15-06-2013, 04:17 PM
INDIAN LIFE INSURANCE INDUSTRY – THE CHANGING TRENDS
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ABSTRACT
Insurance industry contributes to the financial sector of an economy and also provides an
important social security net in developing countries. The growth of the insurance sector in India
has been phenomenal. The insurance industry has undergone a massive change over the last few
years and the metamorphosis has been noteworthy. There are numerous private and government
insurance companies in India that have become synonymous with the term insurance over the
years. Offering a diversified product portfolio and excellent services the many insurance
companies in India have managed to make their way into almost every Indian household.
INTRODUCTION:
According to Mr J. Hari Narayan, Chairman of insurance watchdog IRDA, Indian insurance industry in set for
some serious changes. Speaking to students of Institute of Insurance and Risk Management at their graduation
ceremony on Tuesday, Mr Narayan said the Indian insurance industry had matured from its state of childhood to
early adulthood. He said that in countries like UK, the agents have adopted themselves to latest form of
marketing and very soon such changes will also be introduced in India.With an annual growth rate of 15-20%
and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge.
Total value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). According
to government sources, the insurance and banking services’ contribution to the country's gross domestic product
(GDP) is 7% out of which the gross premium collection forms a significant part. The funds available with the
state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP.
A HISTORICAL REVIEW OF INDIAN INSURANCE INDUSTRY
In 1818, a British company called Oriental Life Insurance setup the first insurance firm in India followed by the
Bombay Assurance Company in 1823 and the Madras Equitable Life
Insurance Society in 1829. Though all this companies were operating in India but insuring the life of European
living in India only. Later some of the companies started providing insurance to Indians with approximately
20% higher premium than Europeans as Indians were treated as “substandard”. Substandard in insurance
parlance refers to lives with physical disability. Bombay Mutual Life Assurance Society was the first company
established in 1871 which started selling policies to Indians with “fair value”.
Insurance business was subjected to Indian company act1866, without any specific regulation. In 1905, the
slogan “Be Indian-Buy Indian” declared by Swadwshi Movement gave birth to dozens of indigenous life
insurance and provident fund companies.
PRODUCT INNOVATIONS:
In fifties and sixties, the life insurance business was concentrated in urban areas and was confined only to the
higher class of the society. Through the LIC act 1956, the LIC was formed with the capital of 50 million. One of
the basic objectives of setting up the LIC was
to extend the reach of insurance cover and make it available to the lower segment of the society. LIC observed
minimum growth in 1960s and 1970s. This slow growth were caused by the factors like poor infrastructure, low
saving, low investment, high illiteracy etc. however the positive change in industrialization, infrastructure,
capital formation, saving rate resulted in tremendous growth of LIC. Still the penetration of insurance sector
was very low. A key catalyst in the Indian insurance market growth has been the entry of private players in
2000-01. With the entrance of private players and foreign collaborations, penetration of insurance sector in
India has gone up from 1.02% in 1999-00 to 4 % of GDP in 2007-08. Life insurance business in India grew by
14.2 per cent in US Dollar terms in 2007-08.
CHANGING TRENDS IN LIFE INSURANCE POLICY:
Along with the other objectives of insurance like financial security, tax benefits etc. one of the major objectives
is saving and investment. Traditional life insurance policies like endowment were becoming unattractive and
not meeting the aspirations of the policyholders as the policyholder found that the sum assured guaranteed on
maturity had really depreciated in real value because of the depreciation in the value of money. The investor
was no longer content with the so called security of capital provided under a policy of life insurance and started
showing a preference for higher rate of return on his investments as also for capital appreciation. It was,
therefore found necessary for the insurance companies to think of a method whereby the expectation of the
policyholders could be satisfied. The objective of providing a hedge against the inflation through a contract of
insurance pushed insurer to link the insurance policy with market and thus the industry observed the beginning
of Unit linked insurance policy (ULIP).
CONCLUSION:
Where almost all the industries in the world trying hard for survival due to the major economic meltdown,
Indian life insurance industry is one of the sectors that is still observing good growth. It is the changing trends
of Indian insurance industry only that has made it to cope with the changing economic environment. Indian
insurance industry has modified itself with the passage of time by introducing customized products based on
customers’ need, through innovative distribution channels, Indian life insurance industry searched its path to
grow. Changing government policy and guideline of the regulatory authority, IRDA have also played a very
vital role in the growth of the sector. Move from non-linked to unit liked insurance policies is one of the major
positive changes in Indian life insurance sector. Similarly, opening on the sector for private insurer broke the
monopoly of LIC and bring in a tough competition among the players. This completion resulted into
innovations in products, pricing, distribution channels, and marketing in the industry. Though the sector is
growing fast, the industry has not yet insured even 50% of insurable population of India. Thus the sector has a
great potential to grow. To achieve this objective, this sector requires more improvement in the insurance
density and insurance penetration. Development of products including special group policies to cater to
different categories should be a priority, especially in rural areas. The life insurers should conduct more
extensive market research before introducing insurance products targeted at specific segments of the population
so that insurance can become more meaningful and affordable. By adopting appropriate strategy along with
proper government support and able guidance of IRDA, India will certainly become the new insurance giant in
near future.