Analysis Of Life Insurance Industry In India Economics Essay

analysis Of deportment indemnity fabrication In India Economics EssaySince stemma the Indian invigoration redress industriousness has its feature origin and history. It has passed by dint of mevery hurdles and hindrances in rove to attain the set status. However, the income earning faculty of an individual citizen of a nation and the eagerness and aw beness of the gen eonl universal are the two key determinants of the egression of any indemnity sedulousness. In the Indian context, the insurance policy habits among the oecumenic public during the independence decade was high-minded and in the following decades, it has slowly increased. on that point was a remarkable betterment in the Indian indemnity sedulousness soon aft(prenominal) the sparing reform era (1991). After 1991 the Indian flavortime policy industry has geared up in all respects, as well as it is being forced to face a lot of healthy argument from many national as well as international ind ividual(a) damages thespians.In this paper we have analyzed the performance of LIC everywhere a time uttermost of 1980 to 2009, attempt has been made to analyse the boilers suit performance of manners damages fabrication of India between pre- and post sparing reform era. To footstep the rate of flow status, volume of competitions and challenges faced by the emotional state history policy mint of India and to measure the effectiveness of investment strategy of LIC everyplace the full stop 1980 to 2009. Data were analysed by using Regression, Trend Analysis and Anova. The m white plague reveals that on that point is a tremendous exploitation in the performance of Indian Life restitution industry and LIC due to the policy of LPG. indemnification industry to a fault improved a lot due to the emergence of hush-hush arena and opening up for abroad players. Further there is also a huge change in the investment pattern of LIC. There is a change magnitude edit to ward the investment in Stock grocery by LIC from 60% to 93% from 1980 to 2009 due to the effective regulation of SEBI and increasing transparency of stock commercialize.I. IntroductionLife indemnity is a subject field for the payment of a sum of m iy to a soulfulness secure on happening of the event ensured against. Usually the contracts provide for the payment of the summarizeity on a date of maturity or at a specified date at periodic intervals or at unfortunate expiration, if it occurs earlier.Life redress is universally acknowledged to be an institution, which eliminates risk, substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of breadwinner. Life damages is civilisations partial solution to the problems that ca employ by death. In short, life policy is concerned with two hazards that stand across the life-path of every person 1.That of dying prematurely is leaving a dependent family to fend for itsel f. 2. That of nutrition till old age without visible means of support.The nationalization of insurance business in the country resulted in the establishment of Life insurance policy Corporation of India (LIC) in 1956 as a wholly- own dope of the political relation of India. Indias life insurance trade has grown rapidly all everyplace the ultimo six grades, with pertly business subventions growing at all over 40% per class. The agio income of Indias life insurance securities industry is set to double by 2012 on better penetration and higher incomes. amends penetration in India is currently n archaeozoic 4% of its GDP, untold lower than the developed market level of 6-9%. In several segments of the population, the penetration is lower than potential. For example, in urban areas, the penetration of life insurance in the mass market is about 65%, and its con military positionrably less in the low-income unbanked segment. In rural areas, life insurance penetration in t he banked segment is estimated to be about 40%, while it is marginal at best in the unbanked segment. The total exchange exchange premium could go up to $80-100 one million million by 2012 from the present $40 topion as higher per capita income increases per capita insurance intensity. The average household premium go forth rise to Rs 3,000-4,100 from the current Rs 1,300 as will penetration by the active and new players. Indias ratio of life insurance premium to its GDP is roughly 4 per penny against 6-9 per cent in the developed world. It could rise to 5.1-6.2 by 2012 in tandem with the countrys demographic profile.India has 17 life insurers and the state owned Life insurance Corp. of India surmounts the industry with over 70 percent market share, though hugger-mugger players have been growing aggressively. Considering the worlds largest population and an annual offshoot rate of nearly 7 per cent, India contributes great opport unit of measurementies for insurers. US bas ed online insurance caller-up ebix.com plans to commemorate the Indian market following deregulation of its insurance area.In a diverse country such as India it is compulsory that a universal insurance infrastructure be created to maximize qualification in the insurance industry. Online insurer ebix.com can offers the Indian market a business-to-consumer internet portal where consumers have more choice while get insurance and an internet-based agency management scheme that will help agents flow more efficiently with multiple carriers. Foreign holding in Indian insurance companies is moderate to 26 per cent. The market is moving beyond single-premium policies and unit linked insurance products which are easier to sell. The agency model is the dominant gross revenue channel accounting for more than 85 per cent of fresh premiums only when overall inactivity and attrition is ofttimes higher at 50-55 per cent than the global average of 25 per cent. GIVE REFERENCEII. Re candida te of belles-lettresIn the present section an attempt has been made to examine the limited review of literature related to the study.Rao, R.T.S. (2000) in this article had explained the phenomenal growth experience by life insurance industries recently, in line with the countrys improving scotch fundamentals. By comparing the growth, penetration, density and other insurance variables, he had shown that India is solace an on a lower floordeveloped insurance market, it has a huge catch-up potential. According to him even though there is strong potential for expansion of insurance into rural areas, growth has so far remained slow. Considering that the bulk of the Indian population still resides in rural areas, it is imperative that the insurance industrys development should not miss this abundant celestial sphere of the population.Goyal, K. (2004), in this article has reviewed that private insurance companies had reason to go along with the lifting of the celestial sphereal c ap in the insurance sector to 49 per cent in the Union Budget 2004-05, as against 26 per cent earlier. However, to offset the excitement, there was also an imposition of service tax of 10 per cent on the risk premium for life insurance, which has the industry with mixed feelings. The FDI hike has been a much-awaited plea of these companies, who believed that they could plough in more money into the business if their impertinent partners were permitted an increased holding.Jain, A.K. (2004), revealed that Waves of liberalization have done wonders to proper the insurance occupation to the status of a career with a bright future. The average mindset, peculiarly of younger generation in India was very amenable to the changes in insurance as an avenue where exhilarating opportunities are opened up in changed environment.Krishnamurthy, S. (2005) in this article had reviewed that damages companies have a pivotal billet in offering insurance products which meet the requirements of the people and, at the alike time, are affordable. Some of the challenges faced by the insurance sector bear upon to the postulate conditions, competition in the sector, product innovations, delivery and distri unlession strategys, use of technology, and regulation. With the liberalization and entry of private companies in insurance, the Indian insurance sector has offset printinged showing signs of significant change.Ray, Subhashish and Pathak, Ajay. (2006) opined that ever since the privatization of the insurance sector in India in 2000, the industries has been witnessing the birth of numerous private players, mostly joint ventures between foreign insurance giants and Indian diversified conglomerates and to each one one is trying to figure out an inroad into the huge untapped market.Sinha, Ram Pratap. (2007) opined that the deregulation of general insurance industry in India is having far-reaching consequences in terms of market size, structure and operational practices. As com pared to the international standards the penetration level of general insurance companies in India is sort of low and, therefore, has tremendous potential for growth. His analysis revealed that the public sector insurers dominate the private sector insurers in terms of mean technical efficiency in constant re processs to scale, while the private sector insurers have a slightly higher mean technical efficiency than the public sector insurers in variable returns to scale.Goswami, P. (2007) in this article had reviewed that the insurance industry in India was opened up to private sector participation in the year 2000. Prior to this, Life insurance Corporation (LIC) of India was the sole player in the life insurance industry in India. In six days since the entry of private players in the insurance market, LIC has lost 29% market share to the private players, although both, market size and the insurance premium being collected, are on the rise. In 2005, life insurance accounted for 7 9% of the total insurance market in India. It was found that the responsiveness dimension of service quality provides maximum customer satisfaction in the life insurance industry in India.Sabera. (2007) indicated that in March 2000, when the Government of India liberalized the insurance sector, bring up the entry restrictions for private insurance players, allowing the foreign players to enter into the market and start their operations in India. The entry of private players helps in spreading and property the operation in the Indian insurance sector which in turn results in restructuring and revitalizing of public sector companies.III. Research MethodologyThe seek article is based upon descriptive as well as preliminary research. Secondary sources of data collection have been adopted for the study. The relevant and inevitable data are collected from the text books, national and international articles, rbi Bulletin ( respective(a) issues) as well as annual sketchs of LIC. The Statistical in like mannerls used in this research article are Correlation, Regression, analysis of variance, the method of least squares and running(a) trend. The method of least square has been used for analysing the overall performance of Life Insurance effort of India between pre- and post economic reform era and to measure the current status, volume of competitions and challenges faced by the Life Insurance Corporation of India. For processing the data and estimating the results, Excel, SPSS-16 packages have been used.ObjectivesThe following are the objectives of the present studyTo analyze the overall performance of Life Insurance Industry of India between pre- and post economic reform eraTo measure the current status, volume of competitions and challenges faced by the Life Insurance Corporation of IndiaTo measure the change in the effectiveness of the investment strategy of LIC over the period 1980 to 2009.HypothesisThe study is based on the hypothesis thatThere is no sign ificance loss in the performance of Life Insurance Industry between pre- and post economic reform eraThere is no significance Change in the pattern of the investment strategy of LIC over the period 1980 to 2009.Status and Position of Indian Life Insurance Industry in the pre LPG eraIn India, life insurance in its new-made form came from England in the year 1818. The first life insurance was eastern life insurance Company started by Europeans in Calcutta. All the insurance industries launch during that period of time were brought up with the purpose of looking after the needs of European community and Indian natives were not being see to it by these companies. Later on with the efforts of eminent people like babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. only when still Indian lives were being treated as sub-standard lives and heavy extra premiums were being charged on them. However in the year 1870, Bombay Mutual Life sureness Societ y heralded the birth of first Indian life insurance company and keep oned Indian lives at normal rates. Starting as Indian enterprise with highly patriotic motives, insurance companies came into existence to widen the message of insurance and social security through insurance to various sectors of the society. Bharat Insurance Company (1896) was another one of such companies inspired by nationalism. The Swadeshi movement during 1905-1907 gave rise to more insurance companies. The United India in Madras, content Indian and National Insurance in Calcutta and the Co-operative government agency at Lahore were established in 1906. In 1907, the Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindra Nath Tagore, in Calcutta. The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies that established during the alike(p) period. Prior to 1912, India had no commandment to regulate insurance business. However in the year 1912, the Life Insurance Companies Act, and the Provident line of descent Act were passed. The Life Insurance Companies Act, 1912 made it inevitable that the premium rate tables and periodical valuations of companies should be certified by an actuary, but in actuall the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage.The first two decades of the 20th century saw lot of growth in insurance industries. From 44 companies with total business-in-force of Rs.22.44 crore, it rose to 176 companies with total business-in-force of Rs.298 crore in 1938. During the mushrooming of insurance companies many monetaryly unsound concerns were also floated which failed miserably. The Insurance Act 1938 was the first legislation politics not only life insurance but also non-life insurance to provide strict state control over insurance business. The demand for nationalization of life insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. However, it was much later on the nineteenth of January, 1956, that life insurance in India was nationalized. roughly 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization. Nationalization was accomplished in two stages ab initio the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cove r at a reasonable cost.In the year 1956, LIC had 5 zonary offices, 33 divisional offices and 212 branch offices, apart from its corporate office. Since life insurance contracts are long term contracts and during the currency of the policy it requires a descriptor of services needs matte in the later years to exposit the operations and place a branch office at each district headquarter. Re-organization of LIC took place and large numbers of new branch offices were opened. As a result of the re-organization service of process functions were transferred to the branches, and branches were made accounting units. It worked wonders with the performance of the corporation. It may be seen from the fact that about 200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00 crores mark of new business. But with the re-organization happening in the early eighties, by 1985-86 LIC had already cr ossed 7000.00 crores Sum certain on new policies.Table 1. Growth of LIC between 1959 and 1999Table 1. Growth of LIC between 1959 and 1999 S.No.Particulars195719991Annual Business Sum Assured Policies First year premium336.3 crores 8,00,000 14 crores75606 crores 14857000 4171 crores2Business in force Sum Assured Policies Renewal premium1477 crores 5686000 74 crores459201 crores 91726000 16136crores3Group Business in force Sum Assured No. of Lives5.29 crores 69558 crores 216710004Life monetary fund41040 crores127389.06 croresSource Secondary Data Annual Reports of LIC.Progress of Indian Life Insurance Industry in the Post LPG EraInsurance sector reformsIn 1993, Malhotra Committee headed by former Finance Secretary and run batted in Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and advocate its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reformsIn 1994, the committee submitted the report and some of the key recommendations included1) StructureGovernment stake in the insurance Companies to be brought down to 50%.Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.All the insurance companies should be given greater freedom to operate.2) Competition semiprivate Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.No Company should deal in both Life and General Insurance through a single entity.Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.Postal Life Ins urance should be allowed to operate in the rural market.Only One evoke Level Life Insurance Company should be allowed to operate in each state.3) Regulatory BodyThe Insurance Act should be changed.An Insurance Regulatory body should be set up.Controller of Insurance (Currently a part from the Finance Ministry) should be made independent.4) investituresMandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time).5) Customer ServiceLIC should pay interest on delays in payments beyond 30 days.Insurance companies must be encouraged to set up unit linked pension plans.Computerisation of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened u p to competition.But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public trustfulness in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.MAJOR POLICY CHANGESInsurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the viands of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure natt y growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditionsCompany is formed and registered under the Companies Act, 1956The aggregate holdings of law shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not fleet 26%, paid up equity capital of such Indian insurance companyThe companys sole purpose is to carry on life insurance business or general insurance business or reinsurance business.The minimum paid up equity capital for life or general insurance business is Rs.100 crores.The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores.The Authority has notified 27 Regulations on various issue s which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. IRDA has so far granted registration to 12 private life insurance companies and 9 general insurance companies. If the existing public sector insurance companies are included, there are currently 13 insurance companies in the life side and 13 companies operating in general insurance business.Today LIC functions with 2048 to the full computerized branch offices, 100 divisional offices, 7 zonal offices and the corporate office. LICs grand Area Network covers 100 divisional offices and it connects all the branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to offer an on-line premium collection facility in selected cities. LICs ECS and ATM premium payment facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, info Centers have been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policyholders, the LIC has launched its SATELLITE SAMPARK offices. These satellite offices are smaller, slim-waisted and closer to the customer. The digitalized records of the satellite offices will facilitate the customer anywhere servicing and many other conveniences in the future. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance industries and is moving solid on a new growth trajectory surpassing its own past records. LIC has issued over one crore policies during the current year.Table-2 Total Life Insurance Premium (Rs. Crore)INSURER2007-082006-072005-062004-05200 3-042002-032001-02LIC149789.99127822.8490792.2275127.2963533.4354628.4949821.91(17.19)(40.79)(20.85)(18.25)(16.30)(9.65)(42.79)Aviva1891.881147.23600.27253.4281.5013.47NABajaj Allianz9725.315345.243133.581001.68220.8069.177.14Bharti Axa118.417.78NANANANANABirla Sunlife3272.191776.711259.68915.47537.54143.9228.26Future Generali2.49NANANANANANAHDFC Std4858.562855.871569.91686.63297.76148.8333.46ICICI Pru13561.067912.994261.052363.82989.28417.62116.38IDBI Fortis11.90NANANANANANAING Vysya1158.87707.20425.38338.8688.5121.164.19Kotak Mahindra1691.14971.51621.85466.16150.7240.327.58Met Life1159.54492.71205.9981.5328.737.910.48Max New York2714.601500.28788.13413.43215.2596.5938.95Reliance Life3225.441004.66224.21106.5531.066.470.28Sahara143.4951.0027.661.74NANANASBI Life5622.142928.491075.32601.18225.6772.3914.69Shriram358.05184.1710.33NANANANATata AIG2046.351367.18880.19497.04253.5381.2121.14Private Total51561.4228253.0015083.547727.513120.331119.06272.55(82.50)(87.31)(95.19)(147.65)(178.8 3)(310.59)(4124.31)Total (LIC+Private)201351.41156075.84105875.7682854.8066653.7555747.5550094.46(29.01)(47.38)(27.78)(24.31)(19.56)(11.28)(43.54)Note Figure in bracket indicates the growth over the previous year in percent.Two way ANOVASource of VariationSSdfMSFP-valueF critRows4956070529817291533560637.27254154.7941E-361.723833402Columns10697887396178298123.22.279540020.04174932.188760765Error797810452910278216711.07Total58608598567125Analysis and InterpretationTable 2 shows total life insurance premium during the year 2001-02 to 2007-08. The proportion of premium collected by LIC out of total premium collected by life insurance industry is declined from 97% in 2001-02 to 74% in 2007-08. It indicates the increasing competition from private sector. ICICI prudential is becoming a stronger and stronger player by keeping over a lot of business of LIC. But still there is a lot of scope of development in the life insurance industry where private sector will be a challenge in the front o f LIC. By applying ANOVA at 0.05 level of significance, It is being observed that there is a significance difference in the performance of LIC and other Private Sector insurance companies over a period of 2001-02 to 2007-08Table 3 Total Life Insurance PremiumYear (X)Total lifeinsurancepremium (Y)U=X-A/ HU2UY200250094.46-39-150283.38200355747.55-24-111495.1200466653.75-11-66653.75200582854.800002006105875.7611105875.762007156075.8424312151.682008201351.4139604054.23718653.57028693649.44Source- compiled from table 2.Y = A+BXY=nA+B XXY=A X+B X2Y=A+BuY=nA+B UuY=A u+B u2Y=nAA= Y/nuY=B u2B= uY/ u2A= Y/nA= 718653.57/7= 102664.79B= uY/ u2= 693649.44/28= 24773.19Y=A+B (X-2004)102664.79+ 24773.19 (2012-2004)102664.79+ 24773.19 (8)300,850.35 croreBased on the middle year 2005, the trend value for the year 2012 can be calculated using the elongated function Y=A+BX, where, AB are constant. If we substitute the determine in the trend line equation, the expected total LIC premium for the year 20 12 is Rs. 300,850.35 crores. It shows that the total business is in increasing trend.Table 4 Investment strategy of LIC(Rupees crore)YearSector-wiseInstrument-wise of whichTotal(2 to 5)Or(6 to 7)(end-March)PublicPrivate wordCo-operativeStockexchangesecuritiesLoans1234567819793411.9618.129.9527.82733.81853.14587.719803915.5770.10602.13113.42173.65287.719814707.8647.20665.53591.32725.66020.519825410.7698.7327534040.626126894.419836189.7787.432.7825.2NANA783519847020.8891.440.1905.3NANA8857.619857919.51010.651.2972.9NANA9954.219869063.81121.3681036.