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Privatisation Of Insurance Business In India

The Role and Importance of Insurance – Explained!

The following point shows the role and importance of insurance:

Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty. It may be described as a social device to reduce or eliminate risk of loss to life and property.

Insurance contributes a lot to the general economic growth of the society by provides stability to the functioning of process. The insurance industries develop financial institutions and reduce uncertainties by improving financial resources.

1. Provide safety and security:

Insurance provide financial support and reduce uncertainties in business and human life. It provides safety and security against particular event. There is always a fear of sudden loss. Insurance provides a cover against any sudden loss. For example, in case of life insurance financial assistance is provided to the family of the insured on his death. In case of other insurance security is provided against the loss due to fire, marine, accidents etc.

2. Generates financial resources:

Insurance generate funds by collecting premium. These funds are invested in government securities and stock. These funds are gainfully employed in industrial development of a country for generating more funds and utilised for the economic development of the country. Employment opportunities are increased by big investments leading to capital formation.

3. Life insurance encourages savings:

Insurance does not only protect against risks and uncertainties, but also provides an investment channel too. Life insurance enables systematic savings due to payment of regular premium. Life insurance provides a mode of investment. It develops a habit of saving money by paying premium. The insured get the lump sum amount at the maturity of the contract. Thus life insurance encourages savings.

4. Promotes economic growth:

Insurance generates significant impact on the economy by mobilizing domestic savings. Insurance turn accumulated capital into productive investments. Insurance enables to mitigate loss, financial stability and promotes trade and commerce activities those results into economic growth and development. Thus, insurance plays a crucial role in sustainable growth of an economy.

5. Medical support:

A medical insurance considered essential in managing risk in health. Anyone can be a victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical Insurance is one of the insurance policies that cater for different type of health risks. The insured gets a medical support in case of medical insurance policy.

6. Spreading of risk:

Insurance facilitates spreading of risk from the insured to the insurer. The basic principle of insurance is to spread risk among a large number of people. A large number of persons get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of funds of the insurer.

7. Source of collecting funds:

Large funds are collected by the way of premium. These funds are utilised in the industrial development of a country, which accelerates the economic growth. Employment opportunities are increased by such big investments. Thus, insurance has become an important source of capital formation.

Liberalization, Privatization and Globalization in India

The economy of India had undergone significant policy shifts in the beginning of the 1990s. This new model of economic reforms is commonly known as the LPG or Liberalisation, Privatisation and Globalisation model. The primary objective of this model was to make the economy of India the fastest developing economy in the globe with capabilities that help it match up with the biggest economies of the world.

The chain of reforms that took place with regards to business, manufacturing, and financial services industries targeted at lifting the economy of the country to a more proficient level. These economic reforms had influenced the overall economic growth of the country in a significant manner.

Liberalisation
Liberalisation refers to the slackening of government regulations. The economic liberalisation in India denotes the continuing financial reforms which began since July 24, 1991.

Privatisation and Globalisation
Privatisation refers to the participation of private entities in businesses and services and transfer of ownership from the public sector (or government) to the private sector as well. Globalisation stands for the consolidation of the various economies of the world.

LPG and the Economic Reform Policy of India
Following its freedom on August 15, 1947, the Republic of India stuck to socialistic economic strategies. In the 1980s, Rajiv Gandhi, the then Prime Minister of India, started a number of economic restructuring measures. In 1991, the country experienced a balance of payments dilemma following the Gulf War and the downfall of the erstwhile Soviet Union. The country had to make a deposit of 47 tons of gold to the Bank of England and 20 tons to the Union Bank of Switzerland. This was necessary under a recovery pact with the IMF or International Monetary Fund. Furthermore, the International Monetary Fund necessitated India to assume a sequence of systematic economic reorganisations. Consequently, the then Prime Minister of the country, P V Narasimha Rao initiated groundbreaking economic reforms. However, the Committee formed by Narasimha Rao did not put into operation a number of reforms which the International Monetary Fund looked for.

Dr Manmohan Singh, the present Prime Minister of India, was then the Finance Minister of the Government of India. He assisted. Narasimha Rao and played a key role in implementing these reform policies.

Narasimha Rao Committee’s Recommendations
The recommendations of the Narasimha Rao Committee were as follows:

  • Bringing in the Security Regulations (Modified) and the SEBI Act of 1992 which rendered the legitimate power to the Securities Exchange Board of India to record and control all the mediators in the capital market.
  • Doing away with the Controller of Capital matters in 1992 that determined the rates and number of stocks that companies were supposed to issue in the market.
  • Launching of the National Stock Exchange in 1994 in the form of a computerised share buying and selling system which acted as a tool to influence the restructuring of the other stock exchanges in the country. By the year 1996, the National Stock Exchange surfaced as the biggest stock exchange in India.
  • In 1992, the equity markets of the country were made available for investment through overseas corporate investors. The companies were allowed to raise funds from overseas markets through issuance of GDRs or Global Depository Receipts.
  • Promoting FDI (Foreign Direct Investment) by means of raising the highest cap on the contribution of international capital in business ventures or partnerships to 51 per cent from 40 per cent. In high priority industries, 100 per cent international equity was allowed.
  • Cutting down duties from a mean level of 85 per cent to 25 per cent, and withdrawing quantitative regulations. The rupee or the official Indian currency was turned into an exchangeable currency on trading account.
  • Reorganisation of the methods for sanction of FDI in 35 sectors. The boundaries for international investment and involvement were demarcated.

The outcome of these reorganisations can be estimated by the fact that the overall amount of overseas investment (comprising portfolio investment, FDI, and investment collected from overseas equity capital markets ) rose to $5.3 billion in 1995-1996 in the country) from a microscopic US $132 million in 1991-1992. Narasimha Rao started industrial guideline changes with the production zones. He did away with the License Raj, leaving just 18 sectors which required licensing. Control on industries was moderated.

Highlights of the LPG Policy
Given below are the salient highlights of the Liberalisation, Privatisation and Globalisation Policy in India:

  • Foreign Technology Agreements
  • Foreign Investment
  • MRTP Act, 1969 (Amended)
  • Industrial Licensing
  • Deregulation
  • Beginning of privatisation
  • Opportunities for overseas trade
  • Steps to regulate inflation
  • Tax reforms
  • Abolition of License -Permit Raj

Last Updated on : July 24, 2014

The Role and Importance of Insurance – Explained!

The following point shows the role and importance of insurance:

Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty. It may be described as a social device to reduce or eliminate risk of loss to life and property.

Insurance contributes a lot to the general economic growth of the society by provides stability to the functioning of process. The insurance industries develop financial institutions and reduce uncertainties by improving financial resources.

1. Provide safety and security:

Insurance provide financial support and reduce uncertainties in business and human life. It provides safety and security against particular event. There is always a fear of sudden loss. Insurance provides a cover against any sudden loss. For example, in case of life insurance financial assistance is provided to the family of the insured on his death. In case of other insurance security is provided against the loss due to fire, marine, accidents etc.

2. Generates financial resources:

Insurance generate funds by collecting premium. These funds are invested in government securities and stock. These funds are gainfully employed in industrial development of a country for generating more funds and utilised for the economic development of the country. Employment opportunities are increased by big investments leading to capital formation.

3. Life insurance encourages savings:

Insurance does not only protect against risks and uncertainties, but also provides an investment channel too. Life insurance enables systematic savings due to payment of regular premium. Life insurance provides a mode of investment. It develops a habit of saving money by paying premium. The insured get the lump sum amount at the maturity of the contract. Thus life insurance encourages savings.

4. Promotes economic growth:

Insurance generates significant impact on the economy by mobilizing domestic savings. Insurance turn accumulated capital into productive investments. Insurance enables to mitigate loss, financial stability and promotes trade and commerce activities those results into economic growth and development. Thus, insurance plays a crucial role in sustainable growth of an economy.

5. Medical support:

A medical insurance considered essential in managing risk in health. Anyone can be a victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical Insurance is one of the insurance policies that cater for different type of health risks. The insured gets a medical support in case of medical insurance policy.

6. Spreading of risk:

Insurance facilitates spreading of risk from the insured to the insurer. The basic principle of insurance is to spread risk among a large number of people. A large number of persons get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of funds of the insurer.

7. Source of collecting funds:

Large funds are collected by the way of premium. These funds are utilised in the industrial development of a country, which accelerates the economic growth. Employment opportunities are increased by such big investments. Thus, insurance has become an important source of capital formation.

Private Insurance Companies in India

The private insurance companies in India, especially the non life sector, have been performing well of late. During April 2012 all the non life insurers in India underwrote gross premiums worth INR 6506.51 crores. For the private sector non life insurance companies the figure stood at INR 2819.48 crores which was 20 percent more than the figure for April 2011.

In May 2012, the non life insurance sector underwrote gross premiums amounting to INR 4880.81 crores. The private organizations accounted for INR 2044.32 crores from this amount.

List of Private Insurance Companies in India

Following is a list of leading private non life insurers in India and their gross premium statistics for June 2012, and June 2011:

Royal Sundaram

In the 2011-12 fiscal Royal Sundaram witnessed a commendable growth rate of 29% through underwriting GWP worth INR 1479.79 crore throughout the fiscal. In 2010-11 this figure stood at 1143.99 crores. This healthy growth has made Royal Sundaram one of the top performers as far as the privately held general insurers in India are concerned.

In the same period the insurer has earned a profit of INR 0.22 crore following tax deductions. In 2010-11 the organization had incurred losses to the tune of INR 20.1 crores.

The Managing Director of Royal Sundaram, Ajay Bimbhet, has expressed satisfaction at being able to perform better than rest of the industry. He has stated that the effects of growth are visible in the different business lines of the organization and has attributed the success to the underwriting practices of the insurer.

Reliance General Insurance

In 2011-12 the insurance industry recorded a growth of approximately 20 percent on an average but for Reliance General Insurance it was only around 3%. Rakesh Jain, its new chief executive has however stated that the organization is not aiming only for growth in revenue but is also looking at creating a product portfolio with better balance by focusing on health and corporate insurance products.

He has stated that group health plans have contributed a major share to the industry’s growth in the previous fiscal but they often have bad underwriting results.

At present health insurance accounts for 35 percent of the organization’s business along with property portfolios. In the health insurance domain, Reliance General Insurance shall be bringing out some new products in segments like mass, retail, and group.

Following are some products that the organization will be looking to introduce in the near future:

  • Government schemes such as Rashtriya Swasthya Bima Yojana
  • Preventive healthcare and wellness plans
  • Outsourced product development programs

IFFCO Tokio

IFFCO Tokio has recently received a capital infusion amounting to INR 125 crores, which is supposed to help it execute its expansion plans. This amount has taken the total amount it has earned from its promoters to INR 526.2 crore at the end of March 2012.

S Narayanan, the managing director of the organization, has stated that the organization is now aiming to keep a sustainable level of growth that is profitable and also increase its share in the Indian market.

HDFC Ergo General Insurance has witnessed a substantial growth rate of 22% in their premium collection for April 2012 when it collected INR 279.75 crores as opposed to INR 230.35 crores collected during April 2011. In March 2012, when the premium collected was at INR 210.43 crores, there was a decline of 11% though.

During May 2012, the organization announced that it was going to introduce the Health Claim Services (HCS). This is HDFC Ergo’s in house department for servicing health claims and looks to provide quicker and clearer procedures for settling the claims.

Cholamandalam MS General Insurance

Cholamandalam MS General Insurance has earned premium worth INR 132.76 crores during May 2012, which is 30 percent more than May 2011 when the figure stood at INR 101.98 crores. In April 2012 the company had collected premium worth INR 121.15 crore, which was an improvement of 9%.

For April-May 2012 its aggregate premium stood at INR 253.91 crores, which was an improvement of 19 percent compared to April-May 2011 when the same figure stood at INR 213.03 crores.

The organization has, of late, also been announced the leading insurer at the ‘In Time Claims Settlement for 2011-12’ category in the Rashtriya Swasthya Bima Yojana of the Union Ministry of Labour and Employment.

Future Generali

Future Generali has recently posted a 53 percent growth in the total premium collected for 2011- 2012 with a figure of INR 936 crore. At the end of the same period it had written gross premiums worth INR 612 crore. KG Krishnamoorthy Rao, the CEO and Managing Director of Future Generali India has stated that the organization saw all round growth in the period.

He has stated that this is a pleasing situation given the current condition of the insurance market. At present the Indian insurance sector is pretty unpredictable and aggressive and there is some sustained pressure on premium rates. The health and accident insurance products have contributed INR 176 crore in 2011-12 as opposed to INR 133 crores in 2010-11. Rao thinks that with its mallassurance distribution channel and the positive performance of bancassurance partners and agents the company will be able to increase its footprints in the retail space.

Universal Sompo General Insurance

Universal Sompo General Insurance has reported a gross premium of INR 39.61 crores for May 2012 which is a commendable 64 percent more than the May 2011 figure of INR 24.14 crores. In March 2012 the insurer had collected INR 42.67 crores through premium, which represented a growth of 35%.

In April-May 2012 the insurer collected INR 82.28 crores which was 47 percent more than April-May 2011 when INR 55.81 crores were collected.

L&T Insurance

Max Bupa Health Insurance

Kotak Mahindra Old Mutual Life Insurance

Aviva Life Insurance

Aviva Life Insurance has earned a net profit of INR 74 crores for 2011-12 compared to the 2010-11 fiscal figure of INR 29 crores. This signals an increase of more than 100%. IRDA reports also indicate that its market share has gone up to 3.2% in 2011-12 compared to 2.3% in 2010-11.

In 2011-12 it collected INR 2416 crores through premium – a 3% increase from 2010-11. Its new business premium at the end of 2011-12 was INR 762 crores which was 15% more than the earlier year.

Star Union Dai-ichi

In 2011-12 fiscal Star Union Dai-ichi Life has earned a total premium of INR 1271.95 crores, which is 36.3% more than what was achieved in 2010-11. It has also witnessed a 27% growth in new business premium. Its growth rate in the individual business segment is 22.18%.

Privatisation Of Insurance Business In India

Dr (Mrs) V.Renugadevi
Lecturer
Department of Commerce
Vellalar College for Women
Erode

Mrs. M. Vidhya
Lecturer
Department of Commerce
KSR College of Arts & Science
Tiruchengode

Global integration of financial markets resulted from de-regulating measures, technological information explosion and financial innovations. Liberalisation and Globalisation have allowed the entry of foreign players in the Insurance sector. With the entry of private and foreign players in the Insurance business, people have got a lot of options to choose from. Radical changes are taking place in customer profile due to the changing life style and social perception, resulting in erosion of brand loyalty. To survive, the focus of the modern insurers shifted to a customer-centric relationship. The paper focuses the current position of insurance industry.

Liberalisation and Privatisation

India’s economic development made it a most lucrative Insurance market in the world. Before the year 1999, there was monopoly state run LIC transacting life business and the General Insurance Corporation of India with its four Subsidiaries transacting the rest. In the wake of reform process and passing Insurance Regulatory and Development Authority (IRDA) Act through Indian parliament in 1999, Indian Insurance was opened for private companies.

Liberalisation on the Insurance sectors has allowed the foreign players to enter the market with their Indian partners. Most of the foreign Insurers have joined within the local market. India offers immense possibilities to foreign Insurers since it is the world’s most populous country having over a billion people.

Insurance industry had ten and six entrants in life and non-life sector respectively in the year 2000-2001. The industry again saw two and three entrants in the life and non-life business respectively in the year 2001-2002. One additional entrant was made both in the life and in non-life business in 2004 and 2005 respectively. At present there are fourteen companies each in Life and General Insurance. The Funds earlier generated by the state owned insurers have been diversified with other new insurers. We should wait and see how the new players are going to boost up our economy.

Private and Foreign entrants in the Insurance Industry made others difficult to retain their market. Higher customer aspirations lead to new expectations and compel him to move towards the insurer who provides him the best service in time. It becomes less viable for them even to maintain the functional networks or competitive standards and services. To survive in the Industry they analyse, the emerging requirements of the policyholders / insurers and they are in the forefront in providing essential services and introducing novel products. Thereby they become niche specialists, who provide the right service to the right person in right time.

The following table shows the market share of life and non-life insurers

NON – LIFE INSURERS

Kotak Mahindra Old Mutual

Agriculture Insurance Co.

Insurers are the earlier adopters of technology. Because of the Information revolution, customers are free to choose from a wide range of new and innovative products. The Insurance companies are utilizing the Information technology applications for better customer service, cost reduction, new product design and development and many more.

New technology gives the policyholders / insured better, wider and faster access to products and services. The impact of Information Technology in Insurance business is being felt at an accelerating pace. In the initial years IT was used more to execute back office functions like maintenance of accounts, reconciling broker accounts, client processing etc. With the advent of “database concepts”, these functions are better integrated in an administrative efficiency.

The real evolution is however emerged out of Internet boom. The Internet has provided brand new distribution channels to the Insurers. The technology has enabled the Insurer to innovate new products, provide better customer service and deeper and wider insurance coverage to them. At present, Insurance companies are giving customers a distinct claim id to track claims on-line, entertaining on-line enrollment, eligibility review, financial reporting, and billing and electronic fund transfer to its benefit clan customers.

Insurers are continuously innovating new products based on forward-looking models. They have developed new products addressing the new challenges in society and products to address the hazards from new environmental issues. Companies will need to constantly innovate in terms of product development to meet ever-changing consumer needs. Understanding the customer better will enable Insurance companies to design appropriate products, determine price correctly and to increase profitability. Since a single policy cannot meet all the Insurance objectives, one should have a portfolio of policies covering all the needs. Product development is made possible by integrating actuarial, rating, claims and illustration systems. At present, the Life Insurers are concentrating on the pension schemes and the Non-Life Insurers on many innovative schemes of various realms and thereby enriching their market share. Moreover, with increased commoditization of insurance products, brand building is going to play a vital role.

While companies have been successful in product innovation, most of them are still grapping with right mix of Distribution Channels for capturing maximum market share to build brand equity, building strong and effective customer relationships and cost effective customer service. While the traditional channel of tied up advisors or agents would be the chief distribution channel, insurer should innovate and find new methods of delivering the products to customers. Corporate agency, brokerage, Banc assurance, e-insurance, cooperative societies and panchayats are some of the channels, which can be tapped by the insurers to reach the appropriate market segments. Now days, the urban masses are tapped with the new techniques provided by Information Technology through Internet. Rural masses are attracted by the consultative approach adopted by the Insurers. Moreover, they attract the customers through telephone and mobile also.

Customer Education and Services

Insurance is a unique service industry. The key industry drivers are related to life style issues in terms of perceiving insurance as a savings instrument rather than for risk cover, need based selling, quality of service and customers awareness.

In the present competitive scenario, a key differentiator is the professional customer service in terms of quality of advice on product choice along with policy servicing. Servicing focus is on enhancing the customer’s experience and maximizing his convenience. This calls the effective CRM system, which eventually creates sustainable competitive advantage and enables to build long lasting relationship.

MODERN MARKETING APPROACH

Marketing strategies for insurance in the emerging scenario could be understood in terms of the following steps:

Having done market research and finalizing on segmentation, targeting and positioning the strategy would focus on the marketing mix namely, Product, Price, Place and Promotion. While determining the implementation methodology, the four characteristics viz. Intangibility, Inseparability, Perish ability and Variability gives rise to certain unique requirements that deserve careful attention while formulating the marketing strategy for insurance. After implementation, the insurers should concentrate on the effective control that would enhance their business.

In India Insurance is sold and not bought. The agents / Advisors by using various strategies sell the product by convincing the customers. Moreover, they push Policies with the highest premium to pocket a higher commission. The consultative approach to selling is the modern approach, which helps customers and prospects to buy. A consultant makes calls and sells just like any other sales person. The difference is in their attitude, their approach and their commitment. Here, the customer is seen as a person to be served and not a person to be sold. It helps the purchaser to make an intelligent decision. The four-step process includes:

* Need discovery
* Selection of the product
* Need satisfaction presentation, and
* Serving the sale

This approach to selling their products requires understanding of concepts and principles borrowed from the fields of psychology, communications, and sociology and needs a lot of personal commitments and self – discipline from the seller.

The commitments referred are:

  • Finding and understanding the needs of the customers.
  • Partnering with the customers.
  • Helping the customers to achieve his business and other objectives by the purchase of the product or service.
  • Believing that your products / services are a great fit with your customer’s needs, and
  • Believing in yourself and your ability to help the customers in solving their problems.

A consultant is willing to forego short-term gains to achieve greater long – term benefit to him and to the customers he serves. He builds relationships on a foundation of trust, respect and performance. Moreover, consultants don’t sell – they’re specialists who make recommendations to help the prospect to buy. They act as a professional and offer real–world solutions that make sense to the customer. Today, the insurers adopt this technique and thereby go on increasing their market share.

Reference

  • Various issues of insurance journals
  • Internet sources

Dr (Mrs) V.Renugadevi
Lecturer
Department of Commerce
Vellalar College for Women
Erode

Mrs. M. Vidhya
Lecturer
Department of Commerce
KSR College of Arts & Science
Tiruchengode

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