Analysis of

Insurance Industry in India

Vinay Rao Gandra

A30601912006

Introduction

Indian Insurance sector was thrown open to competition in 2000 and has evolved since then;

thanks to robust regulatory framework, positive business environment and economic growth.

The industry is at an inflection point today and all factors are well in place for it to develop into

one of the fastest growing financial services markets in the world. Rising income levels and

higher awareness are boosting demand and increasingly sophisticated consumers with varied

needs are compelling players to come-up with customized products.

History of Insurance in India

1818 saw the advent of life insurance business in India with the establishment of the Oriental

Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the

Madras Equitable had begun transacting life insurance business in the Madras Presidency.

1870 saw the enactment of the British Insurance Act and in the last three decades of the

nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were

started in the Bombay Residency. This era, however, was dominated by foreign insurance offices

which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and

London Globe Insurance and the Indian offices were up for hard competition from the foreign

companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India.

The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life

business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to

collect statistical information about both life and non-life business transacted in India by Indian

and foreign insurers including provident insurance societies. In 1938, with a view to protecting

the interest of the Insurance public, the earlier legislation was consolidated and amended by the

Insurance Act, 1938 with comprehensive provisions for effective control over the activities of

insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a

large number of insurance companies and the level of competition was high. There were also

allegations of unfair trade practices. The Government of India, therefore, decided to nationalize

insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life

Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16

non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The

LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and the

consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a

legacy of British occupation. General Insurance in India has its roots in the establishment of

Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian

Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of

general insurance business.

1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of

India. The General Insurance Council framed a code of conduct for ensuring fair conduct and

sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency

margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general

insurance business was nationalized with effect from 1st January, 1973. 107 insurers were

amalgamated and grouped into four companies, namely National Insurance Company Ltd., the

New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India

Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a

company in 1971 and it commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200

years. The process of re-opening of the sector had begun in the early 1990s and the last decade

and more has seen it been opened up substantially. In 1993, the Government set up a committee

under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations

for reforms in the insurance sector.The objective was to complement the reforms initiated in the

financial sector. The committee submitted its report in 1994 wherein , among other things, it

recommended that the private sector be permitted to enter the insurance industry. They stated

that foreign companies be allowed to enter by floating Indian companies, preferably a joint

venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance

Regulatory and Development Authority (IRDA) was constituted as an autonomous body to

regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in

April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance

customer satisfaction through increased consumer choice and lower premiums, while ensuring

the financial security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for

registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the

power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000

onwards framed various regulations ranging from registration of companies for carrying on

insurance business to protection of policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India were

restructured as independent companies and at the same time GIC was converted into a national

re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 24 general insurance companies including the ECGC and Agriculture

Insurance Corporation of India and 23 life insurance companies operating in the country.

Industry Dynamics

Government-owned Life Insurance Corporation (LIC) of India is the country’s largest insurer,

controlling approximately 65 per cent of the market.

Life insurance penetration in India is about 4.4 per cent of the country’s gross domestic product

(GDP) in terms of total premiums underwritten annually, according to the Insurance Regulatory

and Development Authority (IRDA). The penetration is quite less in India as against its peers

and hence, the Indian insurance market provides ample opportunities to domestic and

international players to harness the profitable avenues in the same.

India tops all the countries in terms of life insurance density, according to the World Economic

Forums’ Financial Development Report 2012. It is followed by China, Japan, US & UK.

Key Statistics

Life insurance industry, comprising over 20 companies, including public sector LIC,

collected total premium of Rs 84,501.75 crore (US$ 15.38 billion) during the April-

February period of 2012-13 fiscal. Private insurers together raked-in Rs 23,796.29 crore

(US$ 4.33 billion) in these 11 months

Meanwhile, the general insurance industry grew by 19.34 per cent in the 11 months of

2012-13 fiscal wherein the 27 non-life insurers collected premium worth Rs 61,885.11

crore (US$ 11.26 billion). The growth was led by SBI General which recorded over

three-fold growth in gross premium as compared to last fiscal.

Of the total premium, the share of 21 private sector players stood at Rs 26,655.35 crore

(US$ 4.85 billion) while Rs 31,196.3 crore (US$ 5.68 billion) were contributed by four

public sector players --New India Assurance, National Insurance, United India and

Oriental Insurance

New Developments/ Product Launches

Canada's largest insurer Manulife Financial is contemplating to enter Indian insurance

sector. The company is actively doing a market research to find a viable business model

to set up its shop here.

The Indian insurance sector is home to many other foreign players like Allianz,

Prudential, Standard Life, Aviva,Aegon and Nippon Life, which are present in the market

through joint ventures (JVs)with their respective Indian partners

State-owned general insurer New India Assurance is all set to make the best of its

international presence. The company that currently operates in 22 countries is planning to

enter Qatar, Myanmar and Canada in 2013-14, said G. Srinivasan, Chairman-cum-

Managing Director. The company has huge set-up in countries like London, Australia and

Japan and has ventures in Kenya, Singapore and other African countries.

New India Assurance recorded Rs 2, 500 crore (US$ 455.13 million) as its premium

income from overseas operations in 2012-13

United Indian Insurance Company has drafted its plan-of-action for 2013-14 and has

revealed that it would continue to focus on retail business through agents and would add

around 530 micro offices in the country. The company also intends to intensify its focus

on information technology activities, including expansion of info-kiosks and online

policies

ICICI Securities and ICICI Lombard General Insurance have together launched a unique

general insurance policy for Mutual Fund Systematic Investment Plan (SIP) investors.

Using this policy – named ‘Secure Mind’ - 2.6 million customers of ICICIdirect.com can

protect their investments made in mutual funds (MF) from unforeseen risks. This is the

first-of-its-kind general insurance policy in India to be offered with MF investments

Government Initiatives

Mr P Chidambaram, the Finance Minister has expressed confidence that the Government would

soon introduce amendments to the Insurance Bill. The Bill seeks to raise foreign investment cap

in the sector from 26 per cent to 49 per cent, which is a much-awaited move in the capital-

intensive industry.

In order to increase the penetration of the concept of insurance, the Government of India has also

launched a pan-India insurance awareness campaign. Mr Chidambaram has ensured that the

campaign would not remain secluded to metros like Delhi and Mumbai and would focus on

states such as Bihar, Chhattisgarh, Uttar Pradesh and Uttarakhand, where insurance penetration

and awareness is comparatively low.

He also stressed on IRDA that the regulator should focus on development of the insurance sector

as while regulations are important, development of insurance industry is equally important.

Road Ahead

Rural and semi-urban markets are witnessing strong demand for composite products and health

insurance policies, more-so because of increasing awareness and Government initiatives.

Bottom-of-the-pyramid products such as micro-insurance are gaining popularity day-by-day.

Insurers are considering telecom franchisees, NGOs, regional rural banks, cooperatives, post

offices and micro finance institutions as major channels to sell their products. They are even

contemplating on an extensive rural-agent network for sale of insurance products and services.

Coming to urban markets, India's urban population is projected to increase from the current 318

million to 375 million by 2025 and it will enhance beyond existing cities into tier-II and tier-III

cities and smaller towns. The need of the day for life insurers is to understand the different needs

of these potential customers, design products to match their requirements and create efficient

distribution models on which they can bank upon in future.

In a nutshell, statistics and industry experts truly state that the insurance landscape in India is full

of opportunities. The players need to leverage their strengths, fasten their growth drivers to

emerge stronger and build an incredible model based on consumer trust and valuable distributor

relationships. These strategic investments will enable the Indian insurance sector to sustain its

overall growth momentum over the years to come.

About the Company

Aditya Birla Group

A US $40 billion corporation, the Aditya Birla Group is in the League of Fortune 500. It is

anchored by an extraordinary force of over 136,000 employees belonging to 42 different

nationalities. The Group has been ranked Number 4 in the global ‘Top Companies for Leaders’

survey and ranked Number 1 in Asia Pacific for 2011. ‘Top Companies for Leaders’ is the most

comprehensive study of organisational leadership in the world conducted by Aon Hewitt,

Fortune Magazine, and RBL (a strategic HR and Leadership Advisory firm).

Over 53 per cent of the Aditya Birla Group’s revenues flow from its overseas operations. The

Group operates in 36 countries – Australia, Austria, Bangladesh, Brazil, Canada, China, Egypt,

France, Germany, Hungary, India, Indonesia, Italy, Ivory Coast, Japan, Korea, Laos,

Luxembourg, Malaysia, Myanmar, Philippines, Poland, Russia, Singapore, South Africa, Spain,

Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Turkey, UAE, UK, USA, and Vietnam.

Aditya Birla Group – The Global Scenario

Around the world, we're known for:

A metals powerhouse, among the world’s most cost-efficient aluminium and copper

producers. Hindalco-Novelis is the largest aluminium rolling company. It is one of the three

biggest producers of primary aluminium in Asia with the largest single location copper smelter

No.1 in viscose staple fibre

No.1 in carbon black

The fourth-largest producer of insulators

The fifth-largest producer of acrylic fibre

Among the top 10 cement producers

Among the best energy-efficient fertiliser plants

The largest Indian MNC with manufacturing operations in the USA

Aditya Birla Group – The Indian Scenario

In India, here’s what we have accomplished:

The largest fashion (premium branded apparel) and lifestyle player

The second-largest manufacturer and largest exporter of viscose filament yarn

The largest producer in the chlor-alkali sector

Among the top three mobile telephony companies

A leading player in life insurance and asset management

Among the top two supermarket chains in the retail business

Among the top 6 BPO companies

The largest manufacturer of linen fabric

Rock solid in fundamentals, the Aditya Birla Group nurtures a culture where success does not

come in the way of the need to keep learning afresh, to keep experimenting.

Aditya Birla Group – Beyond Business

Works in 3,000 villages

Reaches out to seven million people, annually, through the Aditya Birla Centre for Community

Initiatives and Rural Development spearheaded by Mrs. Rajashree Birla

Focuses on healthcare, education, sustainable livelihood, infrastructure and espousing social

reform in India, Brazil and Egypt, as well as Philippines, Thailand, Laos, Indonesia, Korea and

other Asian countries

In India:

The Aditya Birla Group runs 42 schools across India, providing quality education to 45,000

children, including 18,000 needy students who receive free education. Merit scholarships are

given to an additional 8,500 children from the interiors.

The 18 hospitals run by the Aditya Birla Group tend to more than a million villagers.

In line with its commitment to sustainable development, the Aditya Birla Group has partnered

with Columbia University in establishing the Columbia Global Centre’s Earth Institute in

Mumbai.

The idea of embedding CSR as a way of life in organisations has led to the setting up of the

FICCI – Aditya Birla CSR Centre for Excellence, in Delhi.

Aditya Birla Financial Services Group

Aditya Birla Financial Services Group (ABFSG) has built a significant presence across its

verticals, viz., life insurance, asset management, NBFC, private equity, broking, wealth

management and distribution and general insurance advisory services.

The seven companies representing Aditya Birla Financial Services Group are :

Birla Sun Life Insurance Company Ltd.

Birla Sun Life Asset Management Company Ltd.

Aditya Birla Finance Ltd.

Aditya Birla Capital Advisors Pvt. Ltd.

Aditya Birla Money Ltd.

Aditya Birla Money Mart Ltd.

Aditya Birla Insurance Brokers Ltd.

ABFSG is committed to being a leader and role model in a broad based and integrated financial

services business. Its 7 lines of businesses, with about 5.5 million customers, manages assets

worth Rs. 89,571 Crores (US$19.9 billion) and prides itself for having a talent pool of about

15,000 committed employees. ABFSG has its wings spread across more than 500 cities in India

through over 1,700 points of presence and about 200,000 channel partners. This allows ABFSG

to offer its customers virtually anything under financial services except a savings or current

account. With over Rs. 6,296 Crores in revenues, ABFSG is a significant non-bank player.

Management team

Mr. Ajay Srinivasan, chief executive

Mr. Pankaj Razdan, deputy chief executive

Mr. Ajay Kakar, chief marketing officer

Mr. A. Dhananjaya, chief compliance and risk officer

Mr. Gautam Chainani, chief people officer

Aditya Birla Nuvo Ltd. commands leadership position in India across its

businesses:

Aditya Birla Financial Services ranks among the top 5 fund managers in India

(excl. Banks and LIC), managing AUM of ~USD 20 billion as on 30th September

2012 and having an annual revenue size of over USD 1.3 billion (2011-12).

Trusted by ~5.5 million customers and anchored by about 17,000 employees, it has

a nationwide presence through more than 1,775 points of presence and about

200,000 agents / channel partners. ABFS is the largest contributor to ABNL’s

consolidated earnings before tax – contributed 45 per cent in FY12.

Birla Sun Life Insurance (BSLI) is a 74:26 joint venture between ABNL and Sun

Life Financial, Canada. BSLI improved its ranking to 5th among private players

with an enhanced market share of 7.8 per cent in FY12. It reported Embedded

Value of Rs.4,015 crore as on 31st March 2012 and VNB margin at 22.8 per

cent. It is managing AUM of ~USD 4.5 billion as on 30th September 2012. It

sells one life insurance policy every minute. BSLI has one of the best persistency

ratios in the industry @ 81 per cent. It declared a dividend of Rs.98.5 Cr @ 5 per

cent of its paid up capital.

Birla Sun Life Asset Management (BSAMC) is a 51:49 joint venture with Sun

Life Financial, Canada. BSAMC improved its all India ranking to 4th and market

share to 9.8 per cent with an AUM of ~USD 15.5 billion as on 30th September

12.

Aditya Birla Finance, the NBFC arm, doubled its book size y-o-y to ~USD 1

billion as on 30th September 2012.

A prominent player in Private Equity, Wealth Management, Broking & General

Insurance Advisory space.

Birla Sun Life Insurance

Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla

Group, a well known Indian conglomerate and Sun Life Financial Inc, one of the leading

international financial services organizations from Canada. With an experience of over a

decade, BSLI has contributed to the growth and development of the Indian life insurance

industry and currently is one of the leading life insurance companies in the country.

BSLI offers a complete range of offerings comprising of protection solutions, children's future

solutions, wealth with protection, health and wellness as well as retirement solutions and has

an extensive distribution reach over 500 cities through its network of around 600 branches,

over 106,794 empanelled advisors and over 200 partnerships with Corporate Agents, Brokers

and Banks. The AUM of Birla Sun Life Insurance is close to Rs 22,929crs and it has a robust

capital base of over Rs. 2,450crs as on Mar 31, 2013.

Vision

To be a leader and role model in a broad based and integrated financial services business.

Values

Integrity

Commitment

Passion

Seamlessness

Speed

About Sun Life Financial

Sun Life Assurance Company of Canada is a wholly owned subsidiary of Sun Life Financial

Inc. and is a member of the Sun Life Financial group of companies.

Sun Life Financial is a leading international financial services organization providing a diverse

range of protection and wealth accumulation products and services to individual and corporate

customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key

markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong

Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of December 31, 2012,

the Sun Life Financial group of companies had total assets under management of CAD$533

billion. Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and Philippine

(PSE) stock exchanges under the ticker symbol SLF.

The People

Mr. Jayant Dua MD & CEO

Mr. Jayant Dua is the Managing Director and Chief Executive Officer at Birla Sun Life Insurance. He is a

Chemical Engineer from IIT Delhi and an MBA. He also holds an Advanced Management Program (AMP) from

Harvard Business School, USA. He joined Birla Sun Life Insurance in July 2010.

Mr. Mayank Bathwal

CFO & Head of Institutional Sales

Mr. Amitabh Verma

Chief Operating Officer

Mr. Sashi Krishnan Chief Investment Officer

Mr. Arun Malkani

Chief Marketing Officer