CHAPTER 4 A COMPARATIVE STUDY BETWEEN PUBLIC SECTOR LIFE INSURANCE AND PRIVATE SECTOR LIFE INSURANCE

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1 CHAPTER 4 A COMPARATIVE STUDY BETWEEN PUBLIC SECTOR LIFE INSURANCE AND PRIVATE SECTOR LIFE INSURANCE The Insurance sector plays a vital role in the economic development of our nation. It acts as a mobiliser of savings, financial intermediary, promoter of investment activities, stabiliser of financial markets and a risk manager. India is still an under-insured country in the world. It is at the 18th position among Life Insurance markets and 28th in Non-Life Insurance markets in the world. This indicates that there is a huge potential, yet to be explored. 1 Life insurance is a specific illustration of the process of nationalisation where non-ideological, sector or activities-specific compulsions were decisive. It was based on an unannounced quiet inquiry spread over a number of years which showed that neither a code of conduct nor legislation could make private insurers operate to protect the interest of the policyholders. However the Life Insurance Act gave clear evidence of the absence of any doctrinaire bias against the private sector. In the context of the new industrial policy which was then on the anvil, it was essential that nationalisation of life insurance did not give contradictory signals and tilt the power and ideological balance in the Indian economy. 1 Radelet, S. and Jeffrey Sachs. (1998), Shipping Costs, Manufactured Exports, and Economic Growth, paper presented at the American Economic Association Meetings, Harvard University, mimeo. 129

2 Life insurance products and the markets may seem completely different for each country. They are under the influence of their system factors, such as social security system and regulations of insurer practices, as well as their social and economic factors, such as the economic development stage, size of individual financial assets, level of competition among financial institutions, and population composition by age. Even so, the insurance markets in the world must have some kind of common factors, because the essential of insurance lies in risk aversion and that is a universal desire among all people. In this research paper, I connect the seemingly different life insurance markets in each country by using a concept called the "Face amount ratio" (hereinafter called the "FA ratio"), after comparing the death benefit acquired from personal insurance, in order to clarify the linkage and common factors of the life insurance markets worldwide. The FA ratio is a very simple index which is obtained by dividing the personal insurance amount in each country by the nominal GDP, but is one of the international "constraints" on the life insurance markets by which market structures are determined according to the change of long-term interest rates and the sales strategy of suppliers (i.e. insurers) who utilize such change. In addition, the market structure in a country and the future expansion can be learned from structures of the other countries' FA ratios in certain periods. And the FA ratio 130

3 is effective to indicate the common factors among the life insurance markets in each country as well as to notify us of changes in the markets. Large deviation of this index means that the insurers' strategy achieved an overly successful outcome, which implies a phase where the risk control is insufficient as seen in Japan. Confusion could occur in a process in which the actual values inevitably get closer to theoretical values in such large deviation. Since larger deviation results in larger adjustment, risk control should be reinforced in the phase. FA ratios play an important role in managing or supervising the soundness of life insurance companies. 4.1 What is Public & Private Sector's Life Insurance? CURRENT SCENARIO Global integration of financial markets resulted from deregulating measures, technological information explosion and financial innovations. Liberalisation and Globalisation have allowed the entry of foreign players in the Insurance sector. With the entry of private and foreign players in the Insurance business, people have got a lot of options to choose from. Radical changes are taking place in customer profile due to the changing life style and social perception, resulting in erosion of brand loyalty. To survive, the focus of the modern insurers shifted to a customer-centric relationship. 131

4 Liberalisation and Privatisation India s economic development made it a most lucrative Insurance market in the world. Before the year 1999, there was monopoly state run LIC transacting life business and the General Insurance Corporation of India with its four Subsidiaries transacting the rest. In the wake of reform process and passing Insurance Regulatory and Development Authority (IRDA) Act through Indian parliament in 1999, Indian Insurance was opened for private companies. Liberalisation on the Insurance sectors has allowed the foreign players to enter the market with their Indian partners. Most of the foreign Insurers have joined within the local market. India offers immense possibilities to foreign Insurers since it is the world s most populous country having over a billion people. Insurance industry had ten and six entrants in life and non-life sector respectively in the year The industry again saw two and three entrants in the life and non-life business respectively in the year One additional entrant was made both in the life and in non-life business in 2004 and 2005 respectively. At present there are fourteen companies each in Life and General Insurance. The Funds earlier generated by the state owned insurers have been 132

5 diversified with other new insurers. We should wait and see how the new players are going to boost up our economy. MARKET SHARE (%) - AUGUST 2009 LIFE INSURERS NON LIFE INSURERS 1. LIC New India ICICI Prudential National Bajaj Allianz United India HDFC Standard Oriental Brila Sunlife ICICI- Lombard Tata AIG Bajaj Allianz SBI Life IFFCO-Tokio Max New York Tata-AIG Aviva ECGC Kotak Mahindra Royal Sundaram 2.17 Old Mutual 11. ING Vysya Cholamandalam AMP Sanmar HDFC-Chubb Met Life Reliance General Sahara Life Agriculture -- Insurance Co. PRIVATE TOTAL PRIVATE TOTAL PUBLIC TOTAL PUBLIC TOTAL GRAND TOTAL GRAND TOTAL Source : In August 2005, the private players in the life insurance business have increased their market share to per cent. Among them ICICI prudential is ranked first in capturing the market followed by Bajaj Allianz and HDFC Standard. In the General Insurance sector the private players have captured per cent. 133

6 Among them ICICI-Lombard is ranked first, followed by Bajaj Allianz and IFFCO-Tokio. The healthy competition in the sector enabled the State owned insurers of our mother country to reduce its market share to per cent and percent in life and non-life business respectively. Moreover, private insurers have planned to increase their market share in the next five years. The public insurers have to enrich its approach to withhold its share. 4.2 TYPES OF INSURANCE Term Insurance Term Insurance pays a death benefit to the legal heirs if the person insured dies during the term of the policy. Such a policy provides cover for a specified period only and may be described as temporary insurance. Term 'insurance plans' offer pure risk cover without any element of saving. Hence, they are the most inexpensive. The sum assured is payable only if the insured dies during the selected period. In case the insured does not die during the tenure of insurance, nothing is payable. Term insurance plans could be of the following different types 134

7 (a) Level Term Insurance Under this plan, there is a uniform premium and benefit throughout the term of the policy. In the event of death anytime during the term, the same sum assured is payable. Where the term is for over a year, the renewal premium is the same each year. This policy plan is the most popular term 'insurance plan mainly' because of its simplicity. It is an answer to a temporary need which neither increases nor decreases over that period of time. For example, a lump sum amount which is due at a certain point of time. (b) Decreasing term Insurance Under this plan, the premium is constant throughout the term, but the benefit decreases over a period of time. Hence, the amount payable on death depends on the timing of the death, even though the premium being paid is constant. This plan is suited to cases where there is a temporary need, which is reducing. For example, where a mortgage loan has to be repaid, which reduces on a monthly or annual basis. (c) Increasing term insurance Under this plan, the premium as well as the benefit amount increases periodically, as agreed. The increases could be at a fixed percentage or in line with an agreed index. 135

8 This plan is helpful in keeping the benefits in line with the time value of money, so that inflation does not erode the value of the benefits received. (d) Renewable Term Insurance Though term 'insurance' is for a fixed period, a renewable term policy gives the right to renew the policy without submitting fresh evidence of health. The new premium, however, is increased to reflect the increased age of the life insured. (e) Convertible Term Insurance Such a plan includes a conversion privilege, which gives the proposer the right to convert the policy to a permanent plan (endowment) without evidence of health. If such an option is exercised, the premium for the new plan must be the standard rate for such a plan and the actual age of the life insured on the date of conversion of policy. Convertible policies are useful for people who have low income today and hence cannot afford to pay high premium in the initial years Whole life Insurance Whole life insurance guarantees a death benefit cover throughout the course of life, provided the required premiums are paid. The advantage of whole life insurance is that the policy, if kept current, covers you over your entire life, as opposed to term 136

9 'insurance' that covers you only for a certain term of years. Whole life insurance policies pay out on the death of the assured, whenever it occurs. Premiums may need to be paid throughout the life of the assured, or a lesser limited period Endowment Insurance Pure endowment is a plan where the benefit is payable to the insured only on survival of the specified term. Combining the features of term assurance and pure endowment are endowment policies which pay out either on the death of the assured, whenever it occurs, or after a fixed number of years. Should the insured person survive the term of the policy, the policy is said to mature. Hence, the claim, under an endowment policy, may arise either by death or by maturity Annuities Annuities are a form of pension is which an insurance company makes a series of periodic payments to a person (annuitant) or his her dependents over a number of years (term), in return for the money paid to the insurance company either in a lump sum or in installments. Annuities start where life insurance ends. It is called the reverse of life insurance. Annuity stops on death of a person, whereas theoretically, life insurance starts on the death of the assured. 137

10 Annuities are of two types. 1. Immediate Annuity-Immediate Annuity begins at once are immediately on expiry of the designated period. Immediate annuity is purchased with a single premium called purchase price. This type of annuity is typically purchased when person reaches retirements age and has a lumpsum to invest. If the person buying the annuity dies during the term, his/her legal heirs or nominees get the remaining instalments of the annuity. 2. Deferred Annuity- Under a deferred annuity plan, the annuity payments to the annuitant commence at some specified time or specified age of the annuitant. This type of annuity can be funded either by a single payment or a series of regular payments. The annuity payment starts after the lapse of a selected period called the deferment period. Other than the above, the following two types of policies are also popular in India: Unit Linked Policies A unit linked policy is a life insurance policy in which the benefits depend on the performance of a portfolio of shres. Each premium paid by the insured person is split. A part is used to provide Life insurance cover, while the balance is used to buy 138

11 units in unit of Mutual Fund after deduction of costs, expenses, etc. In this way, a small investor can benefit from investment in a managed fund without making a large financial commitment. The unit-linked policies can go up or down in value as they are linked to the value of the shares Term Insurance with return of Premiums Under pure Term Assurance plans, it death of the life assured does not take place within the selected term, the policy comes to an end on completion of term and premiums collected already are not refunded. However, a variation of this plan has been devised whereby all the premiums collected are refunded, if the life assured survived the term. In effect, it means that the interest earned on the premiums is utilized to keep the policy in force as well as to grant a free term cover for a few years beyond completion of the term, even though the premiums collected are refunded With Profits and Without Profits The insurance company charges premiums based on mortality rates, interest earned on investments and expenses. If these factors are favorable to the life insurance companies, then they can earn a profit or surplus. The surplus generated has to be retained. A major portion of the surplus, however, is distributed to the policyholders. A life insurance policy, that has additional amounts added to the sum assured, or paid separately as cash bonuses, as a result of a 139

12 surplus or profit made on the investment of the fund by the life insurance company, is called a WITH PROFITS POLICY. The surplus generated by the insurance company which is distributed to the policyholders is known as BONUS. Policies that are not entitled to bonus are known as WITHOUT PROFIT POLICIES Health Insurance Under the Insurance Act, 1938, insurance against sickness and medical treatment is not part of the life insurance business. It is covered under the miscellaneous insurance business, which is a part of the general insurance business. In many other countries, this is not the case. They consider health insurance as part of the life insurance business. On a trial basis, LIC of India covered health related risks along with traditional life insurance policy when they floated Asha Deep. This was a close-ended scheme from to This plan offered certain fixed payments to the life assured in case they suffered from any of the specified four major diseases, namely cancer, kidney trouble requiring transplantation, heart problems needing by-pass surgery or paralysis. The payment to the life assured is not in the nature of reimbursement of medical expenses. The basic life cover is not affected by these payments. They are additions. 140

13 This experiment was a grand success. Encouraged by this, LIC has introduced other schemes like Asha Deep II and Jeevan Asha II etc. After deregulation of the insurance sector, new entrants have entered into the Indian market with innovative plans, to help policy-holders cover Some examples of these riders are as follows- 1. Critical Illness Rider 2. Dreaded Disease Rider 3. Major Surgical Assistance Benefit Rider. 4. Accident Disability Benefit Rider In this cases, payment is made to the life assured on diagnosis ofa terminal illness or when a major surgery requires to be undertaken or when there is disability due to an accident. These riders are additions to the Life Insurance Policies and cannot be issued as a separate policy. Also, the rider benefits attached with Life Insurance policies cannot exceed the basic sum assured. 4.3 Other Aspects of Insurance Surrender value Surrender value is the cash value of the policy which is payable immediately on cancellation of the entire contract. 141

14 A policy acquires surrender value if the premiums are paid at least for 3 consecutive years. Permanent disability benefit- This benefit provides that in the event of the assured becoming totally and permanently disabled before age 70, the premium on the contract will be waived for sum assured upto Rs. 20,000 Claim concesion Another privilege granted to the life assured is that where at least 3 fully years premiums have been paid, and if subsequent premium is not paid, in case of death of the assured within 6 months from deducting the unpaid premiums with interest. This benefit is known as claim concession. It the premiums are paid for 5 years or more, the claim concession is extended for a period of 1 year. In addition to the above, the life assured can avail some more benefits on payment of small amounts as extra premium. These benefits are applicable on occurrence of some specified event. Some examples of such riders area. Waiver of Premium Rider b. Accidental Death Rider c. Critical Illness Rider Options Options are defined as the benefits granted to the life assured in order to ease the handling of the Life Insurance contract during the 142

15 complete tenure. These options can be modified at any time during the tenure of the policy. Some of the options available are 1. Every policy holder is given the option to choose the premium payment mode, which can be annual, half-yearly, quarterly or monthly. 2. Convertible term assurance plan gives the life assured the option to convert the policy at the end of the specified term either into a limited payment life-policy or endowment assurance policy without undergoing medical examination. 3. The life assured can exercise the option of receipt of payment of the claim proceeds by way of yearly, half-yearly, quarterly or monthly installments spread over a period of years. These types of options are known as settlement options Guarantees Certain guaranteed additions are provided to the policyholders under certain conditions. For example, under certain plans, the sum assured get enhanced at specified guaranteed rates at the end of each year. The 'Guaranteed Additions' are payable with the sum assured. As all of us know, an insurance policy is kept in force only on payment of premiums. What, then, is this premium and how is it calculated? 143

16 4.3.4 Premium Premium is the price paid by the insured for purchasing the insurance policy, i.e. the plan and term of assurance for the sum assured chosen by him/her. The premium has got to be paid by the insured person at the commencement of the policy and at regular intervals as specified in the contract. Normally the insurance companies publish tables of premium rates. These tables give us the tabular premium. The tabular premium is arrived at as follows 1. The RISK PREMIUM is first calculated. This is the amount required to meet the risk of death for a given age for a period of one year. 2. The NET PREMIUM is then calculated, taking into account the interest component. 3. When we consider the provisions for administrative expenses, unexpected contingencies, and fluctuations, we get the OFFICE PREMIUM. 4. Modifications are made, considering the various factors which might affect the premium computation. This gives us the TABULAR PREMIUM. 144

17 4.4 Scope of Life Insurance in India The Indian Insurance Industry India insurance is a flourishing industry, with several national and international players competing and growing at rapid rates. Thanks to reforms and the easing of policy regulations, the Indian insurance sector been allowed to flourish, and as Indians become more familiar with different insurance products, this growth can only increase, with the period from projected to be the 'Golden Age' for the Indian India Insurance Policies at a Glance Indian insurance companies offer a comprehensive range ofinsurance plans, a range that is growing as the economy matures and the wealth of the middle classes increases. The most common types include: term life policies, endowment policies, joint life policies, whole life policies, loan cover term assurance policies, unitlinked insurance plans, group insurance policies, pension plans, and annuities. General insurance plans are also available to cover motor insurance, home insurance, travel insurance and health insurance. Due to the growing demand for insurance, more and more insurance companies are now emerging in the Indian insurance sector. With the opening up of the economy, several international leaders in the insurance sector are trying to venture into the India insurance industry. 145

18 India Insurance: History The history of the Indian insurance sector dates back to 1818, when the Oriental Life Insurance Company was formed in Kolkata. A new era began in the India insurance sector, with the passing of the Life Insurance Act of The Indian Insurance Companies Act was passed in This act empowered the government of India to gather necessary information about the life insurance and non-life insurance organizations operating in the Indian financial markets. The Triton Insurance Company Ltd formed in 1850 and was the first of its kind in the general insurance sector in India. Established in 1907, Indian Mercantile Insurance Limited was the first company to handle all forms of India insurance. 4.5 Insurance and Gambling Features Compared 'Uncertainty' is the only thing which is common to a wagering contract and Insurance. But unlike in gambling, nobody wins or makes a profit in insurance; only the economic loss is compensated to a certain extent. The loss is shared by a group by pooling the risk. The risk is not created as in the case of gambling; in insurance, it already exists and has to be taken care of. In fact, as Prof. Huebner pointed out only when a person is not insuring is he gambling with his life. The most important difference is the interest in the subject matter of Insurance without which all contracts of insurance are 146

19 unenforceable. We call it Insurable Interest. The existence of Insurable interest distinguishes insurance from wagers and other ordinary contracts. Insurable Interest is of great importance in Insurance, especially in its three leading branches namely, Marine, Fire and Life Insurance. The evolution of law in this subject has its historical significance. In the early years, especially in the 18 th century, wagering policies become very common, and it was the practice of unscrupulous businessmen to insure other people's ships and merchandise and to secure insurance money in the event of loss or destruction at sea. In the absence of insurable interest, life insurance was in the nature of gambling. The lives of eminent persons were insured by unconnected parties for heavy amounts. This practice went to ridiculous level and there were a series of court decisions on these wagering contracts. Legislation had to intervene, first n 1745 by the Marne Insurance Act, and later in 1774 by the Life Insurance Act, to establish insurable interest as the basis of insurance contract without which it is not valid. Since then, English courts strictly enforce the provisions on Insurable Interest. In India, we are more guided by these legal provisions as well as the court decisions. The Insurance Act does not define insurable interest whereas the Marine Act 1963 has defined it to a limited extent. 147

20 Mac-Gillivary in his monumental book on insurance law has given a definition, as follows: 'where the assured is so situated that the happening of the event on which insurance money is to become payable would, as a proximate cause, involve the assured in the loss or diminution of any right recognized by law or in any legal liability, there is an insurable interest in the happening of that event to the extent of the possible loss or liability...' The Insurable Interest must involve the loss of a legal right, or involve a legal liability and must be legally valid and subsisting. The interest must be definite and capable of valuation in monetary terms. That leads us to the concept of indemnity which is the controlling principle of all insurance contracts excepting life insurance. A person can insure only when he has pecuniary interest in the subject matter. In Life Insurance Life Insurance is not a contract of indemnity. We cannot put a value on human life. However if insurable interest is not made as a condition, life insurance may be exploited, by unscrupulous elements. Taking lessons from the past, English law has presumed insurable interest in Life Insurance only in three cases: 1. Every man/woman has insurable interest on his/her own life. 148

21 2. A woman has insurable interest on the life of her husband. 3. A man has insurable interest on the life of his wife. A person has insurable interest in his own life to an unlimited extent. By insuring his life, it is presumed he can protect his estate/family from the loss of future earnings as a result of his early death. Though the law recognizes insurable interest on one's own life to an unlimited extent, the insurer may not accept a cover disproportionate to his income. As a wife normally depends on her husband for support, it can be presumed that she has insurable interest in him. An husband has insurable interest in his wife's life. The service and help rendered by wife was thought of as the basis of insurable interest for a husband to take a policy on his wife. But the Court of Appeal in England held that no such interest need be proved and the interest can be presumed on broader grounds. All these three eventualities from an exception to the general rule laid down in English Act 1774 to the effect that insurable interest must be based on pecuniary interest. In the above three circumstances, interest is much higher than the pecuniary value and is incapable of valuation. In other cases, pecuniary value must be 149

22 present; it must be definite and capable of valuation; it must be founded on legal obligation; and mere moral obligation is not sufficient. As per English Law, A parent has no insurable interest in the life of the child qua child. It is the parent's obligation to maintain a child. So insurable interest cannot be claimed in respect of money spent for his education and maintenance. Nor does a child have an insurable interest in the life f the parent qua parent. When the Life Insurance is effected on the life of some other person than the assured and not being his wife or her husband, a pecuniary interest must be present and the assured cannot recover more than the value of is interest at the time the contract was made. 4.6 COMPARISON BETWEEN PUBLIC AND PRIVATE SECTOR'S COMPANIES COVERING LIFE I NSURANCE MARKET STRUCTURE It is important to understand the market structure of life insurance sector. LIC as a dominant player has gained an increase of 88%in new business premium income. Despite of uncertain environment, total premium of Life Insurance industry increase by 66% to Rs 62, crore in first six months of the current fiscal from Rs 39, crore in same period last fiscal. In 2010, life insurance companies witnessed new business premium collecting during first 150

23 five months. According to LIC s recent filing with IRDA the total value of its investments from policy holders funds, as at June , stood at Rs 867,935 crore as agencies Rs. 717,002 crore on June, 2009, the value of investments in equity share has become 183,233 crore. Public sector Life Insurance Corporation of India (LIC) has clocked a robust per cent jump in fresh premium collection in January 2009 leaving behind major private sector players, most of whom have posted negative growth in the month as compared to January Herein mentioned are some statistics given by IRDA regarding the individual single premium of several life insurers in December :- 1. Bajaj Allianz crore 2. ING vyasa crore 3. Reliance Life crore 4. SBI life crore 5. Tata AIG crore 6. HDFC standard crore 7. ICICI prudential crore 8. Birla Sunlife crore 9. Aviva crore 10. Max New York crore 11. Met Life crore 12. Shriram Life crore 13. IDBI federal crore 14. Star Union Dai-ichi crore 151

24 15. LIC crore Talking about the number of lives covered under group single premium upto December, 2010 for some major companies are as follows according to the data released by IRDA on basis of data submitted by these insurance companies:- 1. Bajaj Allianz Reliance life SBI Life Tata AIG HDFC Standard ICICI Prudential Kotak Mahindra Max New York Shriram Life LIC Apart from these companies like Aegon Religare and Birla Sunlife has 959 and 995 lives covered upto December This is evident in itself to prove my pont that knowing or unknowingly but the regulation in the insurance sector is giving an undue advantage to LIC and leading to unfair competition. The top 5 life insurance companies in India control 85% of the market-share while the remaining dozen are still struggling to setup their operation. If we see the entire market amongst private players only excluding LIC in life insurance sector we would see there is hardly any private player which has a grip over the market. 152

25 India has come a long way since the economic reforms in 1991, moving from the growth rates of 5% into the orbit of 7-9% growth rates. This growth has been structurally driven by economic reforms, private entrepreneurship and linkages to the global economic boom. A McKinsey study estimated that India is likely to emerge as the fifth largest consuming nation in the globe by Significant demographic changes over the next two decades should throw up major investment opportunities for businesses as well as investors. Every year, around Rs. 600,000 crores (Rs. 6 trillion) of household savings is being invested into HH Financial assets. Around 18-20% of this income goes into insurance. Proposed Direct Tax code, aimed at a substantial increase in income tax limit and product efficiency could also lead to higher contribution to insurance. The Indian life insurance sector has been witness to varied phases witnessing a slew of changes in the past year. Since 1999, when the government opened up the insurance sector by allowing private companies to solicit insurance and also allowing foreign direct investment of up to 26%, the insurance sector has been characterized by a booming market. Hence 2010, was a landmark year in the history of the Indian insurance industry as it celebrated a decade since the entry of the private sector into this business. Reckoned among the fastest growing industries, the Life Insurance Industry of India has 23 license-holders running their business in this sector. The Life Insurance Corporation of India(LIC), which is the only player in the public sector, contributes over 70% to 153

26 the business. The remaining area is covered by the 22 private sector companies. In 2010, Life insurance companies witnessed a 20 per cent jump in weighted new business premium collection during the first five months of the financial year. According to data released by the Insurance Regulatory and Development Authority (IRDA), insurance companies garnered around US$ 7 billion in weighted new business premium during April - August 2010, against US$ 5.5 billion in the corresponding period last year. The year 2010, ushered sweeping regulatory changes that altered the way industry worked. It marked significant changes in product profile of unit-linked insurance plans. The new guidelines capped the overall charges and also imposed a minimum prescribed return in order to offer a better deal to investors. It was the fastest set of regulatory changes ever seen in the shortest period of time. State-owned Life Insurance Corporation of India (LIC) has emerged much stronger in the months following the uncertainty over unit-linked insurance plans (Ulips). The corporation has seen its market share spike to 73.4% by end-june 10, from 60.79% during end-march 09. Despite of the entry of several private player, LIC has managed to grow its market share in new businesses by recording the first-year premium of Rs 18,740 crore an increase of 107% over the corresponding quarter last year. As against this, the new business premium for the rest of the industry was Rs 12,884 crore. However, 154

27 all private life insurance companies put together could generate a new business premium of only Rs 7,126 crore an increase of 28% over the year-ago period. These numbers were divulged by TS Vijayan, chairman, LIC while announcing business results for For , the corporation recorded a total income of Rs 2,98,721 crore an increase of 49.2% over the previous year. This included premium income of Rs 1,85,985 crore, which was 18.3% higher than last year. this makes it obvious that the corporation was in better position today, because the focus has been on increasing returns for policyholders by curtailing expenses and not on profits. While considering the performance of Indian Life Insurance sector in , we cannot ignore some downward trends the industry undergone. The private players in this sector witnessed a loss of Rs 4,879 crore. In order to tackle the losses, the life insurance company giants had to infuse Rs 5,956 crore. This shows that the private players have small size and weak market. 2 Life Insurance Companies in India 1. Life Insurance Corporation of India Life Insurance Corporation of India (LIC) is a Government of India enterprise, and is the largest life insurance company. LIC had been established in 1956, after the Life Insurance Corporation Act 2 Ahluwalia, M.S (2002) Economic reforms in India since 1991: Has Gradualism Worked?, Journal of Economic perspectives 16(3),

28 had been passed by the Parliament of India in the same year. It also provides savings features along with various insurance policies. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance. LIC with its massive corpus is also the largest investor in the Indian market. LIC continues to be the best insurance company in India just because of its track record and the high trust it is held in. Private life insurance companies in India like the Car Insurance Companies are held in low trust and it is true considering the harassment and the low claims percentage that these companies give out. Even if LIC can t manage to give the polish of the private insurers, its scores on delivery which the only thing that matters. 2. TATA AIG - Tata AIG Life Insurance Company Limited is a joint venture between the Tata Group and American International Group, Inc. The Tata Group holds 74 per cent stake in the insurance venture with AIG holding the balance 26 percent. Tata AIG General Insurance Company, which started its operations in India in 2001, provides insurance solutions to individuals and corporates. It also offers a complete range of general insurance products including insurance for automobile, 156

29 home, personal accident, travel as well as several specialized financial lines. 3. Bajaj Allianz Bajaj Allianz life Insurance Company Limited is a joint venture between Bajaj Finserv Limited (recently demerged from Bajaj Auto Limited) and Allianz SE. Bajaj Allianz has made a profit before tax of Rs. 180 crores and has become the only private insurer to cross the Rs.100 crore mark in profit before tax in the last four years. Today, Bajaj Allianz is one of India s leading and fastest growing insurance companies. 4. Reliance Life Insurance Ltd. -It is a part of Reliance Capital Ltd (ADAG Group) which one of India s leading private sector financial services companies. In just 2 years, the Company has crossed the mark of 1.7 Million policies. It is one of India s leading private insurance companies with over 94 customized insurance products catering to the corporate, SME and individual customers. Reliance Life Insurance is not only one of India s fastest growing life insurance companies, but also counts among the top 4 private sector insurers. 5. Birla Sunlife Insurance.- Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla Group and Sun Life Financial Inc. This insurance company has pioneered the 157

30 unique Unit Linked Life Insurance Solutions in India. Within 4 years of its launch, BSLI became one of the leading players in the industry of Private Life Insurance. 6. HDFC Standard Life Insurance It is a joint venture between HDFC Limited and a Group Company of the Standard Life Plc, UK. The Company is one of leading private insurance companies, offering a range of individual and group insurance solutions, in India. Being a joint venture of top financial services groups, HDFC Standard Life has adequate financial expertise to manage long-term investments safely and resourcefully. The Company s business premium income stood at Rs. 1, Crores in 2008; it has covered over 812,811 lives so far. 7. ICICI Prudential Life Insurance - It is a joint venture between ICICI Bank and Prudential plc, which is a leading international financial services. ICICI Prudential began the operations in December It has been voted as India s Most Trusted Private Life Insurer for three consecutive years. ICICI Prudential Life Insurance Company has various insurance plans that have been designed for different individuals, as every individual has different insurance needs. 158

31 8. ING Vysya Life Insurance It is a joint venture between Vysya Bank, which is one of the largest private sector banks in India, and ING Insurance Co., which is the world s second largest life insurance company. It presently has around 4.5 lakh customers. 9. Max New York Life Insurance -It is a joint venture between Max India Limited, which is a multi-business corporate, and New York Life International, which is a Fortune 100 company. Max New York Life offers a variety of flexible products covering both life and health insurance including 8 riders that can be customized to over 800 combinations 10. Met Life India Insurance Co. Pvt. Ltd. It is a joint venture between MetLife Group and its Indian partners, are J&K Bank, Dhanalakshmi Bank, Karnataka Bank, Karvy Consultants, Geojit Securities, Way2Wealth, and Mini Muthoothu. MetLife is 88 of the top one-hundred FORTUNE 500 companies. MetLife entered Indian insurance sector in Kotak Mahindra Old Mutual Life Insurance Ltd. Joint venture between Kotak Mahindra Bank Ltd. (KMBL), and Old Mutual plc. Kotak Mahindra Old Mutual Life Insurance Ltd. is a company which offers Life Insurance products. It is one of India s most rapidly growing insurance companies. 159

32 12. Aviva Life Insurance- It is a private insurance company, formed by a joint venture between the Aviva insurance group of UK and the Dabur group of India. Aviva holds 26 percent stake and the Dabur group holds the balance 74 percent share in the joint venture. Aviva is also known as the fifth largest insurance group in the world. At the time of nationalization, Aviva was the largest foreign insurer in India in terms of the compensation paid by the Government of India. 13. Shriram Life Insurance - IT is a joint venture of the Shriram Group of India and SANLAM of South Africa. The group offers several policies catering to various needs of the policy holders. Along with life insurance, distinct policies cover subjects like child education, retirement funds, marriage of children, expectation of high returns etc. 14. Sahara India Life Insurance Company Ltd. Was granted license by IRDA in It is the first wholly Indian-owned company in the Indian life insurance market without any collaboration with the organizations abroad. The paid up capital of the insurance company at the time of its commencement was Rs 157 Crore. TThe company offers both individual and group insurance products. 160

33 15. Bharti AXA Life Insurance - It is a joint venture between Bharti and AXA global leader in financial protection and wealth management. Bharti AXA Life Insurance has a 74% stake from Bharti and 26% stake of AXA in the joint venture. The Company launched its operations in India in 2006.With the continuous expansion, Bharti AXA Life Insurance is making itself proactive to cater to insurance and wealth management needs of people. 16. Future General India Life Insurance. It is one of the rapidly growing Insurance companies in India. The Company is a joint venture between the India-based Future Group and the Italybased Generali Group. Future Generali group is present in both the Life and Non-Life businesses in India. 17. IDBI Fortis Life Insurance - It is a joint venture of IDBI Bank, Federal Bank (India) and Fortis Insurance International. IDBI has a 48% stake in the venture, while Fortis and Federal Bank 26% stake each. While IDBI and Federal Bank are major Indian banks, Fortis has the expertise of bancasurance across global markets. IDBI Fortis Life Insurance has become 18th life insurer in India. 18. Canara HSBC Oriental Bank of Commerce Life Insurance Canara Bank, HSBC Insurance (Asia-Pacific) Holdings Limited 161

34 and Oriental Bank of Commerce (OBC), together established an insurance company. Canara Bank holds 51% equity while the holdings of HSBC and OBC are 26% and 23%, respectively. 19. AEGON Religare Life Insurance Company. - It is a joint venture of AEGON, Religare and Bennett, Coleman & Company.One of the pioneers in offering low cost term plans online. 20. DLF Pramerica Life Insurance Company -It has been formed by the collaboration between DLF Limited and Prudential International Insurance Holdings, Ltd. (a fully owned subsidiary of Prudential Financial, Inc.). The insurance company aspires to become a significant player in the growing Indian life insurance market. 21. Star Union Dai-ichi Life Insurance It is a joint endeavor of Bank of India and Union Bank of India (two major Public Sector Banks in India) and Dai-ichi Mutual Life Insurance Company. It has an initial capital of Rs. 250 crores, of which Bank of India has a 51% stake, Union Bank of India has 23% and Dai-ichi Life holds 26% stake. The company is expected to be a strong contender in the insurance sector, taking into consideration its insurance, IT, finance and investment resources. The enterprise offers various products to serve all sections of the society. 162