Professional Documents
Culture Documents
IN
ICICI LOMBARD
GENERAL INSURANCE
ON
COMPARATIVE STUDY OF VARIOUS GENERAL
INSURANCE COMPANIES POLICIES WITH ICICI
LOMBARD & CUSTOMER BUYING BEHAVIOR OF
INSURANCE
AKLANK JAIN
PGP2008
PG20081015
CONTENTS
ACKNOWLEDGEMENT
PREFACE
EXECUTIVE SUMMARY
INTRODUCTION TO THE INDUSTRY
INTRODUCTION TO THE COMPANY
RESEARCH METHODOLOGY
Title
Objective of the Study
Scope of the Study
Significance of the Industry
Significance of the Research
Research Technique
Sampling Methodology
Sampling unit
Sampling Area
Sample Size
QUESTIONNAIRE
FACTS AND FINDINGS
DATA AND INTERPRETATION
CONCLUSION & RECOMMENDATIONS
BIBLIOGRAPHY
ACKNOWLEDGEMENT
First of fall I would like to thank the Management at ICICI LOMBARD General
Insurance Company Ltd. for giving me the opportunity to do my two-month project
training in their esteemed organization. I am highly obliged to Mr. PRASOON JAIN
(State Head of Operation Department) for granting me to undertake my training at
Gopalpura Branch, Jaipur.
I express my thanks to all Operation Department under whose able guidance and
direction, I was able to give shape to my training. Their constant review and excellent
suggestions throughout the project are highly commendable.
My heartfelt thanks go to all the executives who helped me gain knowledge about the
actual working and the processes involved in various departments.
PREFACE
The liberalization of the Indian insurance sector has been the subject of much heated
debate for some years. The policy makers where in the catch 22 situation wherein for one
they wanted competition, development and growth of this insurance sector which is
extremely essential for channeling the investments in to the infrastructure sector. At the
other end the policy makers had the fears that the insurance premia, which are substantial,
would seep out of the country; and wanted to have a cautious approach of opening for
foreign participation in the sector.
sAs one of the rare occurrences the entire debate was put on the back burner and the
IRDA saw the day of the light thanks to the maturing polity emerging consensus among
factions of different political parties. Though some changes and some restrictive clauses
as regards to the foreign participation were included the IRDA has opened the doors for
the private entry into insurance.
Whether the insurer is old or new, private or public, expanding the market will present
multitude of challenges and opportunities. But the key issues, possible trends,
opportunities and challenges that insurance sector will have still remains under the realms
of the possibilities and speculation. What is the likely impact of opening up India‟s
insurance sector?
The large scale of operations, public sector bureaucracies and cumbersome procedures
hampers nationalized insurers. Therefore, potential private entrants expect to score in the
areas of customer service, speed and flexibility. They point out that their entry will mean
better products and choice for the consumer. The critics counter that the benefit will be
slim, because new players will concentrate on affluent, urban customers as foreign banks
did until recently. This seems to be a logical strategy. Start-up costs-such as those of
setting up a conventional distribution network-are large and high-end niches offer better
returns. However, the middle-market segment too has great potential. Since insurance is a
volumes game. Therefore, private insurers would be best served by a middle-market
approach, targeting customer segments that are currently untapped.
EXECUTIVE SUMMARY
In today‟s corporate and competitive world, I find that insurance sector has the maximum
growth and potential as compared to the other sectors. Insurance has the maximum
growth rate of 70-80% while as FMCG sector has maximum 12-15% of growth rate. This
growth potential attracts me to enter in this sector and ICICI LOMBARD General
Insurance Company Ltd. has given me the opportunity to work and get experience in
highly competitive and enhancing sector.
The success story of good market share of different market organizations depends
upon the availability of the product and services near to the customer, which can
be distributed through a distribution channel. In Insurance sector, distribution
channel includes only agents or agency holders of the company. If a company like
RELIANCE, TATA AIG, MAX, HDFC Ergo, BAJAJ ALLIANZ General
Insurance company ltd. etc have adequate agents in the market they can capture
big market as compared to the other companies.
Agents are the only way for a company of Insurance sector through which policies and
benefits of the company can be explained to the customer.
Life Insurance
In 1818 the British established the first insurance company in India in Calcutta, the
Oriental Life Insurance Company. First attempts at regulation of the industry were made
with the introduction of the Indian Life Assurance Companies Act in 1912. A number of
amendments to this Act were made until the Insurance Act was drawn up in 1938.
Noteworthy features in the Act were the power given to the Government to collect
statistical information about the insured and the high level of protection the Act gave to
the public through regulation and control. When the Act was changed in 1950, this meant
far reaching changes in the industry. The extra requirements included a statutory
requirement of a certain level of equity capital, a ceiling on share holdings in such
companies to prevent dominant control (to protect the public from any adversarial
policies from one single party), stricter control on investments and, generally, much
tighter control. In 1956, the market contained 154 Indian and 16 foreign life insurance
companies. Business was heavily concentrated in urban areas and targeted the higher
echelons of society. “Unethical practices adopted by some of the players against the
interests of the consumers” then led the Indian government to nationalize the industry. In
September 1956, nationalization was completed, merging all these companies into the so-
called Life Insurance Corporation (LIC). It was felt that “nationalization has lent the
industry fairness, solidity, growth and reach.”
Some of the important milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate
the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.
1956: The market contained 154 Indian and 16 foreign life insurance companies.
General Insurance
The General Insurance industry in India dates back to the Industrial Revolution and the
subsequent increase in trade across the oceans in the 17th century. As for Life Insurance,
the British brought General Insurance to India, and a similar path was followed in the
development of this industry. A number of private companies were in existence for years
and years until, in 1971, the Indian Government decided that the public interest would be
served by nationalizing the industry, merging all the 107 companies into four companies,
depending on the sort of business transacted (Marine, Fire, Miscellaneous). These were
the National Insurance Company Ltd., the Oriental Insurance Company Ltd., the New
India Assurance Company Ltd., and the United India Insurance Company Ltd. located in
Calcutta, New Delhi, Bombay and Madras respectively. The General Insurance
Corporation (GIC) was set up in 1972 as a „holding‟ company, having these four
companies as its subsidiaries.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames
a code of conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalization) Act, 1972 nationalize the
general insurance business in India with effect from 1st January 1973. 107 insurers
amalgamated and grouped into four companies viz. the National Insurance Company
Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company
Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
MAJOR PLAYERS IN THE INSURANCE INDUSTRY IN INDIA
Life Insurance Corporation of India (LIC) was established on 1 September 1956 to spread
the message of life insurance in the country and mobilise people‟s savings for nation-
building activities. LIC with its central office in Mumbai and seven zonal offices at
Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur and Bhopal, operates through 100
divisional offices in important cities and 2,048 branch offices. LIC has 5.59 lakh active
agents spread over the country.
The Corporation also transacts business abroad and has offices in Fiji, Mauritius and
United Kingdom. LIC is associated with joint ventures abroad in the field of insurance,
namely, Ken-India Assurance Company Limited, Nairobi; United Oriental Assurance
Company Limited, Kuala Lumpur; and Life Insurance Corporation (International), E.C.
Bahrain. It has also entered into an agreement with the Sun Life (UK) for marketing unit
linked life insurance and pension policies in U.K.
In 1995-96, LIC had a total income from premium and investments of $ 5 Billion while
GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's income
grew at a healthy average of 10 per cent as against the industry's 6.7 per cent growth in
the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US).
LIC has even provided insurance cover to five million people living below the poverty
line, with 50 per cent subsidy in the premium rates. LIC's claims settlement ratio at 95
per cent and GIC's at 74 per cent are higher than that of global average of 40 per cent.
Compounded annual growth rate for Life insurance business has been 19.22 per cent per
annum.
Besides the domestic market, the industry is presently operating in 17 countries directly
through branches or agencies and in 14 countries through subsidiary and associate
companies.
The introduction of private players in the industry has added to the colors in the dull
industry. The initiatives taken by the private players are very competitive and have given
immense competition to the on time monopoly of the market LIC. Since the advent of the
private players in the market the industry has seen new and innovative steps taken by the
players in this sector. The new players have improved the service quality of the
insurance. As a result LIC down the years have seen the declining phase in its career. The
market share was distributed among the private players. Though LIC still holds the 75%
of the insurance sector but the upcoming natures of these private players are enough to
give more competition to LIC in the near future. LIC market share has decreased from
95% (2002-03) to 82 %( 2004-05).
HDFC Standard Life Insurance Company Ltd. is one of India‟s leading private life
insurance companies, which offers a range of individual and group insurance solutions. It
is a joint venture between Housing Development Finance Corporation Limited (HDFC
Ltd.), India‟s leading housing finance institution and The Standard Life Assurance
Company, a leading provider of financial services from the United Kingdom. Their
cumulative premium income, including the first year premiums and renewal premiums is
Rs. 672.3 for the financial year, Apr-Nov 2005. They have managed to cover over
11,00,000 individuals out of which over 3,40,000 lives have been covered through our
group business tie-ups.
Max New York Life Insurance Company Limited is a joint venture that brings together
two large forces - Max India Limited, a multi-business corporate, together with New
York Life International, a global expert in life insurance. With their various Products and
Riders, there are more than 400 product combinations to choose from. They have a
national presence with a network of 57 offices in 37 cities across India.
Kotak Mahindra Old Mutual Life Insurance Ltd. is a joint venture between Kotak
Mahindra Bank Ltd. (KMBL), and Old Mutual plc.
ICICI Lombard General Insurance Company Limited is a joint venture between ICICI
Bank Limited and the US-based $ 26 billion Fairfax Financial Holdings Limited. ICICI
Bank is India's second largest bank, while Fairfax Financial Holdings is a diversified
financial corporate engaged in general insurance, reinsurance, insurance claims
management and investment management.
Lombard Canada Ltd, a group company of Fairfax Financial Holdings Limited, is one of
Canada's oldest property and casualty insurers. ICICI Lombard General Insurance
Company received regulatory approvals to commence general insurance business in
August 2001.
The joint venture bringing together Royal & Sun Alliance Insurance and Sundaram
Finance Limited started its operations from March 2001. The company is Head Quartered
at Chennai, and has two Regional Offices, one at Mumbai and another one at New Delhi.
Bajaj Allianz General Insurance received the Insurance Regulatory and Development
Authority (IRDA) certificate of Registration (R3) on May 2nd, 2001 to conduct General
Insurance business (including Health Insurance business) in India. The Company has an
authorized and paid up capital of Rs 110 cores. Bajaj Auto holds 74% and the remaining
26% is held by Allianz, AG, and Germany.
Chola-MS commenced operations in October 2002 and has issued more than 1.4 lakhs
policies in its first calendar year of operations. The company has a pan-Indian presence
with offices in Chennai, Hyderabad, Bangalore, Kochi, Coimbatore, Mumbai, Pune,
Indore, Ahmadabad, Delhi, Chandigarh, Kolkata and Vizag.
Tata AIG General Insurance Company Ltd. is a joint venture company, formed from the
Tata Group and American International Group, Inc. (AIG). Tata AIG combines the
strength and integrity of the Tata Group with AIG's international expertise and financial
strength. The Tata Group holds 74 per cent stake in the two insurance ventures while AIG
holds the balance 26 per cent stake.
Tata AIG General Insurance Company, which started its operations in India on January
22, 2001, offers the complete range of insurance for automobile, home, personal accident,
travel, energy, marine, property and casualty, as well as several specialized financial
lines.
Technological:
• Computerization:
Initially, in the late 1950‟s the insurance companies used Unit Record Machines (Electro
Magnetic Machines) to process data punched into cards. Computers were introduces in the mid
1960‟s and by the 1980‟s the Unit Phased Machines were phased out and the entire process was
computerized. This brought about greater efficiency and quick service delivery.
• Internet:
Internet usage has drastically improved in the last decade. There was a tremendous
increase in the use of technology by GIC during the late 1990‟s. The companies
Launched its website in the mid 1990‟s to offer basic services such as modifying policies
(change of address, change of nominee, etc) and querying the status of the policy. But
today, the internet has completely changed the service delivery process. Internet is today
used to even sell insurance policies. Internet is, in fact, proving to be one of the widely
used distribution networks for selling insurance policies. Also internet is used for sending
premium notices to policy holders through e-mails.
Also GIC has a special feature on its website. It has a premium calculator which
accurately displays the amount of premium month wise and the remaining balance. One
just has to enter the age, name of the insurance policy, the sum assured and whether there
is an accident cover or not. By keying in this information, the entire premium amounts
are shown within no time. This has helped the customer in a way so that he/she doesn‟t
have to travel all the way to the branch to ascertain the amount of premium to be paid.
• Metropolitan Area Network (MAN) and Wide Area Network (WAN):
GIC has commissioned a MAN connecting more than 75 branches in Mumbai. This
enabled the policy holders to pay their premiums and get their status report, surrender
value quotations and loan quotation, from any branch in the city. Following the MAN in
Mumbai, seven MAN centers (Chennai, Bangalore, Delhi, Calcutta, Pune, Hyderabad,
and Ahmadabad) became operational.
These MAN centers were connected to each other by a WAN network. This WAN was
designed for distributed processing without a central database – each division maintained
a database of the policyholders. The central office in Mumbai maintained an index of
policy numbers and the corresponding IP addresses of the servers where the details of the
policy were maintained.
• Electronic Clearance Service (ECS):
Almost all the big organizations today provide the ECS facility to its customers. A policy
holder having an account in any bank which is a member of the local clearing house can
opt for ECS debit to pay premiums. The advantage here is that once the option is
exercised, the policy holder need not visit a branch for paying the premium or collecting
the receipts. On the day indicated by the policy holder, the premium amount will be
directly debited to the bank account of the policyholder and the receipt will be issued by
the designated branch office.
• Bank ATM’s:
Many insurance companies have a tie-up with commercial banks so as to enable
policyholders to use the facility of paying premiums through the bank ATM‟s. ICICI
Lombard has a tie up with ICICI bank; Bajaj Allianz has a tie-up with Corporation bank
and UTI Bank.
• Call Centers and SMS services:
Almost all the insurance companies have their own call centers which cater to the phone
based queries of the policyholders. This service is 24x7 and they have the Interactive
Voice Response (IVR) systems at all the branches.
Also, LIC and other companies now provide SMS services going with the new trends like
SMS banking in the banking sector.
INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITARIAN
Insurance Regulatory and Development Authority Act, 1999, came into being from
19/04/2000.
Objects are stated in Act are as follows:
"An Act to provide for establishment of Authority to protect interests of holders of
insurance policies to regulate, promote and ensure orderly growth of insurance industry
and for matters connected there with and further to amend Insurance Act, 1938, Life
Insurance Corporation Act, 1956 and General Insurance Business (Nationalization) Act,
1972".
Composition:
IRDA will consist of a chairperson and not more than five whole time members and not
more than four part time members. Whole time members shall hold office for 5 years or
until age of 62 (65 in case of chair person) whichever is earlier. Part time members shall
hold office for not more than 5 years.
Strengths/Opportunities
� The intense competition brought about by deregulation has encouraged the industry to
innovate in all areas; from underwriting, marketing, policy holder servicing to record-
keeping.
� Allowing insurers to issue their own policy wordings and set their own rates will enable
underwriters to tailor products to meet client needs.
Weaknesses/Threats (Challenges)
� Premiums rates will remain under pressure due to intense competition on the more
profitable lines.
� Public and private sector insurers‟ greater reliance on their investment portfolios to
generate sufficient income and gains for net profits would subject them to the volatility of
the financial markets.
� Private insurers need to raise more capital, otherwise growth could be constrained since
reliance on reinsurance for capital relief is not always viable or available.
� There is general lack of transparency as financial and operational data for insurers are
not readily available as none of India‟s insurers are directly listed on stock exchanges.
� Like all developing economies on a fast track, the shortage of trained insurance
professionals and technicians at all levels cannot be remedied in the short term.
• Political
• Economic
• Social
• Technological
1. Political factors:
Insurance regulator IRDA asked all life insurance companies not to deduct
any premium while giving back the money to the customer who wants to
cancel the policy within 15 days of opting for it.
IRDA was set up with introduction of the IRDA Act in 1999. Its initial
purpose was to bring about general discipline to the industry. It is
responsible for protecting the interest of policyholders and promoting
efficiency in the insurance business.
Tariff free regime poses biggest challenge in quoting accurate pricing for
the risks covered.
The IRDA has proposed an initial increase of 150% in TP premium rates,
which were later brought down to 70% once the transporters threatened to
go on strike.
The IRDA has capped discounts in January at 49% for fire and engineering
sector that cause drop in premium for the first quarter of 2007 – reputably
as much as 50%.
Insurance agents should have at least a high school diploma along with
training of 100 hours from a recognized institution.
The benefits for health insurance premium under section 80D of the Income
Tax Act were extended by upto Rs.20,000 if the applicant pays for insuring
his parents.
The 4 I‟s refers to the different dimensions/ characteristics of any service. Unlike pure
product, services have its own characteristics and its related problems. So the service
provider needs to deal with these problems accordingly. The service provider has to
design different strategies according the varying feature of the service. These 4 I‟s not
only represent the characteristics of different services but also the problems and advantages
attached to it.
Intangibility:
Insurance is a guarantee against risk and neither the risk nor the guarantee is tangible.
Hence, insurance rightly come under services, which are intangible. Efforts have been
made by the insurance companies to make insurance tangible to some extent by including
letters and forms.
Inconsistency
Service quality is often inconsistent. This is because service personnel have different
capabilities, which vary in performance from day to day. This problem of inconsistency
in service quality can be reduced through standardization, training and mechanization.
Inseparability
Services are produced and consumed simultaneously. Consumers cannot and do not
separate the deliverer of the service from the service itself. Interaction between consumer
and the service provider varies based on whether consumer must be physically present to
receive the service.
Inventory
No inventory can be maintained for services. Inventory carrying costs are more
subjective and lead to idle production capacity. When the service is available but there is
no demand, cost rises as, cost of paying the people and overhead remains constant even
though the people are not required to provide services due to lack of demand.
In the insurance sector however, commission is paid to the agents on each policy that
they sell. Hence, not much inventory cost is wasted on idle inventory. As the cost of
agents is directly proportionate to the policy sold.
Product:
Place:
Different companies may however choose different channels and different geographies to
focus on. The channel options are - tied agency force, corporate agents and brokers and
this is an area where different companies will make different choices. Many companies
like HDFC Standard Life are focusing on all channels whereas companies like Max New
York Life are focusing on the tied agency force only. Customer interface will be a key
challenge for life insurance companies and includes every that interaction that the
customer has with the company, such as sales, new business underwriting, policy
servicing, premium payments, claim processing and so on. Technology can play a crucial
role in delivering the highest standards of service set by the company and it will be
imperative for any serious player to excel in all of these.
Price:
Price is a relevant differentiator only in two segments - pure term insurance and in pure
annuities. Here too, service delivery and financial strength will need to be present at a
minimum acceptable level for price to be a relevant differentiator. In case of savings
oriented products, long-term returns generated are more relevant than just the price of the
product. A focus on generating good investment performance and keeping a tight control
on costs help in generating good long-term maturity value for customers. Norms have
been laid down on all of these by IRDA and adhering to these while delivering good
returns will be a challenge.
The level of demand is latent and will have to be activated considerably. The market
needs to be developed. Greater awareness of insurance and the need to have it as a
protection tool rather than as a tax planning measure needs to be appreciated by the
Indian people. Various communication tools including advertising, direct marketing and
road shows contribute to all this and different companies take different approaches on
these.
Process:
Cashless settlement: One of the most defining and customer-friendly changes that we‟ve
seen in recent years relates to the way claims settlements are made. The advent of the
third-party administrator (TPA) regime has facilitated the transition to the hugely
convenient era of cashless settlement of health and auto insurance claims. TPAs are
entities who process claims on behalf of insurers: the IRDA licenses them after it is
satisfied that they have the financial strength, the trained manpower, the infrastructure
and the skills to undertake this activity.
Likewise, with auto insurance, the TPA ties up with garages and authorized service
centers for cashless settlement of auto insurance claims.
Lower premiums: The spirit of competition and the broadening of the risk experience of
insurance companies have contributed to a fall in premiums over the years. That‟s
because, other things being equal, an insurer who covers the lives just of 10 people bears
a higher risk than an insurer who covers the lives of, say, 100 people. Further, a broader
base will provide greater efficiencies on costs such as distribution, management and
claims. A broad basing of the mortality experience, therefore, gives insurers the
elbowroom to compete by lowering premiums, and that trend is expected to continue.
Physical Evidence:
This can play a significant role for marketing in the Indian scenario. Since Internet users
are comparatively lesser than countries such as US, the offline mode will be preferred in
India. Although the distribution model is largely agent-based, wherever the customer is in
contact with the company, this factor can play a significant role in luring the customer.
People:
The most important factor that materializes sales and maintains customer relationships on
a long-term basis is this factor. No matter what distribution strategy a company adopts
customers relationship has to be taken care of in order to maintain the customer base on a
long-term basis.
Regulatory Environment
Impact of Regulation – Emphasis on Policyholder Protection
IRDA was set up with introduction of the IRDA Act in 1999. Its initial purpose was to
bring about general discipline to the industry. It is responsible for protecting the interest
of policyholders and promoting efficiency in the insurance business.
To ensure their stability, transparency and financial strength, new entrants are subject to
rigorous scrutiny and the conduct of their business is closely monitored, particularly in
relation to capital adequacy and prudent investment policies. The regulatory environment
to date has attracted many insurers whose domestic partners are leaders in their chosen
fields and their foreign counterparts are all well-established with considerable experience
in developed and emerging markets.
The regulator has laid down investment guidelines that limit exposure in certain class of
assets and also sets threshold limits for some assets. At the moment, insurers have to
invest a minimum 30% in government securities, in contrast to some of the more mature
markets like the US and Australia, which do not have such restrictions. Compliance with
these relatively restrictive guidelines could limit insurers‟ ability to diversify and build
optimal portfolios.
The guidelines also stipulate a minimum 10% investment in the social and infrastructure
sector. The investment in un-approved securities has been limited to 25% of total
investment books.
The Indian insurance regulator has set the minimum capital required at a level to ensure
that all insurers especially the start-ups have enough funds to meet their claim obligations
and to limit their overall writings to the amounts supported by their capital bases. The
need to manage capital to comply with IRDA‟s solvency margin will induce insurers to
be more risk conscious when taking on new business
� 1994 -- marine cargo, personal accident, health, banker liability and aviation
� 2007 -- fire, engineering and motor own damage (OD). However, the de-tariffing did
not immediately allow for free pricing. Instead, insurers were required to follow the “file
and use” method, whereby they were expected to file a charter of proposed rates, which
was then approved by IRDA.
The restrictions on price discounts during the initial periods were intended to ensure
orderly price adjustments. They were removed in January 2008.
The only segment that remains under a tariff regime is the third party motor business,
although there has been a large upward revision in this area‟s premium rates by regulators
in recent times. Moreover, commercial third party motor business, which has traditionally
contributed to adverse claims ratios, has been moved to a common pool, resulting in loss
sharing.
PREMIUM 2006-07
11%
3% 19% Fire
2%
Engg.
2%
Motor OD
11% 6%
Motor TP
Marine Cargo
4%
Marine Hull
4%
27% Health
11%
Sector Wise Proportion after De-tariffing
PREMIUM 2007-08
8%
3% Fire
2% 16%
1% Engg.
5% Motor OD
16%
Motor TP
Marine Cargo
3% Marine Hull
27% Health
4%
Aviation
15%
We can see that after de-tariffing of Indian general insurance sector, the sector like
Health, Motor TP shows a significant growth in premium.
The Rs. 281 billion Indian general insurance industry reported a compounded annual
growth rate (CAGR) of 15.1% over the last five years. Currently, there are 15 active
general insurance companies in the country, including four from the public sector. Over
the last five years, the private sector entities have reported strong growth, and together
they now have a market share of around 60%. While the public sector players remain the
largest in the industry, the gap between the top three private sector players and the public
sector entities has narrowed substantially during the last few years. Overall, the top eight
players in the Indian general insurance industry continue account for over 90% of the
total business. In terms of business lines, motor and health, which are predominantly
retail lines, now account for over 60% of the total business, as against around 50% five
years back.
India is the 5th largest market in Asia by premium, following Japan, Korea, China and
Taiwan. The country is geographically large and has the world‟s 2nd largest population --
1.13 billion in 2007 – but it also has one of the lowest penetration rates for property and
casualty insurance in Asia in terms of premium as a percentage of GDP. This situation
reflects the fact that India‟s insurance market is still in its infancy, meaning good growth
potential. Even though the economy is expected to slow, it has sufficient momentum to
maintain an impressive rate of growth when compared to the more advanced economies.
Against the backdrop of rising income levels, insurers operating in a now deregulated
environment will be able to expand product lines to cater to the demand for more
customized and sophisticated risk solutions.
The various sectors share in general insurance market in 2007-08 is given below:-
100%
80% Others
Health
60%
Motor
40% Marine
20% Engineering
Fire
0%
2003-04 2004-05 2005-06 2006-07 2007-08
Forecast future growth for non-life in India for 2009 & 2010 would be:-
(In billion USD)
14 Aviation
Liability
12
Marine Cargo
10
Marine Hull
8 Motor TP
6 Miscellaneous
4 Engineering
Fire
2
PA & Health
0
Motor OD
2006 2007 2008 2009 2010
And as India continues to revamp its infrastructure the flow-on effects will ensure
ongoing growth of commercial insurance.
With the removal of pricing controls on fire and engineering lines in 2007, insurers have
since discounted their rates by 50% or more in their quest to retain or win market share.
These practices will translate into weaker underwriting performances in the short term.
Private players will continue to capture market share at the expense of public enterprises
on a mix of aggressive distribution and service. Having penetrated the corporate segment
in the past, most private insurers now seek to grow their retail books. Furthermore, the
number of private insurers is expected to grow as various foreign companies have
announced intentions to establish joint ventures. Given the low level of penetration in
some segments, this trend towards foreign participation is likely to continue. Rate
reductions in the recently de-terrified corporate portfolio (fire & engineering) will impact
premium growth, but this outcome will be offset by greater sales of existing and new
products.
The formation of a third party motor pool, where all general insurers are required to
participate based on the size of their overall market shares, will reduce the underwriting
burden on public entities. The claims ratio for the segment is likely to improve in the
medium term as premium rates for the third party motor pool have also climbed.
Although public entities have sustained consistent underwriting losses on some product
lines, in particular for third party motor business, their investment income and gains have
more than offset their underwriting losses and helped them achieve solvency margins.
With the regulatory environment in India, it generally ensures that insurers adopt sound
underwriting, valuation and investment practices, while protecting the interests of
policyholders. At the same time, the environment will undergo reform and modernization.
Domestic demand, the number of insurers in the private sector will keep growing. Major
foreign players see opportunities to increase both volumes and types of products. With
the regulator possibly lifting the ceiling on foreign ownership to 49%, the capacities of
domestic partners would no longer constrain capital levels for joint ventures.
Until 2000, the general insurance sector had only four public sector players, formed after
the nationalization of 107 general insurers. The public enterprises – Oriental Insurance
Company of India (OIC), National Insurance Company of India (NIC), and New India
Assurance Company of India (NIA) and United Insurance Company of India (UII) – were
located in Delhi, Kolkata, Mumbai and Chennai respectively. They primarily focused on
their immediate regions and there was little competition, leading to a near monopolistic
environment.
In the private sector, there were fourteen players with Raheja QBE General Insurance
Company Ltd. the latest entrant as of December 2008. A number of potential new
entrants await the necessary approvals. Most private players have tie-ups with
international companies to compensate for their lack of experience in insurance.
Within the private sector, ICICI Lombard (IL) leads with 11.4% market share for the
period 2007-08.
Recently, Reliance General Insurance (RGI) has emerged as the fastest growing player,
recording a 116% rise year-on-year in gross direct premium in the first nine months of
2007-08.Given below charts presents the gross direct premium income of various
insurers for 2007-08 along with growth over the same period in 2006-07.
National (4021.97)
New India (6151.97)
Oriental (3900.22)
United (3139.56)
Bajaj Allianz (2379.92)
Cholamandalam (522.34)
Future Generali (9.81)
HDFC Ergo (220.60)
ICICI Lombard (3307.12)
Iffco-Tokio (1128.15)
Reliance (1946.42)
Royal Sundaram (694.41)
Tata AIG (782.64)
Universal Sompo (0.48)
PREMIUM GROWTH
120.00%
100.00%
80.00%
60.00%
40.00%
20.00% PREMIUM GROWTH
0.00%
-20.00%
80%
70%
60%
50%
40% Public
30% Private
20%
10%
0%
2004-05 2005-06 2006-07 2007-08
Motor is the largest segment of the domestic general insurance industry, with a 45.5%
(2007-08) share of the overall general insurance business. Following de-tariffing of the
OD business, premiums in the segment reported a decline of around 20% initially (within
the regulatory limit), but have dropped further in the current year in a free pricing regime.
While claims performance for the motor private OD business deteriorated in 2007-08, the
overall motor business reported relatively stable performance during the year. Over the
medium to long term, performance of the motor segment is expected to be supported by a
more efficient claim settlement system and by the plugging of leakages.
Motor TP for commercial vehicles (CVs) has been the worst performing sub-segment for
the industry historically, with estimated claims in excess of 200%. Being a tariffed
segment, motor TP has suffered from inadequate pricing, besides high costs on account
of delayed settlements and litigation. While TP pricing remains regulated, the regulators
have affected a significant increase in premiums (around 70%) in 2007-08, which, going
forward, is expected to improve the claims performance for the sub-segment
significantly. Historically, bulk of the motor TP business for CVs was underwritten by
the public sector, with the result that the burden of underwriting loss from this sub-
segment on these entities has been disproportionately high. Beginning 2007-08, the motor
TP business for CVs business is being ceded to a common pool so that the losses are
shared equitably by all players in the proportion of their share of the overall insurance
business.
120%
100%
80%
60% Public
40% Private
20%
0%
2004-05 2005-06 2006-07 2007-08
Claims performance in the health segment has been traditionally weak, primarily on
account of group (corporate) policies, which were being subsidized by the more
profitable fire and engineering lines in the tariff regime. Following de-tariffing, this
segment has reported better risk based pricing, with the result that there has been a
moderate improvement in its claims performance. Overall, the segment however remains
loss making. Of late, the thrust has shifted to the retail side, where claims performance is
better and there is potential for strong growth, given the currently low penetration levels.
160%
140%
120%
100%
80% Public
60% Private
40%
20%
0%
2004-05 2005-06 2006-07 2007-08
BUSINESS PROFILES
Private Sector’s Growing Influence
The private sector has been steadily growing market share despite the fact that public
sector companies have been around for a lot longer. The private insurers enjoy
considerable operational flexibility, whereas the public sector companies have been
constrained by their traditions and inability to innovate.
Given a faster growth rate, the market share of the private sector is catching that of the
public sector and the two will likely converge over the medium term. In the past, private
insurers had aggressively targeted the more profitable (and tariffed) corporate fire and
18000
16000
14000
12000
10000 Public
8000 Private
6000
4000
2000
0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
100.00%
90.00%
80.00%
70.00%
60.00%
50.00% Public
40.00% Private
30.00%
20.00%
10.00%
0.00%
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
The inherent operational flexibility of the private players – such as through aggressive
pricing -- has allowed them to capture a greater share of large corporate accounts. But
such strong penetration of large corporate clients makes future growth in this segment
more difficult.
Charts given below compare the premium income of the private and public sectors before
and after removal of tariff. Before the removal of tariffs, fire, engineering and motor own
damage (OD) contributed a much greater proportion of business for private players than
was the case for public firms.
The private sector share of third party motor business was much lower in the past than
that for public firms as the former did not pursue this market because of its negative
underwriting margins. However, with the formation of the common third party motor
pool, the situation has changed. The losses related to this segment now get shared among
35%
30%
25%
20%
15% Public
10% Private
5%
0%
all the players, leaving little incentive to avoid this segment. This is also evident from the
9-month, 2007-08 data.
30%
25%
20%
15% Public
Private
10%
5%
0%
Fire and engineering now broadly contribute a similar proportion of overall business for
the private and public sectors.
In terms of overall business, the focus has shifted towards the retail segments of motor
and health, where good growth is expected.
Operational Flexibility
Moreover, the public entities lack the operational flexibility enjoyed by the private
players. Their limited capacity to innovate has impacted their ability to tailor and
aggressively price products for large corporations. The private players by contrast have
focused on account-level profitability for large corporations and have expanded their
shares by cross-subsidizing tariffed products.
Client Servicing
The public insurers have also been hampered in claims servicing by their process-
oriented approach and limited operational flexibility. They have been unable to expedite
claim settlements through out-of-court negotiations since a large proportion of their
claims pertain to the third party motor segment, which is subject to adjudication by the
Motor Accident Claim Tribunal. The result is a time-consuming and involved process.
On the other hand, public entities have only recently upgraded their systems and have to
grapple with transition issues, such as moving from paper to paper-less systems. They are
encumbered by legacy systems and fragmented databases, and have not fully used their
past claim experiences, something which could give them a strong pricing edge in a de-
tariffed environment.
Most insurers now have tie-ups with the banks, which act as corporate agents and are
remunerated on a commission basis. For example, ICICI Lombard sources a major
portion of its business from a tie-up with ICICI Bank. Similarly, Bajaj Allianz General
Insurance Company Limited (BAIL, second largest private player) has tie-ups with large
number of banks, which contribute a big share of its total premium income.
As of December 31 2007, 267 brokers were registered with IRDA, including 228 direct
brokers, 33 composite brokers and 6 reinsurance brokers. In a deregulated environment,
the broking community will have plenty of opportunity to become an integral part of the
insurance and risk financing process.
At this time, low cost channels like tele-sales and the internet are still not developed in
India, mainly due to relatively poor knowledge about insurance products and low internet
penetration.