MARKET POTENTIAL FOR
PRIVATE LIFE INSURANCE COMPANIES IN INDIA


By
K.V. Kannan
M.B.A., M.F.T.,
Research Scholar, Erode Arts College and
Lecturer, Department of MBA, K.S.R. College of Arts & Science, Tiruchengode–637209
E-mail :
kvkannan_1999@yahoo.com   Tel. : (0424) 2212458
&
Dr. L. Manivannan
M.B.A., M.Phil., Ph.D.,
Reader, Erode Arts College, Erode
&
R. Sathiskumar
M.B.A.
K.S.R. College of Arts & Science, Tiruchengode–637209
 


Introduction to Insurance

Insurance is defined as a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against that risk.  Risk is uncertainty of a financial loss.  The insurance is also defined as a social device to accumulate funds to meet the uncertain losses arising through a certain risk to a person injured against the risk.

Introduction to Life Insurance

According to the U.S. Life Office Management Inc. (LOMC), "Life Insurance provides a sum of money if the person who is insured dies whilst the policy is in effect."

Life insurance has come a long way from the earlier days when it was originally conceived as a risk-covering medium for short periods of time, covering temporary risk situations, such as sea voyages.  As life insurance became more established, it was realized what a useful tool it was for a number of situations that includes temporary needs/threats, savings, investment, retirement etc.

History of Life Insurance

Life insurance made its first appearance in England in 16th century.  The first registered life office in England was the hand in hand society in 1696.  The famous 'Amicable Society' for a perpetual assurance office started its operation since 1706.  Life insurance did not prosper in the United States during the 18 th century, because of serious fluctuations in death-rate. 

Life Insurance in India

In India some Europeans started the first life insurance company in Bengal Presidency, viz., The Orient Life Insurance in 1818.  The Year 1870 was a year of land mark in the history of Indian Insurance separating the early period of pioneering attempts at life insurance from the subsequent period of steady development at the establishment of Indian life office, viz., Bombay Mutual Life Assurance Society in 1871.

Up to end of 19th century, the insurance was in the inceptional stage.  Therefore no legislation was required till that usually the Indian Company Acts 1883 was applicable.  Since 1956, with the nationalization of insurance industry, the state – run Life Insurance Corporation of India (LIC) has held the monopoly in India.  Then comes the LPG (Liberalisation, Privatisation and Globalisation) that paved entry of Private and Foreign Life Insurance players in India during the late 90's and earlier 2000's.  Currently India and China are the most lucrative insurance markets in the world.  They constitute the home of half of the population of the world and their recent rapid economic development makes them attractive for foreign investment.   The share of life insurance premium to GDP of India was 1.29 percent, which is abysmal in the global standard.  Despite these opportunities, however, there is also a rough ride ahead for the new players in India.  This is because, unlike in the West, insurance is sold more as an instrument of savings in India than as a product offering for protection and security.  LIC's 1996 insurance survey reveals that more than 40 percent of insurance-buyers look at insurance products as a means of savings.  Risk coverage is only a secondary objective for them and nearly 26 percent of the insurance policies sold are on considerations of old age security.  Only 18 percent of insurance policies are sold on death risk considerations.

Insurance Regulatory and Development Authority (IRDA)

The regulatory body for insurance IRDA has been established with the following mission:

"To protect the interests of the policy holders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto."

Private Players in Indian Life Insurance

The major players in Indian life insurance sector include:

    * Allianz Bajaj Life Insurance Company Ltd.,

    * Aviva Life Insurance Co. India Pvt. Ltd.,

    * AMP SANMAR Assurance Company Ltd.,

    * Birla Sun Life Insurance Company Ltd.,

    * HDFC Standard Life Insurance Company Ltd.,

    * ICICI Prudential Life Insurance Company Ltd.,

    * ING Vysya Life Insurance Company Private Ltd.,

    * Life Insurance Corporation of India

    * Max New York Life Insurance Co. Ltd.,

    * MetLife India Insurance Company Pvt. Ltd.,

    * Om Kotak Mahindra Life Insurance Co. Ltd.,

    * SBI Life Insurance Company Ltd.,

    * Sahara India Insurance Company Ltd.,

    * Tata AIG Life Insurance Company Ltd.,


The market share for LIC is 90 percent and other players share only the remaining 10 percent.

Market Potential for Private Life Insurance Companies in India

It has been found out that:

    * 85 percent of the Indians prefer LIC than any other insurance companies. 

    * 'Prevention of Loss', 'Assured Returns' and 'Long term Investment' are the important factors influencing Indians in opting for Life Insurance  

    * Only few of the Indians are aware of private life insurance companies. 

    * Most of the Indians are of the opinion that private insurance companies would be able to perform well in the long run. 

    * Most of the Indians are interested in 'Money back' policies than others

    * Most of them are interested in insuring for an amount of Rs. 1- 2 lakhs

    * There is significant relationship existing between monthly household income and amount insured

    * Based on the monthly household income, Indians prefer to their investment needs like bank deposit, post office schemes, real estate, insurance, gold, chit funds, shares etc.

    * Agents are mostly responsible for selling insurance products in India
     

Conclusion

The market potential for private insurance companies is found to be greater in the long run as most of the Indians are of the opinion that, private insurance companies would be able to perform well in the future.  The private and foreign insurance companies have to immediate steps in appointing more number of agents and/or advisors in addition to the employees as it has been found out that agents are the best channel to reach the general public regarding selling of insurance products.   The private and foreign insurance companies have to concentrate on the factors like 'Prevention of Loss', 'Assured Returns' and 'Long term Investment'.  They can also focus on an insurance amount of Rs. 1 – 2 lakhs with 'money back policies'.  Hence, the market has potential.  The private and foreign insurance companies that are taking immediate steps can tap it.
 


K.V. Kannan
M.B.A., M.F.T.,
Research Scholar, Erode Arts College and
Lecturer, Department of MBA, K.S.R. College of Arts & Science, Tiruchengode–637209
E-mail :
kvkannan_1999@yahoo.com   Tel. : (0424) 2212458
&
Dr. L. Manivannan
M.B.A., M.Phil., Ph.D.,
Reader, Erode Arts College, Erode
&
R. Sathiskumar
M.B.A.
K.S.R. College of Arts & Science, Tiruchengode–637209
 

Source : E-mail March 18, 2004

 

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