LIC strategy

Introduction With over a billion people, India is fast becoming a global economic power. With a relatively youthful population, population, India will become an attractive insurance market over the next decades. This paper examines the Indian insurance industry. It highlights the importance of the rural sector – where the majority of the Indians still live. It shows how the recent privatization is   play playing ing out in the the mark market. et. Based Based on recen recentt econom economic ic estim estimat ates, es, the paper paper provid provides es  projections of segments of the market for 2025. India is among the important emerging insurance markets in the world. Life insurance will grow very rapidly over the next decades in India. The major drivers include sound economic fundamentals, a rising middle-income class, an improving regulatory framework and rising risk awareness. The fundamental regulatory changes in the insurance sector in 1999 will be critical for future growth. Despite the restriction restriction of 26% on foreign ownership, large foreign insur insurer erss have have ente entered red the India Indian n mark market. et. Stat State-o e-own wned ed insur insuranc ancee compan companies ies stil stilll have have dominant market positions. positions. But, this would probably change over the next decade. In the life sector, new private insurers are bringing in new products to the market. They also have used innovative distribution channels to reach a broader range of the population. There is huge in the largely undeveloped private pension market. The same is true for the health insurance  business. The Indian general insurance segment is still heavily regulated. Three quarters of   premiums are generated under the tariff system. Reinsurance in India is mainly provided by the General Insurance Corporation of India, which receives 20% compulsory cessions from other other gener general al insure insurers. rs. Final Finally ly,, the the rural rural secto sectorr has has potent potential ial for both both life life and and genera generall insurance. To realize this potential, designing suitable products is important. Insurers will need to pay special attention attention to the characteristics characteristics of the rural labor force, like the prevalence prevalence of irregular income streams and preference for simple products.

Question 1: Discuss the evolution of the Indian insurance industry over the decades and critically comment on LIC's products and pricing practices. Why do you think the average Indian insurance customer has largely been a buyer of money back and endowment policies? Evolution of the insurance sector India had the nineteenth largest insurance market in the world in 2003. Strong economic growth in the last decade combined with a population of over a billion makes it one of the  potentially largest markets in the future. Insurance in India has gone through two radical transformations. transformations. Before 1956, insurance insurance was private with minimal government intervention. In 1956, life insurance was nationalized and a monopoly was created. In 1972, general insurance was nationalized nationalized as well. As a part of the general opening up of the economy after  1992, a Government appointed committee recommended that private companies should be allowed to operate. It took six years to implement the recommendation. Private sector was allowed into insurance business in 2000. However, foreign ownership was restricted. No more than 26% of any company can be foreign-owned.

Insurance in the Colonial Era. Life insurance in the modern form was first set up in India through a British company called the Oriental Life Insurance Company in 1818 followed followed by the Bombay Assurance Company in 1823 and the Madras Equitable Life Insurance Society in 1829. All of these companies operated in India but did not insure the lives of Indians. They were insuring the lives of  Europeans living in India. The first general insurance company, Triton Insurance Company Ltd., was established established in 1850. It was owned and operated by the British. The first indigenous general insurance company was the Indian Mercantile Insurance Company Limited Limited set up in Bombay in 1907. In 1912, two sets of legislation were passed: the Indian Life Assurance Companies Act and the Provident Insurance Societies Act. First, they were the first legislations in India that  particularly  particularly targeted the insurance sector. Second, they left general insurance business out of  it. In 1938, the Insurance Act was passed which covered both life and general insurance companies.

Evolutio Evol ution n of Insu Insuranc rance e duri during ng Nat Nationa ionalized lized Era: 1956 1956-2000 Before 1956, insurance was private with minimal government intervention. In 1956, life insurance was nationalized and a monopoly was created. In 1972, general insurance was nationalized nationalized as well. There were 107 general insurance companies operating at the time. The reason reason for this was that insuranc insurancee is a “cooper “cooperati ative ve enterpri enterprise,” se,” under a sociali socialist st form of  government; government; therefore, it is more suited for government to be in insurance business business on behalf  of the “people”. “people”. Second, those Indian companies are excessively expensive. Third, argued that private competition has not improved services to the “public” or to the policyholders.

Life Insurance Business during the Nationalized Era. Indian Indian life insurance insurance was nationa nationalize lized d in 1956. 1956. An Ordinance Ordinance was issued issued on 19th January, 1956 nationa nationalisi lising ng the Life Life Insuranc Insurancee sector sector and Life Life Insuran Insurance ce Corpora Corporation tion came came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75  provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late late 90s when the Insurance Insurance sector sector was reopened reopened to the private private sector. sector. All life life compani companies es were merged together to form one single company: company: the Life Insurance Corporation. Corporation. By 2000, Life Insurance Corporation had 100 divisional offices in seven zones with 2048 branches. There were over 680,000 active agents across India with a total of 117,000 employees in the Life Insurance Corporation employed directly. After After the report of the Malhotr Malhotraa Commit Committee tee came came out, changes changes in the insuranc insurancee industry industry appear appeared ed immi imminen nent. t. On Dece Decemb mber er 7, 199 1999, 9, the new gov gover ernm nment ent passe passed d the the Insura Insurance nce Regulatory and Development Authority Act. Starting in early 2000, the Insurance Regulatory and Development Authority started granting charters to private life and general insurance companies. By the end of 2003, there were thirteen life insurance companies had charters to operate, one public (the old monopoly) and twelve private companies. All of the private companies companies had foreign partners in life business. Almost all general insurance companies also have foreign partners.

LIC PRODUCTS AND PRICING POLICIES The largest segment of the life insurance market in India has been individual life insurance. The types of the policies sold were mainly whole life, endowment and “money back”  policies. Money back policies return a fraction of the nominal value of the premium paid by the policyholder at the termination of the contract. Thus, whether we examine the new  policies  policies sold or the total number of policies in force, there has been a tenfold increase during

that that period period.. Th Ther erefo efore, re, if we exami examine ne the headc headcoun ountt of polic policies ies as an indic indicati ation on of   penetration, there has been a substantial rise. A part of this rise is directly attributable to a deliberate policy of rural expansion of the Life Insurance Corporation. WHAT IS ENDOWMENT POLICY 

Endowment insurance are policies that cover the risk for a specified period and at the end the sum assured is paid back to the policyholder policyholder along with all the bonus accumulated accumulated during the term of the policy. The Endowment insurance policies work in two ways, one they provide life insurance cover and on the other hand as a vehicle for saving. They Th ey are more more expen expensi sive ve than than Term Term polici policies es and Whol Wholee life life polici policies es..  Normally  Normally the bonus in calculated calculated on the sum insured but the only drawback is that the bonuses are not compounded. Endowment insurance plans are best for people who do not have a saving and an investing habit on a regular basis. Endowment Insurance Plans can be bought for a shorter duration  period. LIC-ENDOWMENT LIC-ENDOWMENT POLICIES

Jivan Mitra-Double cover Endowment Plan Jivan Mitra-Triple Cover Endowment Plan Jivan Anand Plan  New Janraksha Plan Product Benefits include: Death Benefit, Maturity Benefit, Extra/Supplementary Benefit.

These benefits are offered by LIC in the wake of increased competition, though not many  benefits were offered before. The Plan Parameters 

Age at entry: 35 years

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Policy Term: 20 Years

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Mode of premium payment: Yearly

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Sum Assured: Rs. 1,00,000 /-

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Annual Premium: Premium: the rate of annual premium to be paid was very low when LIC was the sole insurer. But in the present scenario LIC has to offer higher premium rates so as to stay in competition. WHAT IS TERM INSURANCE PLAN

Term Insurance is a no frills life insurance plans and covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term Insurance generally offers the

cheapest form of insurance. You can renew most Term Insurance policies for one or more terms even if your health condition has changed. Each time you renew the policy for a new term, premiums may climb higher. Term policy, cover only the risk during the selected term period. If the policyholder  survives the term, the risk cover comes to an end. A Term plan is a pure risk cover plan and it meet the needs of people who are initially unable to pay the larger premium required for a whole life or an endowment assurance  policy, but they hope to be able to pay for such a policy in the near future. LIC-TERM ASSURANCE PLANS

Amulya Jivan Policy Anmol Jivan Policy Convertible Term Assurance Policy Two Year Temporary Assurance Policy Products 

Death Benefit, Maturity Benefit, Payment of Premiums, Premiums, Surrender Value, Loan, Cooling

Off Period, Grace Period, Paid Up Value. Plan Parameters- Amulya Jivan & Anmol Jivan Policies ✔

Minimum age at entry 18 Year (Completed)

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Maximum age at entry 60 years (nearest birthday)

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Maximum age at maturity 70 years

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Policy term 5 to 35years

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Minimum Sum Assured Rs.25,00,00/-

Plan Parameters-Convertible Parameters-Convertible Term Assurance Policy ✔

Entry Age 20(nearer 50 years birthday)

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Sum Assured 50,000- 1,00,00,00

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Term 5 years to 7 years

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Mode of Payment -Yearly, half yearly, quarterly, monthly

Plan Parameters-Two Years Temporary Policy ✔

Entry Age 18 years 60 years (completed)

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Sum Assured 50,000 1,00,000

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Term 6months to 2 years

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Mode of Payment -Single Premium

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Maximum Premium -62 years

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Policy Loan Available -No WHAT IS MONEY BACK PLAN

Money back policies are quite similar to endowment insurance plans where the survival  benefits  benefits are payable only at the end of the term period, plus the added benefit of money back   policies is that they provide for periodic payments of partial survival benefits during the term of the policy so long as the policy holder is alive. An additional and important feature of money back policies is that in the event of  death at any time during the term of the policy, the death claim comprises full sum assured without deducting any of the survival benefit amounts. The insurance premiums of Money Back Policies are higher than Term Insurance Policy because in Term Insurance there is no survival benefit after the expiry of the insurance period. Money Back Policies are good for people who want to insure their  life and also want to some return from their investment's at a later date. The return from from invest investme ment ntss in Mo Money ney Back Back Poli Polici cies es would would range range betwe between en 5% to 8% p.a. p.a. depending on the interest rate movements. LIC-MONEYBACK LIC-MONEYBACK PLANS

Jivan Surabhi Money Back Policy-25 years Death Benefit Benefit,, Surviva Survivall Benefit Benefit,, Maturit Maturity y Benefit Benefit,, Supplem Supplement entary ary Benefit Benefit,, Benefits: Death Surrender Value, Loan Plan Parameters-Jivan Surabhi Policy ✔

Minimum plan Entry Age 18 (last birthday)

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Maximum plan 106 55years, plan 107 50years, plan 108 50years

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Sum Assured 50,000, No Limits

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Term 15 years

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Fixed Terms

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Maximum Premium 70 years

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Paying Period

Plan Parameters-25 Year Money back  ✔

Policy

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Entry Age 13 (last 50 years birthday)

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Sum Assured -50,000 No Limit

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Term -20 & 25years -

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Maximum Premium -70 years

The preference of money back and endowment policies by Indian customers But out of all these policies money back and endowment policies of LIC have been widely  preferred by customers for very long. The reason for this is provided in the benefits of these  policies given as follows:

Money Back Policy Benefits: Thee bene Th benefi fits ts unde underr mone money y back back poli polici cies es prem premiu iums ms can can be paid paid as per per the the insu insura ranc ncee company’s policy. These could be quarterly, half yearly or annually. The premiums for these  policies are payable for the selected term of years, or till death if it occurs earlier. 

By buying such policies one can receive income at regular intervals other than the risk  cover it provides. Also a good amount of bonus on the full sum assured is quite a good bargain.

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Mone Mo ney y back back life life insu insura ranc ncee poli polici cies es offe offerr the the dual dual bene benefi fits ts of insu insura ranc ncee and and redemption of money at regular intervals.

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These policies fit perfectly in the scheme of things of traditional savings, for people who seek financial financial instruments instruments that provide insurance and savings elements, elements, coupled with low risk element and guaranteed returns.

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It creates a long-term long-term savings opportunity with a reasonable reasonable rate of return, especially since the payout is considered exempt from tax except under specified situations.

Endowment Policy Benefits: Under a special provision in the Income tax Act, the returns on an insurance policy are tax free. There will be two possibilities, if the policy is other than a term policy. a) On untimely death of the insured: In this situation, a benefit can be received on the death

of the person insured under the policy. policy. This receipt is tax free in the hands of the dependants who actually receive the insurance benefit. This means that under Section 10 (10D) of the Income Tax Act the amount received on death from an insurance policy policy will not be included in the taxable income calculations. b) On maturity: In this case, the amount would be received at maturity of the policy. It

would include bonus and other benefits. This happens when the policyholder actually lives through the entire policy period, for example, in money back policies or endowment policies. In this case too the receipt is completely tax-free in the hands of the investor.

Example

Consider a case where a customer takes a policy with a sum assured of Rs 10 lakh cover. At maturity after 20 years, the total amount including bonus comes to Rs 21 lakh. The bonus is accumulated at different rates for the years over the life and this works out to Rs 11 lakh totalling to an overall figure of Rs 21 lakh; this entire amount is tax free. While that is true, one of the reasons for endowment and money back policies to be more  popular than others is also the fact that Life Insurance Corporation of India (LIC) agents  pushed them vigorously. The reason - commission on these products is higher than other   products. As a result the market is not aware about other usual products that are in LIC's  portfolio. Thus due to the above advantages Indian customers preferred LIC’s money back  and endowment policies.

Question 2: Analyze the different kinds of innovative products being offered by various insurance companies in India in the early 21st century, highlighting the essential differences as compared to LIC's product portfolio. The new private private insurer insurer focused focused on providing providing customize customized d product product - product product that contain contain innovative innovative feature- to the customers for this the company conducted conducted extensive market research to figure out what types of products would appeal to consumers . MAX NEWYORK LIFE - INRODUCTION

Max Max New New York York Life Life Insur Insuranc ancee Compan Company y is a joint joint ventu venture re betw between een New New York York Life Life International Inc. And Max India Limited. New York Life, a Fortune 100 Company, is one of  the world’s experts in life insurance with over 156 years of experience in the business and over US$ 165 billion (Rs. 775,000 Crores) in assets under management. Max India Limited is a multi-business corporate, corporate, focused on the knowledge, knowledge, people, and service-oriented service-oriented business of life insurance. Max New York as a part of its innovation added life insurance to credit risk  insurance, insurance, whereby individuals could get their housing/ vehicle loan insured. Max New York  Life also introduces new endowment policies/ policies/ children endowment at the age of 18, 24 &16. The two new riders were also added to these policiespolicies- the payer benefit rider and 5 year term renewable and convertible rider.

HDFC STANDARD LIFE INSURANCE

HDFC Standard Life Insurance Co. Ltd. is a joint venture between HDFC, India’s largest housing finance institution and Standard Life Assurance Company, Europe’s largest mutual life company. HDFC manages Rs. 21,450 Crores in assets and Standard Life manages over  US $100 billion in assets. Both the promoters are well known for their ethical dealings, dealings, their  financia financiall strength strength and their their commit commitment ment to be a long-ter long-term m player player in the life Insuranc Insurancee industry. The HDFC Standard Life offered its customers a choice between the base  products (the co. offered two products- the endowment policy and the money  back policy) each of which would be accompanied by four riders (critical illness, accidental death benefit, waiver of premium and double sum assured), acc. to the requirement of the customer. HDFC tender life offered 14 pre  packaged  packaged products from which customer could choose the one that best suited their need. Also, the customers customers were allowed allowed to mix and match match the benefit in order to create the most suitable product. The co. also planned to introduce unit unit link linked ed prod produc uctt and and indi indivi vidu dual al pens pensio ion n prod produc uctt afte afterr the the requ requir ired ed amendment were made to the insurance. ICICI Prudential Life

offered compound interest. It also offered accident benefit

and disability disability benefit riders with a marginally marginally higher premium premium of Rs. 270 p.a. it also launched a pension plan “ ICICI Pru Forever   Pru Forever ” which would provide the policy holder  a fixed income after after a certain certain period of time with with additional additional riders riders such as critical critical illness benefit, major surgical benefit, accident and disability benefit. Tata AIG

came up with whole life policy known as MahaLife, which would provide

life cover for 100 years, with guaranteed annual payment of 5% of the sun assured each year from the 13th year year for the rest of the the life. life. Policy Policy holder holder needs needs to pay   premium only for the first 12 years of the policy or until death whichever came earlier.  Aviva

launched 3 products in early 2002- life long, a whole life flexible protection

 plan, life saver, premium endowment savings plan, and life bond, a single premium investment bond. Aviva also offered “unitize with profit” products (like unit linked  product,  product, under “unitize with profit”, the premium was split into many units. A part of  the investment return was held that by the insurance co. to offset market fluctuation during the term of the policy, and the surplus was distributed as terminal benefit). Having realised the untapped potential of the rural market for insurance products,  AMP  AM P San Sanmar  mar  decided

to target semi urban and small town by having product

features features simple simple and straight straight forward. forward.

AMP Sanmar Sanmar decided decided to keep its product

strategy as offering simple life insurance solution to individual primarily aiming at wealth creation and risk protection. Birla Sun Life

also launched products meant for the rural population in order to

capture a larger market share. It launched the Birla Sun Life Kavach Yojna, a three year single premium insurance cover available in denomination of Rs. 50, 100, and 200, which offered 100 times the amount of premium paid in the event of death of  customer.

Price Dispersion of Life Insurance Products Life insurance products like Whole Life or Endowment or Money Back policies have two components: saving and security. Specifically, there is an element that pays even when a   policy policyhold holder er survives survives the duratio duration n the policy is in force. force. Therefo Therefore, re, the “price” “price” or the   premium obscures the protection element offered by such policies. Hence, it is somewhat difficult difficult to compare such products. Many insurance products have additional benefits (called riders). For example, buying bags of fertilizer in villages might include one-year term life  benefits.  benefits. Thus, if a product also riders, it becomes even more difficult to value them because of the embedded options.

Comparison of the products Marke Market-l t-link inked ed return returnss have have becom becomee the the norm norm today today.. Th This is is the reason reason why why insura insurance nce companies companies launch unit-linked unit-linked plans in different avatars. Important segments segments of the consumer  market no longer consider life insurers as competing only with other life insurers. In an effort to gain market power and thereby to protect or enhance profitability the issue of product development and innovation, including pricing and marketing innovation, is all the more important with the continued convergence among financial service competitors. The most significant innovation of the Birla Sun Life and AMP Sanmar is that it has  provided  provided social security -insurance -insurance cover to the rural and society's society's poorer sections. In the rural and non-traditional business, these two have rightfully claimed distinction for product innovation. The products include insurance cover, with a very low rate of   premium, for livestock, poultry, ducks, fishery, horticulture, sericulture, agriculture,  pump sets, gramin personal accident, hut insurance, tribal welfare, etc., whereas such facilities were not made available by GIC nor LIC till 2002.

LIC has done a reasonably good job of introducing a couple of new products over the last two-three years, but there has been very little innovation in the sector in general. Thee majo Th majori rity ty of the the prod produc ucts ts avai availa labl blee toda today y are are also also skew skewed ed more more towa toward rdss investment return rather than death benefit. With the advent of competition, many new products will be introduced in the market and customers will benefit from more value and options as a result. If we observe the trend of ULIPS in insurance market, after the insurance sector is opened, private players, came up with aggressive marketing strategies to establish their presence. ‘Modern’   product products, s, which which are unit-lin unit-linked ked life insuranc insurancee policie policiess where where the investm investment ent risks is borne by the policyhol policyholder. der. The LIC hardly hardly took any step for this purpose until recently. Falling interest rates [The last five years saw interest rates fall dramatically by 400   basi basiss points points]. ]. Th This is was was also also initi initiat ated ed by the the priva private te play players ers owing owing to cut cut throat throat competition. The liberalization was also accompanied by wider product offerings by the insurers [ex. Endowment plan, pension plans etc] as compared to the products of  LIC. An insurance company should know with reasonable reasonable accuracy the chance of death at each age. A mortality table gives an estimate of how many, out of the members of a group starting at a certain age, are expected to be alive at each succeeding age. It is used to compute the probability of dying in or surviving through any period. The mort mortal ality ity table table shoul should d be approp appropria riate te to the group group of lives lives being being insur insured. ed. Th Thee mortality table used by LIC was old, outdated and obsolete, whereas new companies calculated their premiums on the basis of revised and recently updated mortality tables. In a Whole life policy, the sum assured with bonus is paid out either on death or  survival till a pre-determined pre-determined age. Whole life policies expire at age 100. A few expire earlier. Whole life insurance policies are valuable because they provide permanent   protect protection ion and accumulate accumulate cash values values for emergencie emergenciess or bequeat bequeaths. hs. Since it is unrealistic to expect the policyholders to keep paying level annual premiums beyond certain age, most insurance companies provide an option to the policyholders to pay their premiums over a shorter term called premium-paying premium-paying term. LIC stands nowhere near this mark of cover of 100years by Tata AIG. Again, we find that there is only one non-participating whole life policy available in the Indian market.

Questi Ques tion on 3: Cr Crit itic ical ally ly co comm mmen entt on LI LIC' C's s de decis cisio ion n to shuffle its portfolio in response to the product/pricing move mo ves s of th the e ne new w co comp mpan anie ies. s. Do yo you u th thin ink k th that at th the e priv pr ivat ate e pl play ayer ers s wo woul uld d be ab able le to ma make ke a si sign gnif ific ican antt difference to the market with their strategies in the long run? Give reasons to support your stand. Change in LIC Portfolio In the the year year 200 2002, 2, LIC LIC intro introduc duced ed a new new facil facilit ityy- the term term assura assurance nce rider rider-- that that would would accompany select life insurance policies. This facility provided an extra risk cover, which was double the existing risk cover under the plan, subject to an overall limit of  Rs. 25 lacs. In addition to Anmol Jeevan, it introduced a few other new policies in early 2002- “Jeevan Anand” (a combination of an endowment endowment and a whole life plan) “Jeevan Rekha” (a combination of money back and whole life plan), “Jeevan Surbhi” (a money back policy) and “Jeevan Mitra” (an endowment policy). The “Jeevan Surabhi” policy offered early payment of survival benefit and money back facility. LIC also launched launched a new “Bima “Bima Kiran” Kiran” policy, policy, which which had an accident accident benefit benefit and extended term cover beyond maturity maturity period in addition addition to risk cover during the term of the policy. In addi additi tion on to the the new new laun launch ches es LIC LIC also also made made chan change ged d to its its prod produc uctt port portfo foli lio o by withdrawing certain scheme and bringing down return on some others. In March 2002, the company withdrew “Jeevan Sanchay” a children’s growth scheme and the children’s money back policy due to the falling yield on investment. It also brought down the assured return on its newly launched scheme following a 0.5% rate cut by the RBI and the depressed sentiments in the market. In late 2001, LIC launched a speci special al camp campai aign gn to revive revive people people’s ’s inter interest est in its its polic policies ies,, which which now now carri carried ed customer friendly incentives. A 30% waiver on late fees was offered along with relaxation in the procedure of mandatory self declaration of good health and offered for revival facility. As a consequence of these changes, which brought about a bundling of insurance and investm investments ents products products,, portfoli portfolio o managem management ent of life life insuranc insurancee compani companies es today today is similar to that of a bank or non bank financial company. Specifically LIC has to: Look out for arbitrage arbitrage opportunities in the market place both across markets and over  time,

Use value at risk modelling to ensure that their reserves are adequate to absorb market related shocks, Ensure that there is no mismatch of duration between their assets and liabilities, and Ensure that risk return trade off of their portfolios remain at an acceptable level.

Comment on product pricing of LIC Pricing of insurance products, as empirically available in india, shows that pricing is not in consequence with market realities. Life insurance premia are generally perceived as being too high while general insurance (especially (especially motor insurance) is priced too low. LIC, has over a  period of time affected reduction. For instance on ‘without profit policies’ policies’ (that is those who are not eligible for bonuses), the premium rates were reduced between 2% to 7% during 1970’s 197 0’s.. Subse Subseque quentl ntly y in 198 1986, 6, premi premium um rates rates were were reduce reduced d by 17% for such such polic policie ies. s. Practices such as charging extra premium, on female insurance were also discontinued. However, these instances are an inadequate response to the changes going on in the market. One One of the the most most signi signific fican antt chang changes es has been been the impro improvem vement ent in life life expec expectan tancy cy of  individuals. For males, this has improved from 41.89 years in 1961 to 62.80 years in recent times. Similarly, female life expectancy has increased from 40.55 years in 1961 to 64.20 years. years. The problem problem faced by LIC in incorpor incorporati ating ng the trends in life life expecta expectancy ncy in to their  actuarial calculation has been partly technological and partly organisational. Recognising this LIC has indicated in its corporate plan 1997-2007 that they hope to put in place a year to year  revision of mortality rates in the calculation of premium.

Analysis of the products of new companies To anal analyse yse the strat strategi egies es of new new compan companie iess it is impor importa tant nt to kno know w about about the Marke Markett dynamics of insurance sector. The Market Overview includes a timeline on the evolution of  the Indian insurance industry. An overview of the size and growth of the main segments is also included. Product offerings by the leading players like HDFC, LIC, Tata AIG, Bajaj Allianz etc are also mentioned in both the life and non-life insurance segments. There have been various factors that have driven the change in the insurance market. These include Increasing Gross Financial Household Savings, Deregulation Deregulation in the Indian Insurance Market and Increase in Dependency Ratio. All these have motivated the companies to come up with new and innovative insurance products so as to deal with the growing needs of both urban and rural people. As a result it can be justified justified that the new products by private players are based on sound market research and reasonable grounds. Thus there are less chances of  failure of these private players in this sector. Private companies must also have looked into

Major Major Issues Issues & Implic Implicatio ations ns involve involved d in the market market.. These These include include Unprofi Unprofitabl tablee Health Health Insura Insurance nce Sect Sector, or, Dear Dearth th of New New Produ Product cts. s. Owing Owing to all all these these devel developm opmen ents ts it can can be vindicated vindicated that most of private players are playing it safe by bringing the innovative products products in a market which is hungry for such rejuvenation. These are based on extensive market research, are wisely priced and effectively distributed so as to minimize the risk of their  failure and ripe the maximum benefits of the untapped Indian insurance market. Thus these companies are likely to survive in the long run.

Future Prospects: Market Share. How would the life insurance market be divided up between the incumbent Life Insurance Corporation and the newcomers? Models of market share have shown that in a fast growing market, the first few years are critical. Corporation has two important elements elements in its In life insurance, the Life Insurance Corporation favour. The Life Insurance Corporation Corporation has a vast distribution distribution network in the rural and semiurban areas. This would be hard to duplicate. duplicate. One potential way to duplicate it would   be be throug through h banca bancassu ssura rance nce – selli selling ng insura insurance nce throu through gh banks. banks. Some Some insura insurance nce companies have already embarked on this road. Since the Life Insurance Corporation started with 100% of the market share, it will lose market share simply because of expansion of the market itself and less because of  loss of existin existing g custome customers. rs. The Life Insuranc Insurancee Corpora Corporatio tion n is the only financial institution in the top 50 trusted brand names in India As life insurance benefits accrue over time, it becomes more expensive to switch  because switching would mean a loss of accrued benefits. With the rapid expansion of  life insurance, the market share of the Life Insurance Corporation could fall below the 50% mark in five years time.

For the general insurance business , private companies would have an easier access. Unlike life insurance, it is not expensive to switch insurers because most   polici policies es are of one year or less. less. The problem problem of tariffic tarifficatio ation n makes makes competi competitive tive pricing pricing difficult for the newcomers. In addition, reliable data on hazard rates are not available for  many risks.

Conclusions The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together  Together  with banking services, insurance services add about 7% to the country’s GDP. A welldeveloped and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country. The wake up bugle for India's largest, and till date a monopoly, monopoly, insurance company, the Life Insurance Corporation of India (LIC), has been sounded. The Insurance Regulatory and Development Development Authority (IRDA) has licensed HDFC Standard Life, Max New York Life and ICICI-Prudential combine to transact life insurance business along with Reliance and TataAIG. So are we going to see LIC struggling? Not necessarily, given LIC's known and hidden strengths. And if the corporation can get its act together to meet the competition, it can be a very tough adversary. In fact, LIC is not perturbed by the likely competition, while waking up to the emerging reality. Conversely, it believes that it is the new players who will have to seek cover if the Indian public sector giant flexes its huge financial muscle! In spite of its strengths and advantages, LIC has a couple of holes in its shield that new  players would try to exploit. For instance, with intelligent pricing, HDFC Standard Life along with HDFC could eat into LIC's individual assurance market It may be noted that LIC derives sizeable business through its housing finance subsidiary, LIC Housing Finance Ltd., as its insurance policy doubles as a collateral for the housing loan. Further, new players will design products that cannot be directly compared with LIC's  products, at least during the initial years, to capture some market. Similarly, they could target the group assurance schemes, individual and group annuity schemes, the segments LIC didn't focus on intensively all these years. "Competition "Competition will be severe in the group assurance schemes, schemes, more so in the case of gratuityassurance as compared to term-assurance schemes." Unit-linked insurance products is yet another area which LIC has not tapped extensively due to restrictions placed by the Insurance Act on investments of the Life Fund and also due to LIC's own diffidence.

Savvy marketing marketing is another area where the new companies would score over LIC if the latter  continues its current style of functioning. For example, when NBFCs and even nationalised  banks deliver their fixed deposit certificates inside a plastic folder, LIC sends its policies policies – to be preserved for decades -- in a brown envelope. The flashy office and the glossy product literature of private insurers are sure to attract customers and will immensely aid their marketing teams. On the other hand, LIC agents depend entirely on their personal skills without any product literature to support. On its costs side, LIC has to keep an eagle eye. "While its first year premium cost is the lowest in the world at 65 per cent, it is not so in the case of renewal premium. Good global companies companies have their renewal premium cost at eight per cent whereas for LIC it is around 13  per cent," he remarks. In fact, premium procurement costs will go up further if LIC decides to  pay agency commission as per the Insurance Act to retain its top-notch agents. But for these small hitches, the LIC juggernaut is standing on a solid wicket.