INSURANCE SECTOR IN INDIA : OPPORTUNITIES AND CHALLENGES

Abstract:

Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 percent per annum. Together with banking services, it contributes to about 7 per cent to the country's GDP. Government made a paradigm shift in the economic policy by adopting the process of liberalization, privatization and globalization at the end of previous decade. Consequently, Insurance Regulatory and Development Authority (IRDA) has been established under IRDA Act, 1999 to regulate the insurance business in the country. As a result, private sector has been allowed entry

both in general and life insurance sector in India or liberalized in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill. This allowed foreign players to enter the market with some limits on direct foreign ownership. There is a 26 percent equity cap for foreign partners in an insurance company and now it has increase limit to 49 percent. The opening up of the insurance sector has led to rapid growth of the sector. The potential for growth of insurance

industry in India is immense as nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be well below international standards.

The insurance sector in India has come up with a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries. The US$ 41 billion Indian life insurance industry is considered the fifth largest life insurance market,

and growing at a rapid pace of 32-34 per cent annually.

Keywords: Regulatory role, Business Growth, Business potential, threat to public sector insurance companies

1.0 Introduction:

The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage.The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912,insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business.Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalised monopoly corporation and

formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore.

The (non-life) insurance business/general insurance remained with the private sector till 1972. There were 107 private companies involved in the business of general operations and their operations were restricted to organised trade and industry in large cities. The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from

January 1, 1973. The 107 private insurance companies were amalgamated and grouped into four companies: National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance

Company (GIC).

In 1993, the first step towards insurance sector reforms was initiated with the formation of Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra. The committee was formed to evaluate the Indian insurance industry and recommend its future direction with the

objective of complementing the reforms initiated in the financial sector. The formation of the

Malhotra Committee in 1993 started reforms in the Indian insurance sector. The aim of the Malhotra Committee was to assess the functionality of the Indian insurance sector. This committee was also in charge of recommending the future path of insurance in India. The Malhotra Committee attempted to improve various aspects of the insurance sector,making them more appropriate and effective for the Indian market.

The recommendations of the committee put stress on offering operational autonomy to the insurance service providers and also suggested forming an independent regulatory body The Insurance Regulatory and Development Authority (IRDA) to provide greater autonomy to insurance

companies in order to improve their performance and enable them to act as independent companies with economic motives.In 1999: The Standing Committee headed by Murali Deora decided that foreign equity in private insurance should be limited to 26%. According to the committee

recommendations the IRA Act was renamed the Insurance Regulatory and Development Authority (IRDA) Act. During the same year Indian Cabinet cleared IRDA Act. In 2000 President gave consent to the IRDA Act.This lifted entry restriction for private players and allowed foreign players to enter the marketwith some limit on direct ownership.

Insurance is a federal subject in India and Insurance industry in India is governed by nsurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalization) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999.

2.0 Review of Literature:

While earlier studies on life insurance sector mainly focused upon LIC, it was only after reforms in this sector that certain studies covering private players have taken place. Among

early studies, Arora (2002) highlighted that LIC was likely to

face tough competition from private insurers having large

established network and their trained intermediaries throughout

India. Verma (2003) analyzed the various type of products

offered by public sector giant and the new global players in

the private sector. Kumar and Taneja (2004) highlighted the

opportunities and challenges before the insurance industry

in India due to liberalization, globalization and privatization.

Bhattacharya (2005) advocated that bancassurance provided

the best opportunities to tap the large potential in rural and

semi urban areas as banks have a strong network of more

than 40000 branches in these areas. He suggested that the

insurers should focus on Single Premium policies, Unit Linked

Insurance, Pension Market and Health Insurance. Kumar

(2005) highlighted that private insurance players introduced a

wider range of insurance products and set up brand promotion

as part of their new strategy. These new covers had flexibility

and added benefits to suit the needs of customers who were

unsatisfied with the traditional and rigid plans. Kulshrestha and

Kulshrestha (2006) highlighted that demand for life insurance

in rural India was expanding at the annual rate of 18 per cent

as compared to 3.9 per cent in urban areas which provided

good opportunity for life insurers to perform. Naqvi and Ramay(2008) revealed that job satisfaction and organizational commitment had a negative effect on turnover intentions, whereas perceived alternative job

opportunities had a significant positive correlation with turnover intentions and is the major factor associated with turnover intention among its professionals.

Van Dick et al. (2004) have also identified job satisfaction as a predictor of turnover intention; however, they argue that it is a mediating variable between organizational identification and attrition.

Cummins (1999) examined pure technical and cost efficiency of US life insurers spanning 1988 to 1995 by using Data Envelopment Analysis approach. The study found that efficiency scores in insurance were relatively low compared to other financial service industry and brokerage system was most efficient.

Peter Drucker (1999) admitted that by providing financial protection against the major eighteenth and nineteenth century risk of dying too soon, life insurance became the biggest financial industry of that century. 40

Berger et al. (2000) analyzed cost efficiency, revenue efficiency and profit efficiency of 684 insurers in US by using Thick Frontier Approach and Stochastic Frontier Approach method for the period 1988 to 1992.The result showed that conglomeration hypothesis holds for some types while strategic focus hypothesis dominates others.

Hogan, John D (2001) assumed that the banking industry would quickly expand into non-banking activities, as synergies could be expected from the large bank customer information base and frequent contacts with customers. However, this quick response has not taken place, partly because of perception of risk in the insurance business. The author also suggests that banking companies should add insurance products to their lines of business for sound reasons such as small increment costs involved, the presence of existing customer relationships, revenue diversification, absence of interest rate risk in insurance compared with loans and banks’ web-based marketing capability.

Carrow Kenneth A.(2001) investigated whether the announcement of a merger between Citicorp and Travelers abnormally impacted stock prices of financial and insurance companies. Analysis of abnormal returns surrounding the merger show that life insurance companies and large

banks experienced significant stock price increases, while the returns of stocks of smaller banks, health insurers, and property insurers remain relatively unchanged . Nair-Reichart and Weinhold (2001), Postulate panel and time series estimators to impose homogeneity assumptions across countries in the relationship between FDI and growth and they marshal evidence to show considerable heterogeneity across countries.

3.0 Objectives of the study:

·To study growth of Indian Insurance sector.

·To study the Role of Regulatory frame work of IRDA.

·To study the Market Potential for Insurance Business.

.TO study the emerging challenges and opportunities in insurance sector.

3.0 Research Methodology:

The paper is completely a conceptual one whose basic foundation comes from various secondary sources like research articles in Journal, published and unpublished scholarly papers, and books, various international and local journals, speeches, newspapers and websites. The analysis

part of the paper is based on the statistical data provided by IRDA.

4.0 Significance of the study:

The study has been conducted to review the insurance sector’s value and sustainable growth after its liberalization and to find out the growth of the insurance sector. Insurance sector has shown a phenomenal growth after its liberalization and it has increased after the private sectors entry. Insurance sector in India is the most trusted sector and has insured Indians

lives to protect them from the uncertaintities and sudden disasters. Insurance sector is working in all the facets of human life. The study basically talks about the changes in the sector regulations and its impact on the growth.

5.0 Present Indian Insurance Scenario:

The liberalization, privatization and globalization policies of the nation along with the revolution in the field of Information Technology and communication have been advantageous for the insurance sector in India.

* Entry of private players and foreign collaborations: It was on the recommendation of the Malhotra Committee that private players were allowed to enter into the insurance market. Today there are almost 22 players who have entered the Indian insurance market besides the giant Life Insurance Corporation of India (LIC).

Another major development that has taken in the field of general insurance is the de-linking of the 4 subsidiaries of the General Insurance Corporation of India (viz. Oriental Insurance Company Ltd., New India Assurance Company Ltd., National Insurance Company Ltd. and United India Insurance Company Ltd) from the parent company.

* Marketing strategies and approaches: The entry of private players and their foreign partners has given domestic players a tough time, because the opening up of the sector has not brought in only foreign players, but also professional techniques and technologies. The present scene in India is such that everyone is trying to put in the best efforts. One can see strategies being more for survival than growth. But the most important gift of privatization is the introduction of customer-oriented services. Utmost care is being taken to maximize customer satisfaction.

. Distribution channels: India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market. The insurance agents still remain the main source through which insurance products are sold. The concept is very well established in the country like India but still the increasing use of other sources is imperative. At present the distribution channels that are available in the market are - Direct selling, corporate agents, Group selling, Brokers and cooperative societies, Banc-assurance

Insurance Sector Today: Opportunities and Challenges

Opportunities 

As compared to the Western countries, where they have already reached a stage of saturation, India can exploit some golden opportunities in the following fields.

1. Mass Marketing

India is a highly populated country and would continue to be so in the near future. New players may tend to favour the "creamy" layer of the urban population. But, in doing so, they may well miss a large chunk of the insurable population. A strong case in point is the current business composition of the dominant market leader - the Life Insurance Corporation of India. The lion's share of its new business comes from the rural and semi-rural markets. In a country of 1 billion people, mass marketing is always a profitable and cost-effective option for gaining market share. The rural sector is a perfect case for mass marketing. 

Competition in rural areas tends to be "kinder and gentler" than that in urban areas, which can easily be termed cutthroat. Identifying the right agents to harness the full potential of the vibrant and dynamic rural markets will be imperative. Rural insurance should be looked upon as an opportunity and not an obligation. A smaller bundle of innovative products in sync with rural needs and perceptions, and an efficient delivery system are the two aspects that have to be developed in order to penetrate the rural markets. 

2. Job Opportunities

Job opportunities are likely to increase manifold. The liberalization of the insurance sector promises several new job opportunities for those who are equipped with degrees in finance. Finance professionals who had witnessed a slump in the job market would be much relieved. 

There will be demand for marketing specialists, finance experts and human resource professionals. Apart from this, there will be high demand for professionals in streams like underwriting and claims management, and actuarial sciences. 

3. Inflow of Funds

There could be a huge inflow of funds into the country. Given the industry's huge requirement of start-up capital, the initial years after opening up are bound to see a strong inflow of foreign capital. A rise in the equity share of foreign partners to 49 percent will act as a boost to them.

4. Reinsurance

Huge capacity is likely to be created in the area of reinsurance. Apart from pure reinsurance activities, which involves providing insurance protection, there will be a revolution in service-related fields like training, seminars, workshops, know-how transfer regarding risk assessment and rating, risk inspections, risk management and devising new policy covers, etc.

5. Marketing Strategies

Also, with more players in the market, there will be significant increase in advertising, brand building, and this will benefit whole lot of ancillary industries. 

A substantial shift is likely to take place in the distribution of insurance in India. Many of these changes will echo international trends. Worldwide, insurance products move along a continuum from pure service products to pure commodity products. Initially, insurance is seen as a complex product with a high advice and service component. Buyers prefer a face-to-face interaction and place a high premium on brand names and reliability. 

As products become simpler and awareness increases, they become off-the-shelf, commodity products. Sellers move to remote channels such as the telephone or direct mail. Various intermediaries, not necessarily insurance companies, sell insurance. In some countries like Netherlands and Japan, insurance is marketed using the Post Office's distribution channels. At this point, buyers look for low price. Brand loyalty could shift from the insurer to the seller. 

6. Bancassurance

In other markets, notably Europe, this has resulted in bank assurance: banks entering the insurance business. The Netherlands led with financial services firms providing an entire range of products including bank accounts, motor, home and life insurance, and pensions. Other European

markets have followed suit. In France, over half of all life insurance sales are made through banks. In the UK, almost 95% of banks and building societies are distributing insurance products today. 

In India too, banks hope to maximize expensive existing networks by selling a range of products. Many bankers have shown an inclination to enter the insurance market by leveraging their strengths in the areas of brand image, distribution network, face to face contact with the clients and telemarketing coupled with advanced information technology systems. Insurers in India should also explore distribution through non-financial organizations. For example, insurance for consumer items such as refrigerators can be offered at the point of sale. 

7. Information Technology

Worldwide interest in E-commerce and India's predominant position in Information Technology and software development are also likely to be major factors in the marketing of insurance products in the immediate future. The number of Internet account is increasing and the trend has already been set by some of the leading insurers and insurance brokers worldwide. 

8. Rural Insurance

Rural insurance should be looked upon as an opportunity and a smaller bundle of innovative products to match with rural needs and perceptions and an efficient delivery system are critical aspects that have to be developed in order to penetrate the rural markets. Life Insurance Corporation’s (LICs) lion share of new business comes from rural and semi-urban markets through mass marketing strategies. Identifying the right agents and the distribution channels to harness the full potential of the vibrant and dynamic rural markets will be imperative.

9. Working with joint venture partnership.

10. Reducing insurance costs.

Challenges

If one has opportunities, one has to face challenges; it is like two sides of the same coin. No doubt India has a lot of opportunities coming her way, but there are a few challenges and threats as well.

The four main challenges facing the industry are product innovation, distribution, customer service, and investments. Unit-linked personal insurance products might find greater acceptability with rising customer awareness about customized, personalized and flexible products. Flexible products and new technology will play a crucial role in reducing the cost and, therefore, the price of insurance products. Finding niche markets, having the right product mix through add-on benefits and riders, effective branding of products and services and product differentiation will be some of the challenges faced by new companies. 

1. Technology

In today's highly competitive financial services environment, effective organizations will employ technology in a strategic way so to achieve a competitive edge. Technology will play an increasing role in aiding design and administering of products, as well in efforts to build life-long customer relationships. At the same time, investment in technology will only help as long as firms find the right people: people with the right attitude, values, and ethics, commitment to excellence, and focus on customer service. The critical success factor is a top-down emphasis on exceeding customer expectations with quality people, excellent products, and legendary service. As has been seen in other financial services, the entry of private players ensures that the customer will be the beneficiary in the long run. It will also result in enlarging the market and extending the reach of insurance across the country. 

2. Competition

Thus, apart from the normal issues facing any new company, many new Indian private insurance players will need to cope with the challenges of working with a joint venture partner. They will be competing with large and well-entrenched government-owned players. They have to overcome regulatory hurdles, change the attitude of new recruits and satisfy some very high customer expectations. Also, the players will have to consider the

Indian market as a long-term investment, and maintain clear-cut objectives and constant monitoring at all levels.

3. Regulatory hurdles

Insurance companies will have to overcome regulatory hurdles and cope with the joint venture partner as well as satisfy some very high customer expectations. While government has announced increase in FDI to 49%, it would be a while before it becomes a reality. Further the new entrants will have to consider the insurance market as a long term investment and maintain clear cut objectives and constant monitoring at all levels.

4. claim settlement

5. Customer education and satisfaction.

6. Channels of distribution.

At the same time insurance firms will have to find the right people with the right attitudes, values and ethics, commitment to excellence and focus on customer service.

7. Reducing insurance costs.

Flexible products and new technology will play crucial roles in reducing the cost and therefore the price of insurance products. Finding niche markets having the right product mix through add-on benefits and riders, effective branding of products and services and product differentiation from competitors offerings will be few challenges faced by insurance companies

8. Agent Attrition.

Employee attrition especially in sales force is one of the critical problems which are faced by Insurance

Companies during these days. In an ideal situation an employee consider multiple comfort level while

working in a office for e.g. employer's goodwill in the market, remuneration, future growth, working

condition, co-workers, current role's scope in the market & most important future stability with the

organization.

7.1 Statistics of Private Leading Life Insurances Companies:

During financial year 2010-11 the weighted new premium of private sector insurance registered a growth of around 13 percent as compare with financial year 2009-10. Against this the life insurance corporation registered the growth of 31 percent. The weighted new premium income written by private sector life insurers during financial year 2010-11 as per the statistics realized is IRDA. The life

insurance industry collected a weighted new premium income of Rs. 632 billion. The new business market share of private sector life insurance decreased to around 55 percent in this period, down around 59 percent in previous financial year. SBI life maintained its position as the leading private

sector life insurer with a market share of 10.1 percent in terms of weighted new premium income. ICICI prudential and Reliance life were second and third with market share of

9.6 percent and 5.8 percent respectively.

7.2 General Insurance:

According to the data released by IRDA, the general insurance industry recorded 13.42 per cent growth in gross premium collected during 2010-11. The industry collected gross premium of US$ 7.84 billion in 2010-11 compared with US$ 6.91 billion in 2009-10.The public sector players posted 13.85 per cent growth in gross premium in 2010-11. At the same time, private players recorded a 12.82 per cent increase in gross premium till March 2011. During April-May 2011, non-life insurers mopped up US$ 1.59 billion against US$ 1.34 billion in the previous year, registering an increase of 19 per cent

according to IRDA data.The four state-run insurers fared better than their private counterparts, with New India Insurance collecting the maximum

premium of US$ 294.5 million in April and May 2011, compared to US$ 253.15 million in the previous year,growing by 16.34 per cent. According to the IRDA's Summary Reports of Motor Data of Public and Private Sector Insurers – 2009-10, nearly 30 million vehicle policies were issued and a total premium worth US$ 1.83 billion wascollected.

Top 10 Insurance companies in INDIA

, Best Insurance Policies in India

Insurance is a nascent area in India offering wide potential for worldwide players. The life insurance premium account to 2.5% of GDP of the nation and the premiums of general insurance is 0.65% GDP. The sector of insurance is going through various changes and as the Indian government permits private companies the scenario received a boost. The insurance companies in India such as LIC, ICICI Prudential, Bajaj Alliance, and many more are booming and the top insurance companies are the one that is doing roaring business in India.

The best insurance policies in India are offered by giant companies, namely

1. Life Insurance Corporation of India (LIC)

LIC is the largest and is popular with over 2048 branches all over India. LIC still remains the top with new players entering with customized insurance products. It has gained credibility and consumers trust that it is able to sustain the insurance business having estimated assets worth Rs.8 trillion.

2. AIG Tata LIC Ltd

AIG Tata offers various insurance plans for everyone, children to senior citizens. This LIC is a joint venture with the American International Group and Tata Group.

3. HDFC life Insurance Co. Ltd (Standard)

HDFC Life specializes in providing an array of solutions for individuals and groups. This is a joint-venture between UK based Standard Life and HDFC Ltd, the leading finance institution.

4. Birla Life Insurance Co. Ltd (Sun)

Birla is the only and first insurance company initiating insurance business in association with Business Continuity Plan and helping small companies grow bigger. This is a life insurance that is collaboration between Sun Life Financial Inc and Aditya Birla Group.

5. SBI Life Insurance Co. Ltd

SBI Life Insurance makes highest profit and is the life insurance offering plans matching different segments from urban to rural divisions.

6. ICICI Life Insurance Co. Ltd (Prudential)

ICICI Prudential Life Insurance is India's trusted private sector insurance company having collaboration with UK based Prudential Group.

7. Bajaj Allianz Life-Insurance Co. Ltd

Bajaj Allianz offers life and general insurances and is the largest insurers in the world.

8. Kotak Mahindra Old Mutual Life Insurance Limited

Kotak Mahindra is committed to offer investment-based policies identical to mutual funds and ULIPs, to name a few.

9. Max New York Life Insurance Co. Ltd

Max New York Life Insurance offers outstanding combination covers. It has ISO: 9001:2000 certifications.

10. Future Generali Life Insurance

Future Generali is offering comprehensive plans for groups and individuals and is becoming more competitive.

Author is providing the information in this article about the top insurance companies in India. This article will help you to take a best insurance policy in India for your safe future.

8.0 Potential of Indian Insurance Industry:

With a huge population base and large untapped

market, insurance industry is a big opportunity area in India

for national as well as foreign investors. India is the fifth

largest life insurance market in the emerging insurance

economies globally and is growing at 32-34% annually. This

impressive growth in the market has been driven by

liberalization, with new player's significantly enhancing

product awareness and promoting consumer education and

information. The strong growth potential of the country has

also made international players to look at the Indian

insurance market. Moreover, saturation of insurance markets

in many developed economies has made the Indian market

more attractive for international insurance players. An

insurance market in many developed countries of the world

has made the Indian insurance market more magnetic in

terms of international insurance players. The available

source of the insurance sectors reflects the following.

· Home insurance sector is likely to achieve a 100%

growth since home insurance are made compulsory for

housing loan approvals by the financial institutions.

· In the coming three years Health insurance sector is

all set to become the second largest business after motor

insurance.

· During the period of 2008-09 to 2010-11 the non

life insurance premium is likely to have a growth of 25%

FDI in insurance hiked to 49 %

The public sector general insurance companies and the GIC will be permitted to raise capital from the market to meet future capital requirements

Increase of foreign direct investment (FDI) limit in the insurance sector from the present 26 per cent to 49 per cent. Alongside, it also cleared amendments aimed at attracting investments and bringing transparency in the working of the insurance companies.

The approved amendments include that the foreign equity cap is proposed to be kept at 49 per cent as provided in the Insurance Laws (Amendment) Bill, 2008, as against the 26 percent.

This is done to meet the growing capital requirement of insurance companies. Foreign re-insurers will be permitted to open branches only for re-insurance business in India and the provisions of Section 27E, which prohibits an insurer to invest directly or indirectly outside India the funds of policy holder, would apply to such branches.

To encourage health insurance in India, the capital requirement for a health insurance company is now proposed at Rs.50 crore (instead of Rs.100 crore for general insurance companies) with a view to reducing the entry barrier to a priority sector in the insurance space.

The public sector general insurance companies and the GIC will be permitted to raise capital from the market to meet the future capital requirements, provided that the government’s shareholding would not be allowed to come below 51 per cent at any point of time.

Sectors of FDI Distribution

Over the last decade, the service sector has been the major winners when it comes to foreign direct investment with both of them together receiving over 40% of the total FDI in 2010. They are closely followed by computer

software and hardware, financial and telecom sectors. Service sectors like finance, banking and insurance are picked by foreign investors because of the highly educated and vast middle class population that India has. Also, these are sectors which do not really require a huge expenditure on infrastructure and production. In other words, these sectors are seen as the most profitable and relatively of lesser risk by the foreign investors.

.

Future Growth: The Way Ahead 

With the entry of competition, the rules of the game are set to change. The market is already beginning to witness a wide array of products from players whose number is set to grow. In such a scenario, the differentiators among the different players are products, pricing, and service. Consumers are increasingly more aware and are actively managing their financial affairs. Today, while boundaries between various financial products are blurring, people are increasingly looking not just at products, but at integrated financial solutions that can offer stability of returns along with total profits. To satisfy these myriad needs of customers, insurance products will need to be customized. Insurance today has emerged as an attractive and stable investment alternative that offers total protection - Life, Health and Wealth Protection. Consumers today also seek products that offering flexible options, preferring products with benefits unbundled and customizable to suit their diverse needs. 

The trend in developed economies where people live longer and retire earlier is now emerging in India too. With the breakdown of traditional forms of social security like the joint family system, consumers are now concerned with the need to provide for a comfortable retirement. This trend has been further driven by the long-term decline in interest rates, which makes it all the more necessary to start saving early to ensure long term wealth creation. Today's consumers are increasingly interested in products to help build wealth and provide for retirement income. 

This all adds up to a major change in the demand for insurance products. While sales of traditional life insurance products like individual, whole life and term will remain popular, sales of new products like single premium, investment linked, retirement products, variable life and annuity products

are also set to rise. Firms will need to constantly innovate in terms of product development to meet ever-changing consumer needs. However, product innovations are quickly and easily cloned. Pricing will also not vary significantly, with most product premiums hovering around a narrow band.

In this competitive scenario, a key difference will be the customer experience that each life insurance player can offer in terms of quality of advice on product choice, along with policy servicing, and settlement of claims. Service should focus on enhancing the customer experience and maximizing customer convenience. Long-term growth in the business will depend greatly on the distribution network, where the emphasis must evolve from merely selling insurance to acting as financial advisors, helping customers plan their finances depending on life stage and personal requirements. This calls for a strong focus on training of the distribution force to act as financial consultants and build a lasting relationship with the customer. This would help create a sustainable competitive advantage that cannot be easily matched. 

New Developments in Insurance industry

Allstate Corp, the second largest insurer in the US has inaugurated its first technology and operations centre in Bangalore, India. The centre, an integral part of Allstate's global value chain, is majorly a technology services centre serving in the areas of business intelligence, analytics, testing and mobility.

Metlife India is now PNB Metlife India after Punjab National Bank (PNB) picked up 30 per cent stake in the life insurance company. Apart from PNB, MetLife India has two other banks, Karnataka Bank and Jammu and Kashmir Bank as its distribution partners.

Two of the insurance companies are planning to launch a specialised health cover for diabetic patients in India. While Apollo Munich has already filed a diabetic cover policy document with IRDA, Religare Health Insurance will soon submit documents for a similar cover with the regulator. Diabetes is an epidemic in India (with around 61 million people having it) and insurance companies look at this as a good business proposition. Unlike the existing health covers, which do not cover hospitals admissions

relating to complications of diabetes for up to four years, the proposed policies will cover diabetics from day one.

With a view to cover more and more Indians under the umbrella of insurance, public sector general insurers are mulling expanding their operations to other countries in 2013-14. With a large number of Indians and Indian businesses in South-east Asia, West Asia and Africa, these regions are emerging as preferred destinations. 

The four general insurers - New India Assurance, United India Insurance, Oriental Insurance and National Insurance - are considering setting up more international centres. While Oriental Insurance might hold stake in proposed reinsurance firm in Nepal, New India is looking to expand in Canada, Qatar and Myanmar. United India Assurance is also looking at South East Asia and Middle East for expansion. Moreover, LIC, GIC Re, four PSU general insurers are already holding stakes in Kenyan Insurance joint venture (JV).

Conclusions: India is the important emerging insurance markets in the world . Over the past three years, around 40 companies have expressed interest in entering the sector and many foreign and Indian companies have arranged anticipatory alliances. The threat of new players taking over the market has been overplayed. As is witnessed in other countries where liberalization took place in recent years, we can safely conclude that nationalized players will continue to hold strong market share positions, but there will be enough business for entry to be profitable

n 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 were significant for future growth.

Restriction of 26% on foreign ownership is lift up to 49%, large foreign insurers is entered the Indian market. State owned insurance companies still have dominant market positions. Opening up the sector will certainly mean new products, better packaging and improved customer service. Both new and existing players will have to explore new distribution and marketing channels. Potential buyers for most of this insurance lie in the

middle class. New insurers must segment the market carefully to arrive at appropriate products and pricing. Recognizing the potential, in the past three years, the nationalized insurers have already begun to target niches like pensions, women or children. 

Competition will surely cause the market to grow beyond current rates, create a bigger "pie," and offer additional consumer choices through the introduction of new products, services, and price options. Yet, at the same time, public and private sector companies will be working together to ensure healthy growth and development of the sector. Challenges such as developing a common industry code of conduct, contributing to a common catastrophe reserve fund, and chalking out agreements between insurers to settle claims to the benefit of the consumer will require concerted effort from both sectors.

References:

Ahluwalia, M. S. (2002). “Economic Reforms in India since

1991: Has Gradualism Worked?” Journal of Economic

Perspectives, 16, (3), 67-88.

Bhat, Ramesh.(1996).“Regulation of the private health

sector in India.” International Journal of Health Planning

and Management.11:253-74.

Bhat, Ramesh (2005) “Insurance Industry in India” Structure

performance and future challenges.” Vikalpa.30: 3-5

Inderjit, singh and Ashwini kumar (2005) “Insurance Sector

Reforms Insurance Regulatory and Development Authority

(IRDA) (2010). Annual Report, IRDA, Mumbai.

Sinha, P.K. and Sahoo,S.C.(1994) Marketing of Life

Insurance in India”. “Service Marketing” Himalaya

Publishing House

Wadhawan, Sahdev. (1987). “Health insurance in

India: The case for reform.”

International Labour Review 126(4):479-94.

IRDA