensure continual compliance.

In order to maintain transparency in its dealings, insurers would have to keep separate
account relating to funds of shareholders and policyholders.

Consequences of non-compliance: -

A company failing to comply with the act shall be liable for panel action. Further, IRDA
is empowered to investigate into the affairs of the company. Failure to comply with the
directions may lead to cancellation of the license for the company. Also, if the IRDA has reason
to believe that a company is doing business in a manner likely to be prejudicial to the interest of
policyholders, it is required to report to the central government.

The central government may base on the report, appoint an administrator to manage the
affairs of the company. This would act as a further assurance to the consumers, as their interests
would at all times be a priority and that in the event that the company acts in the manner
prejudicial to their interests, than an administrator would be appointed to serve their needs.
The court may also wind up the company if it fails to deposit or keep deposits as per the
requirements of the act or if the continuance of the company is prejudicial to the interest of the
policyholders or public interest. But an insurance company cannot be wound up voluntarily or on
the grounds that by reasons o its liabilities it cannot continue its business, except for the purpose
of affecting an amalgamation or a reconstruction of the company. Therefore, a company after
issuing a policy cannot escape liability by seeking voluntary winding up.

The four amendments, made in the Insurance industry in indiaBill by the Lok Sabha, are as
under:
1. The Insurance Regulatory and Development Authority should give priority to health
insurance.
2. Policyholder’s fund will be invested in the social sector and infrastructure. The percent
may be specified by the IRDA and such regulations will apply to all insurers operating
in the country.
3. Insurers will be expected to undertake a certain percent of business in rural areas, and
cover workers in the unorganized and informal sectors and economically backward
classes.
4. In the event of insurers failing to fulfill the social sector obligations, a fine of Rs. 25
lakh would be imposed the first time. Subsequent failures would result in cancellation
of licenses.

3. TARIFF ADVISORY COMMITTEE:

The tariff advisory committee established under the Act is empowered to control and regulate
the rates, terms, and etc. that may be offered by insurers in respect of any risk or of any category
of risks. It is provided that in fixing, amending or modifying such rates etc. the committee shall
try to ensure as far as possible that there is no unfair discrimination between risk of essentially
the same hazard and also that consideration is given to past and prospective loss experience.
Every insurer is required to make payment to the TAC of the prescribed annual fees.
 TAX POLICY AND INSURANCE SECTOR:

Another factor, which affects the insurance sector, is the tax policy. The tax reforms in India
are such that it encourages the citizens to invest in the insurance sector.
The tax policy of the government is particular relevant for Insurance industry in
indiawhich is a long- term contract and inculcates among the policyholders the habit of saving.
Taxation of returns on investment influences, investment decisions and high rates of taxation will
discourage the desire to save. Already in India there are complaints that the rates of return on life
policies are not what they could be. Therefore tax incentives play a vital role in determining the
attractiveness of such policies. Such tax breaks are available in many countries and have helped
in the development of their life sector. In western countries the gain from the proceeds of a
Insurance industry in indiapolicy is paid free of tax. Provided the policy satisfies certain
qualifying conditions. Non-qualifying policies get basic rate tax relief, though higher rate
taxpayers may still have to pay tax on the gain, although at a reduced rate. The insurance
companies can use such tax concessions rate. The insurance companies can use such tax
concessions to design products for different categories of taxpayers.

The other factors, which affect the insurance sector, are the employment law, and
government stability. These are the factors, which affect the insurance industry.

INVESTMENT DECISIONS MANDATED BY GOVERNMENT:

Insurers are required to fulfill certain social commitments as well. As many of the social
welfare measures companies are not just regulated, but have been mandated to hand over a
portion of their funds to the state for investment in infrastructure and for social development
through government bonds and securities. In India, the pattern was, accordingly, prescribed in
great detail by the government. This was not in the form of guidelines, but as a legal obligation
under the insurance Act, 1938.
KEY STRATEGY TO SUCCESS

In order to succeed in any of the business it is very necessary to make and follow the
strategies. Strategies are very important for any of the business. Following are the general
strategies, which are recommending to the insurance sector.
One approach is to focus upon product quality, which will instill confidence in minds of the
customers that they would be offered best product from out of the several available products.

The other approach, is to focus on the customers need, would involve a heavy investment
in developing relationships with policyholders. Under this approach, one can expect a range of
products and services designed to give the customer what he specially desires.

The third approach is of greater market segmentation under which the population should
be divided into several homogeneous groups and product, and services would be targeted
towards such selected markets. The effort would be to “tie” clients to their company- by
customized combination of coverage, easy payment plan, risk management advice, and
convenient quick claim handling.

Porter Generic Strategies:

One of the expert Michel porters has identified three internally consistent generic
strategies, which can be used singly or in combination: overall cost leadership is clearly under
stable. In a differentiation strategy, a company seeks to be unique in its industry along some
dimensions that are widely valuable by the customer. May be the lowest cycle time for settling a
claim under say, a med claim policy could be differentiating factor. In a cost focus, a company
seeks a cost advantage in its target segment, while in differentiation focus; a company seeks a
differentiation target.

Marginal Different Product:

 Another strategy would be for the companies to design products that will make
comparison-shopping difficult. They could offer a wide variety of covers with marginal
differences and varying prices, whose terms and conditions are difficult to compare for
consumers who may not have sufficient experience in purchasing insurance and who would find
it difficult to make a clear choice. If the consumer is offered a unique policy, he will have no
alternative coverage with which can be compared. Given the combination policy, which can
offer protection against a number of losses, the consumer will find comparison even more
difficult.

Designing New Strategies:

The existing insurance companies cannot be satisfied with concentrating on the

consolidation of their existing markets, but have to achieve further growth and penetration. They
must, therefore, concentrating on strengthening existing points of service, designing new channel
of distribution, direct contact with their ultimate customers, and front line employee
empowerment. They also need to refresh their marketing set up. The new comers, on the other
hand give priority to tapping the market, left unexploited by the public sector companies.

Move towards Rural Market:

It is one of the most important suggestions; data says that rural market is still uncovered
by this sector. We believe that the sector should move towards tie rural market. Insurance
penetration can be achieved by tapping the neglected Rural Markets. There is vast potential for
insurance growth in the rural sector. A recent survey by foundation for research, training and
Education in insurance (FORTE) suggests that insurance can be sold profitably to rural
communities in India. The survey reveals that
There is distinct hierarchy of needs in rural areas. Rural
people find security in groups.
The saving habit is very strong in rural areas.
 Average saving across the most important socio-economic strata comes to 30-35% of
annual income or Rs. 13,500 annually, which is significant. There is high level of
awareness about Insurance industry in indiaand fairly high-level about 36% already own
life insurance.
51% of these who own Insurance industry in indiawould like to buy more.
Amongst the savers, a significant percentage does not save through formal financial
modes or institutions.
Rural buyers of insurance prefer a half yearly mode of premium payment to coincide
with the time of the harvest.

Thus there are very much chances for any of the companies to work over this scenario. So
we believe and suggest all the players to move towards the rural areas.

MOTIVATION OF SALES FORCE:

A Insurance industry in indiacompany should constantly be involved in the process of
motivating the sales force in the turbulent times. The following strategies are recommending;
Building relationship is real perk. One should be sure to build in networking times for
agents during the program-in addition to entertainment and education.
Web should be frequently used for creating gift ideas.
Hold sales contests in the forth quarter. It is the best times ti motivates agents who wants
to qualify for a trip.
Consider a contrast within the contest ‘for- top-tier producers; additional rewards for
additional milestones that are met, such as air and guest room upgrades.

Use of Internet:
The present scenario is such that the products sold with the help of Internet. The
technological advancement is such that force the companies to take such steps. Still the full-
fledged use of Internet is not done in our country. As suggestion earlier the Internet based
Insurance industry in indiawill help the companies to reduce the transaction cost and time. At the
time it can improve the quality of service to its customers, which is the mission of the company.
 Company should concentrate on the quality of the premium received this will help the
companies to reduce its underwriting losses. Appointing of proper and efficient agent as well as
effective direct marketing could do this.
By way of training the excessive staff, which is a major problem in the company, the
company could reduce management expense to a large extent.
Chapter 4
FINANCIAL ANALYSIS
RATIO ANALYSIS
RATIO ANALYSIS

A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical

values taken from an enterprise's financial statements. Often used in accounting, there are many

standard ratios used to try to evaluate the overall financial condition of a corporation or other

organization. Financial ratios may be used by managers within a firm, by current and potential

shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios

to compare the strengths and weaknesses in various companies.If shares in a company are traded

in a financial market, the market price of the shares is used in certain financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent

percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that

are usually or always less than 1, such as earnings yield, while others are usually quoted as

decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are

also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the

reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but

may be more understandable: for instance, the earnings yield can be compared with bond yields,

while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of

5%.

Values used in calculating financial ratios are taken from the balance sheet, income

statement, statement of cash flows or (sometimes) the statement of retained earnings. These

comprise the firm's "accounting statements" or financial statements. The statements' data is based

on the accounting method and accounting standards used by the organization Financial ratios

quantify many aspects of a business and are an integral part of the financial statement analysis.
Financial ratios are categorized according to the financial aspect of the business which the ratio

measures. Liquidity ratios measure the availability of cash to pay debt.Activity ratios measure

how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's

ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and

control of its expenses to generate an acceptable rate of return. Market ratios measure investor

response to owning a company's stock and also the cost of issuing stock. These are concerned

with the return on investment for shareholders, and with the relationship between return and the

value of an investment in company’s shares.

Financial ratios allow for comparisons

 between companies

 between industries

 between different time periods for one company

 between a single company and its industry average

Ratios generally are not useful unless they are benchmarked against something else, like past

performance or another company. Thus, the ratios of firms in different industries, which face

different risks, capital requirements, and competition are usually hard to compare.

Financial ratios may not be directly comparable between companies that use different

accounting methods or follow various standard accounting practices. Most public companies are

required by law to use generally accepted accounting principles for their home countries, but

private companies, partnerships and sole proprietorships may not use accrual basis accounting.

Large multi-national corporations may use International Financial Reporting Standards to

produce their financial statements, or they may use the generally accepted accounting principles

of their home country. There is no international standard for calculating the summary data

presented in all financial statements, and the terminology is not always consistent between

companies, industries, countries and time periods.

It refers to the systematic use of ratios to interpret the financial statements in terms of the

operating performance and financial position of a firm. It involves comparison for a meaningful

interpretation of the financial statements. In view of the needs of various uses of ratios the ratios,

which can be calculated from the accounting data are classified into the following broad

categories

A. Liquidity Ratio

B. Turnover Ratio

C. Solvency or Leverage ratios

D. Profitability ratios

RATIOS – WHAT DO THEY TELL US?

CURRENT RATIO

The current ratio measures the short-term solvency of the firm. It establishes the relationship

between current assets and current liabilities. It is calculated by dividing current assets by

current liabilities. Current assets include cash and bank balances, marketable securities,

inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables

and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term

loans, income-tax liability, accrued expenses and dividends payable.

 Current Ratio = Current Asset

Current Liabilities

DEBTOR TURNOVER RATIO

This indicates the number of times average debtors have been converted into cash during a year.

It is determined by dividing the net credit sales by average debtors.

Debtor Turnover Ratio = Net Credit Sales

Average Trade Debtors

Net credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry

debtors and bill’s receivables. Average trade debtors (Opening + Closing balances / 2). When

the information about credit sales, opening and closing balances of trade debtors is not available

then the ratio can be calculated by dividing total sales by closing balances of trade debtor.

Debtor Turnover Ratio = Total Sales

Trade Debtors

EXPENSES RATIO

While some of the expenses may be increasing and other may be declining to know the behavior

of specific items of expenses the ratio of each individual operating expenses to net sales should

be calculated. The various variants of expenses are

Cost of goods sold = Cost of goods sold X 100

Net Sales

Administrative Expenses Ratio = Administrative Expenses X 100

Net sales
 Selling and distribution expenses ratio = Selling and distribution expenses X 100

Net sales

DEBT EQUITY RATIO

Debt equity ratio shows the relative claims of creditors (Outsiders) and owners (Interest) against

the assets of the firm. Thus this ratio indicates the relative proportions of debt and equity in

financing the firm’s assets. It can be calculated by dividing outsider funds (Debt) by shareholder

funds (Equity)

Debt equity ratio = Outsider Funds (Total Debts)

Shareholder Funds or Equity

The outsider fund includes long-term debts as well as current liabilities. The shareholder funds

include equity share capital, preference share capital, reserves and surplus including accumulated

profits. However fictitious assets like accumulated deferred expenses etc should be deducted

from the total of these items to shareholder funds. The shareholder funds so calculated are

known as net worth of the business.

PROPRIETARY (EQUITY) RATIO

This ratio indicates the proportion of total assets financed by owners. It is calculated by dividing

proprietor (Shareholder) funds by total assets.

Proprietary (equity) ratio = Shareholder funds

Total assets
 BALANCE SHEET
PARTICULARS MARCH 2016 MARCH 2015
SOURCES OF FUNDS
Owners' Fund
Equity Share Capital 101.00 101.00
Share Application Money 0.00 0.00
Preference Share Capital 0.00 0.00
Reserves & Surplus 6,380.29 5,581.21
Loan Funds
Secured Loans 54,975.35 44,614.54
Unsecured Loans 3,729.83 3,255.37
Total 65,186.47 53,552.12
USES OF FUNDS
Fixed Assets
Gross Block 115.25 108.15
Less: Revaluation Reserve 0.00 0.00
Less: Accumulated Depreciation 52.88 45.92
Net Block 62.37 62.24
Capital Work-in-progress 0.00 14.53
Investments 184.63 164.03
Net Current Assets
Current Assets, Loans & Advances 80,313.23 64,191.79
Less : Current Liabilities &
15,373.76 10,880.45
Provisions
Total Net Current Assets 64,939.47 53,311.34
Miscellaneous Expenses not written 0.00 0.00
Total 65,186.47 53,552.12
 PROFIT AND LOSS STATEMENT
PARTICULARS MARCH 2016 MARCH 2015
Income :
Operating Income 7,575.92 6,114.86
Expenses
Material Consumed 0.00 0.00
Manufacturing Expenses 0.00 0.00
Personnel Expenses 90.41 72.44
Selling Expenses 0.00 110.85
Administrative Expenses 262.78 202.46
Expenses Capitalized 0.00 0.00
Cost Of Sales 353.18 385.75
Operating Profit 7,222.74 5,729.11
Other Recurring Income 82.96 23.09
Adjusted PBDIT 7,305.70 5,752.21
Financial Expenses 5,924.60 4,591.07
Depreciation 7.53 7.42
Other Write offs 0.00 0.00
Adjusted PBT 1,373.57 1,153.72
Tax Charges 350.36 316.72
Adjusted PAT 1,023.21 837.00
Non Recurring Items 0.00 77.09
Other Non Cash adjustments 0.00 0.11
Reported Net Profit 1,023.21 914.20
Earnings Before Appropriation 1,712.14 1,445.03
Equity Dividend 191.77 181.68
Preference Dividend 0.00 0.00
Dividend Tax 32.35 29.42
Retained Earnings 1,488.02 1,233.93
CALCULATION OF RATIOS

 Current Ratio = Current Assets

Current Liabilities

Current Year = 80313.23

15373.36

= 5.22:1

Previous Year = 64191.79

10880.45

= 5.89: 1

COMMENTS – Current ratio is also known as Bankers Ratio/Working Capital Ratio. This

ratio shows the relationship between current assets and current liabilities. It also shows the short

term solvency position of the organization. Ideal current ratio should be 2:1.

 Proprietary ratio = Proprietors funds × 100

Total Assets

Current Year = 55209.68 × 100

101876.93

= 54.09 %

Previous Year = 52216.46 × 100

95802.99

= 54.50 %
COMMENTS :- This ratio shows the relationship between proprietors fund and total assets. It

also shows long tern stability and solvency position of the organization. Ideally it should be

between 65 % to 70 %.

Debt Equity Ratio = Borrowed funds

Proprietor’s funds

Current Year = 23636.51

55209.68

= 42.82: 100

Previous Year = 21418.82

55216.46

= 38.79 : 100

COMMENTS: - This ratio shows the relationship between borrowed funds and proprietors

funds. It also shows the composition and structure of the capital invested in the business.

Standard ratio should be 2:1

Debtors Turn Over Ratio = Net Credit Sales

Average Receivables

= Net Credit Sales

Average (Debtors + Bills

receivables) Current Year = 38199.43

796.92

= 47.93 times
 Previous Year = 33933.46

904.08

= 37.53 times

Comments :- This ratio is an activity ratio which shows the number of times good sold to

debtors and payment received from them. HIGHER the ratio is FAVAROUBLE and vice versa.

Creditors Turn Over Ratio = Net Credit Purchases

Average Payables

= Net Credit Purchases

Average (Creditors + Bills payables)

Current Year = 9877.40

6369.91

= 1.55 times

Previous Year = 8014.37

5883.92

= 1.36 times

Comments:- This ratio is an activity ratio which shows the number of times goods
purchased on credit basis and payments made to creditors. HIGHER the ratio is FAVOURABLE
and vice versa.

Expense Ratio : Employee Benefit Expense Ratio × 100

Net Sales
Current Year = 90.41 × 100

7575.92

= 1.19 %

Previous Year = 72.44 × 100

6114.86

= 1.18 %

Gross Profit Ratios :- Gross Profit ×100

Net sales

= Sales – COGS × 100

Net sales

Current year = 7575.92 – 353.18 ×100

7575.92

= 95.33%

Previous year = 6114.86-385.75 ×100

6114.86

= 93.69%

Comments : This ratio indicates the relationship between gross profit and net sales. It is a

profitability ratio which shows the efficiency of the company to earn trading surplus.
CHAPTER -5

CONCLUSION
 CONCLUSION

The study was conducted to study the performance of LIC Ltd. It was found that the

schemes where the investors have chosen equity based fund the returns are directly proportional

to the stock market. However the debt based fund has shown increasing returns over the time.

They are neutral to the volatility shown by the stock market.

The survey showed that around 40% of the investors had invested in LIC. The company’s

brand image has captured the attention of investors in Delhi. The primary objective for investing

in such plans was found to be capital appreciation and children education. The investors found

the allocation charges to be average and the consequent returns also to be average. It was

observed that the switch option was not exercised by nearly half the investors. Thus, it can be

said that the investors are not monitoring their investment properly. The investors have to

understand the working of LIC in a better way to maximize their returns.

 CHAPTER - 6

BIBLIOGRAPHY
 BIBLIOGRAPHY

th
Planed P.S and Shah R.S; Insurance in India, Response books-2003 Insurance 4 edition
CIB Puplicaion

Magazine

Insurance industry in indiavol 1

ICFAI PRESS Insurance industry in
indiavol 2 ICFAI PRESS
Insurance industry Emerging Trends ICFAI PRESS
Insurance law and regulation vol-1 ICFAI PRESS

 Websites:
 http://economictimes.indiatimes.com/lic-housing-finance-ltd/stocks/companyid-

10823.cms

 http://www.investopedia.com/terms/r/ratioanalysis.asp

 http://en.wikipedia.org/wiki/Financial_ratio

 http://www.demonstratingvalue.org/resources/financial-ratio-analysis

 http://www.moneycontrol.com/financials/lichousingfinance/ratios/LIC

 www.iciciprulife.com

 www.bseindia.com

 www.irda.org

 Newspapers:
The Times of India

The Indian Express

Economic Times