CHAPTER – III: INSURANCE REGULATION IN INDIA – AN...

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CHAPTER – III:

INSURANCE REGULATION IN

INDIA – AN OVERVIEW

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3.1 Introduction

Regulation is a process established by law that restricts or controls some specific

decisions made by the affected firms. It is designed to protect the public from

exploitation by the firms with monopoly power. Regulation is usually carried out by

government agency assigned the task of administering and interpreting the law. That

agency also accesses a court in enforcing the regulatory law. It is clear from the

definition of regulation, that it is a way to modify or control human behavior and it is

done so to influence people to act together in the interest of society at large. Human

behavior can be controlled in many ways using different regulatory levers that could be

fiscal, financial, insurance, social, legal etc., on a whole, regulations call for a multi

disciplinary approach involving law, economics, political science, sociology, history,

psychology, geography, management and social administration.

Regulation of insurance in India was introduced with the promulgation of the

Indian Life Assurance Companies Act, in 1912. The Insurance Act, 1938 sought to create

a strong and powerful supervisory and regulatory authority in the Controller of Insurance,

who was a statutory functionary. It set out its role and responsibilities more clearly and

emphatically and empowered to direct, advice, caution, prohibit, investigate, inspect,

prosecute, search, seize, fine, amalgamate, authorize, register, and liquidate insurance

companies. In fact, the government perhaps exercised more control on insurance than on

any other economic activity.

Prior to nationalization, the insurance industry in India had suffered from certain

weaknesses such as malpractice in claims settlement, unhealthy rate cutting and misuse

of insurance funds for speculative and other purposes. Several financial scandals that

arose even during a control regime did, in fact, further underline the need for strict and

prudent regulation.

The experience of the banking sector and the capital markets, where regulatory

mechanisms have been set up and regulation has been enforced with some firmness, has

been good. Thus, the banking sector has a Board for Financial Supervision since

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November 1994, and the stock markets are overseen by the SEBI. Insurance has seen the

emergence of the IRDA, which was constituted on 19th April, 2000 vide Government of

India's notification no. 277. The key objective of the Authority is to promote market

efficiency and ensure consumer protection. The Authority has been required by law,

under Section 20 of the IRDA Act, to furnish an Annual Report on its performance and

other related issues to the Central Government.

3.1.1 Objective of the Chapter

The objective of this chapter is to examine the nature and direction of regulation

of insurance sector in India. Here we will trace the origin of insurance in India as well as

regulations framed by the IRDA and their effect on various aspects of insurance sector in

India like regulation effect on the insurance firms, insurance agents and policy holders.

In this chapter an attempt is made to test Hypothesis no. 1 Growth of insurance

sector in India is positively correlated with Insurance regulation using secondary data

3.1.2 Methodology

In this chapter the study has used descriptive methods to examine the impact of

insurance regulation on the nature and direction of insurance sector in India.

3.1.3 Data Source

In this chapter the study has used the secondary data which are extracted from

different published sources such as IRDA Annual Reports, IRDA Journals, and RBI

Statistics-data base on Indian economy.

3.2 Evolution of Insurance Regulation in India

In India, insurance has a deep-rooted history. It finds mention in the writings of

Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The

writings talk in terms of pooling of resources that could be re-distributed in times of

calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to

modern day insurance. Ancient Indian history has preserved the earliest traces of

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insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has

evolved over time heavily drawing from other countries, England in particular.

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 nationalizing 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

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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

Association 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 (Nationalization) 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

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sector be permitted to enter the insurance industry. They stated that foreign companies

are 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 insurance 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 27 general insurance companies including the ECGC and

Agriculture Insurance Corporation of India and 24 life insurance companies operating in

the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.

Together with banking services, insurance services add about 7% to the country’s GDP.

A well-developed and evolved insurance sector is a boon for economic development as it

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provides long- term funds for infrastructure development at the same time strengthening

the risk taking ability of the country.

3.3 Regulation Framed under IRDA

The government in order to provide better insurance cover to citizens and also to

augment the flow of long term sources of financing infrastructure, initiated reforms in the

insurance sector by setting up of committee under chairmanship of R. N. Malhotra,

former Governor of RBI..

The Malhotra committee (1993) had recommended a comprehensive frame work

of reforms in the insurance sector in order to improve the quality of insurance services in

the country. The insurance sector/industry in the country is emerging in repose to the

follow up of action on the recommendations of the Malhotra committee. The main

elements of the framework are Insurance Act, 1938, Insurance Regulatory and

Development Authority (IRDA) Act, 1999 and the regulation framed under it by IRDA.

IRDA was constituted as an autonomous body to regulate and develop the

business of insurance and re-insurance in the country. The Authority was constituted on

19th April, 2000 vide Government of India's notification no. 277. The key objective of

the Authority is to promote market efficiency and to ensure consumer protection. The

Authority has been required by law, under Section 20 of the IRDA Act, to furnish an

Annual Report on its performance and other related issues to the Central Government.

3.3.1 IRDA – Duties, Powers and Functions

Duties – the duty of IRDA is to regulate, promote and ensure orderly growth of insurance

and reinsurance businesses.

Powers and Functions

The flowing are the major Powers and functions of IRDA

(i) Issue to the applicant a certificate of registration; to renew, modify, withdraw,

suspend or cancel such registration.

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(ii) Protection of the interest of policy holders in matters concerning assigning of

policy, nomination by policy holders, insurable interest, settlement of

insurance claim, surrender value of policy and other terms and conditions of

contracts of insurance.

(iii) Specifying requisite qualification and practical training for insurance

intermediaries and agents.

(iv) Specifying code of conduct for surveyors and loss assessors.

(v) Promoting efficiency in the conduct of insurance business.

(vi) Promoting and regulating professional organizations connected with the

insurance business.

(vii) Calling for information from, undertaking inspection of, conducting enquiries

and investigation and including audit of insurers.

(viii) Control and regulation of rates and terms and conditions of insurance policies.

(ix) Regulating investment of funds and maintenance of solvency margin of

insurance companies.

(x) Adjudication of disputes between insurers and insurance intermediaries.

3.3.2 Aspects Covered under IRDA Regulations

1. Rural social sector obligations

2. Insurance advertisement and disclosures

3. Licensing of insurance agents

4. General insurance – reinsurance

5. Appointed actuary

6. Assets, liabilities and solvency margins

7. Registration of Indian insurance companies

8. Investment norms

9. Preparation of financial statements and auditors reports

10. Third party administrors

11. Protection of policy holders interest

12. Corporate/Composite corporate agents

13. insurance brokers

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14. Insurance surveyors and loss assessor and

15. Micro – insurance.

3.4 Categorization of IRDA Regulations

IRDA regulations are broadly grouped under three categories

• Regulations relating to insurance firms

• Regulation relating to insurance corporate/insurance agents

• Regulations relating to consumer/policy holders

3.4.1 Regulations relating to Insurance Firms.

(i) Registration of Indian Insurance Companies

An applicant desirous of carrying on insurance business in India should make a

requisition for registration application. He should apply for grant of certificate of

registration after the acceptance of his requisition by IRDA. The requisition should be

made separately for each class of business of insurance, namely, (i) life insurance

consisting of linked/non-linked or both (ii) general insurance including health incurrence/

cover. Linked business means life/health insurance contracts under which benefits or

wholly /partly to be determined by reference to the value of the underlying assets or any

approved index.

In India only Indian insurance companies, which are registered under the

Company Act are eligible to apply for registration. Any company which applies for the

registration has to show evidence of having 100 corers and 200 corers are more as paid

up equity share capital. The holding of the equity by a foreign company is maximum up

to 26 per cent with Indian partnership.

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Table 3.1 Registration of Indian Life insurance companies from 1999-00 to 2012-13

Year No of Companies Cumulative No of Companies 1999-2000 1 1 2000-2001 04 05 2001-2002 07 12 2002-2003 01 13 2003-2004 01 14 2004-2005 -- 14 2005-2006 02 16 2006-2007 01 17 2007-2008 04 21 2008-2009 01 22 2009-2010 01 23 2010-2011 01 24 2011-2012 -- 24 2012-2013 -- 24 Source: IRDA Annual Reports for the years 2000-01 to 2012-13

Table 3.2 Registration of Indian Non-Life insurance companies from 1999-00 to

2012-13

Source: IRDA Annual Reports for the years 2000-01 to 2012-13

As depicted in the above table 3.1 and the subsequent line chart fig. 3.1, the

number of life insurance companies have gone up from only one company i.e., LIC of

Year No of Companies Cumulative No of Companies 1999-2000 4 4 2000-2001 06 10 2001-2002 03 13 2002-2003 01 14 2003-2004 -- 14 2004-2005 -- 14 2005-2006 01 15 2006-2007 02 17 2007-2008 03 20 2008-2009 01 21 2009-2010 03 24 2010-2011 -- 24 2011-2012 03 27 2012-2013 -- 27

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0

5

10

15

20

25

30

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Life Companies Non-Life Companies

India in 1999 to drastically go up to five companies soon after setting up of IRDA in

2000-01 and to 12 in 2001-02. From then onwards it stabilized and moved up to 22

companies in 2008-09 and slowed down to a final tally of 24 till date.

As shown in the above table 3.2 and the subsequent line chart fig. 3.1, the number

of non-life insurance companies have gone up from four public sector companies in 1999

to drastically go up to ten companies soon after setting up of IRDA in 2000-01 and to 20

in 2007-08. From then onwards it stabilized and moved up to 24 companies in 2009-10

and stabilized at to a final tally of 27 till date.

Fig 3.1 Registration of Indian Life & Non-life insurance companies from 1999-2000

to 2012-13


(ii) General insurance – Reinsurance

Reinsurance - Insurance purchase by primary insures to hedge their portfolios of

insurance policies. Every insurer needs a comprehensive and efficient reinsurance

programme to enable it to operate within the constraints of its financial strength. This is

important to maintain the solvency of the insurer and to ensure that the clauses are

honored as and when they arise.

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Every insurer should reinsure with Indian reinsurers such percentage not

exceeding thirty per cent, of sum assured and each policy as specified by IRDA. The

notification by IRDA may also specify the terms and conditions in respect of any

business of reinsurance which would be binding on Indian insurance companies.

(iii) Preparation of Financial Statements and Auditor’s Report

The IRDA regulation relating to the preparation of financial statements,

managements report and auditor’s reports of insurance companies are compulsory for life

and general insurance companies. At the end of each financial year, insurers are required

to prepare a financial statements which includes a balance sheet , a profit and loss

account a separate account of receipts and payments and a revenue account in accordance

with the IRDA regulations. They should keep separate accounts relating to the funds of

share holders and policy-holders.

(iv) Appointed Actuary

To carry on insurance business including reinsurance, the insurers should appoint

actuary. Life insurers cannot transact without an appointed actuary. He should be a fellow

member of Actuarial Society of India and possess a certificate of practice. A appointed

actuary should have accesses to all information or documents imposition or under control

of the insurer to perform his function and duties in an effective manner. He has to render

actuarial service advice to management of insurer particularly in the areas of product

design and pricing, insurance contract wording, investment, reinsurance, ensuring

solvency of the insurer at all times.

(v) Assets, Liabilities and Solvency Margins

Every insurer should prepare a statement of assets which includes approved

securities, approved investments, deposits, non-mandated investments or any other assets

has to be specified.

All the insurers have to prepare a statement of amount of liabilities for life

insurance and general insurance and also the statement of solvency margin should be

separately prepared for life insurance business and general insurance business.

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Every insurer should determine the required solvency margin, the available

solvency margin (i.e. the excess of value of assets over the value of insurance liabilities

and other liabilities of policy holders/share holders funds) and the solvency rates (i.e. the

ratio of the amount of available solvency margin to the amount of required solvency

margin) as specified under the IRDA regulation 2000.

The solvency of an insurance company corresponds to its ability to pay claims.

An insurer is insolvent if its assets are not adequate [over indebtedness] or cannot be

disposed of in time {illiquidity} to pay the claims arising. The solvency of insurance

company or its financial strength depends chiefly on whether sufficient technical reserves

have been set up for the obligations entered into and whether the company has adequate

capital as security.

Solvency Ratio (SR) is calculated as total Available Solvency Margin (ASM)) to

total Required Solvency Margin (RSM).

SR = Total ASM / Total RSM

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Table 3.3 Solvency Ratio of Life Insurers

Private Insurer 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Aegon Religare 1.93 2.66 3.22 2.62 1.91

Aviva 2.8 6.31 4.29 5.91 5.12 5.4 5.15 4.23

Bajaj Allianz 2.8 2.45 2.34 2.62 5.12 2.86 5.15 6.34

Bharti AXA 1.96 2.73 2.07 2.68 2.14 2.34 1.82

Birla Sun life 2 1.68 2.37 2.44 1.68 2.89 2.99 2.67

Canara HSBC 5.74 2.58 3.07 2.6 3.84

DLF Pramerica 1.71 1.67 2.53 2.31 2.67

Edelweiss Tokyo 2.41 1.96

Future Generali 2.94 3.17 2.34 2.21 3.86 4.17

HDFC Standard 2.9 2.05 2.38 2.58 1.8 1.72 1.88 2.17

ICICI Prudential 1.6 1.53 1.74 2.31 2.9 3.27 3.71 3.96

IDBI Fortis 3.45 6.11 4.05 6.6 6.61 4.9

IndiaFirst 5.27 6.36 7.71 4.2

ING Vysya 2.3 2.87 2.36 2.26 1.79 3 2.16 1.8

Max New York 2.25 3.04 3.22 3.05 3.06 5.21

Metlife 1.7 1.73 1.7 2.27 1.65 1.69 5.34 2.07

Kotak Mahindra 1.8 1.64 2.41 2.69 2.79 2.67 1.65 2.93

Reliance 2 1.62 1.65 2.5 1.86 1.66 3.53 4.29

Sahara India 2.7 1.78 4.32 3.6 4.5 4.82 5.28 5.78

SBI Life 2.9 2.59 3.3 2.92 2.17 2.04 5.34 2.15

Shriram 2.2 2.7 2.85 3.05 2.69 3.96 4.99 5.59

Star Union Dai-Ichi 2.53 7.46 6.7 5.67 3.46

Tata AIG 2.7 2.68 2.5 2.51 2.11 2.16 2.84 3.41

Public Insurer

LIC OF INDIA 1.3 1.5 1.52 1.54 1.54 1.54 1.54 1.54 Source: IRDA Annual Reports for the years 2005-06 to 2012-13

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Table 3.4 Solvency Ratio of Non-Life Insurers

Private Insurers 2005-06 2006-07 2008-09 2009-10 2009-10 2010-11 2011-12 2012-13

Bajaj Allianz 1.22 1.56 1.55 1.62 1.54 1.73 1.56 1.79

Bharti AXA 2.11 2.38 1.7 2.18 1.36

Cholamandalam 2.51 2.63 2 1.02 1.76 1.61 1.33 1.42

Future Gererali 2.61 1.83 1.54 2.06 1.69 1.78

HDFC ERGO 1.78 1.69 202 2.48 1.49 1.71 1.57 1.61

ICICI Lombard 1.29 2.08 2.03 2.03 2.07 1.56 1.36 1.55

IFFCO Tokio 1.95 1.7 1.51 1.77 1.76 1.23 1.22 1.43

L & T General 2.3 2.41 2.26

Liberty Videocon 6.27

Magma HDI 11.44

Raheja QBE 3.79 3.65 3.77 3.96

Reliance 3.04 1.95 1.64 1.59 1.39 1.15 1.39 1.62

Royal Sundaram 1.66 1.64 1.59 1.64 1.7 1.56 1.36 1.44

SBI General 12.84 12 10.23 3.2

Shriram 1.94 1.75 1.32 0.92 1.57

Tata AIG 1.68 1.85 1.91 1.97 1.88 1.68 1.4 1.61

Universal Sompo 4.68 4.23 3.15 2.14 2.95 2.38

Public Insurers

National 1.08 1.7 2.22 1.56 1.6 1.34 1.37 1.5

New India 3.09 3.57 4 3.41 3.55 2.9 2.03 2.5

Oriental 1.97 2.17 1.91 1.66 1.56 1.34 1.38 1.51

United 2.23 3 3.24 3.32 3.41 2.89 2.71 2.52

Stanalone Health

Max Bupa Health 2.07 2.03 1.91 2.12

Apollo Munich 1.39 1.82 1.64 9.05 1.59 1.77

Star Health 1.97 1.38 1.68 1.5 1.66 1.91

Religare Health 2.45

Specialized Insurers

ECGC 9.39 11.41 18.9 16.42 14.17 1.89 10.1 9.64

AIC 2.16 2.05 3.27 4.58 2.07 3.71 3.18 2.47

Re-Insurer

GIC 3.41 4.1 3.36 3.67 3.71 3.35 1.59 2.39 Source: IRDA Annual Reports for the years 2005-06 to 2012-13

As shown in the table no.3.3 and 3.4, the solvency ratios of all life insurers and

non life insurers are more than one indicating that the available solvency margin in more

than the required solvency margin. It underlines the capability of insurance companies to

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meet their obligations with minimum time and effort. It can also be observed that in life

insurance segment the solvency margin of LIC of India is consistent in the range between

1.3 to 1.54 indicating that their business is now six decades of experience in Indian

insurance conditions and therefore, there is consistency in their maintenance of solvency

ratio. Whereas for other private life insurers, they have started their operations with a

higher solvency ratio as they invest into the business and as they started selling more and

more life insurance policies, their obligations increased and the solvency ratios started

declining but as things stand now, all the life as well as non life insurance firms in India

do have a healthy solvency ratios.

(vi) Investment Norms

The norms pertain to investment assets of life/general insurance are as follows:

Government securities – 25 per cent, government approved securities – 50 per cent, other

investment – 35 per cent and on infrastructure – 15 per cent.

(vii) Insurance Advertisement and Disclosures

An insurance advertisement means/includes any communication

directly/indirectly related to an insurance policy and intended to result in the eventful

sale/solicitation of a policy from public. It includes all forms of printed/published

materials or any material using the print and/or electronic medium for public

communication such as (i) news papers, maganizes and sales talk; (ii) bill boards,

hording, panels; (iii) radio, television, website, e-mails, portals; (iv) representations by

intermediaries; (v) leaflets; (vi) descriptions literatures/circulars; (vii) sales and flyers;

(viii) illustrations from letters; (ix) telephone solicitation; (x) business cards; (xi) Videos

(xii) faxes and any other form of communication with a prospect to urge policy holder to

purchase/ renew/increase/retain/modify a policy.

(viii) Third party administrors (TAPs)

The main elements of the IRDA regulations are licensing of third party

administrators, revocation/cancellation of their license, and code of conduct for them,

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maintenance /confidentially of information and miscellaneous provisions. IRDA licensed

TPA registered as company under companies act provides health services for fee

specified in a agreement entered in to within the insurance company. It prescribes the

terms and conditions of health services which may be render to and /or received by each

of the parties to the agreement.

Table 3.5 Third Party Insurance claim

Motor Insurance Third Party Claim

March- February

Claims intimated during the year

Claims settled during the year

Claims outstanding at the end of the year

Number Rs in Crores Number Rs in Crores Number Rs in Crores

2007-08 22477 454.41 44884 611.47 100260 1643.80

2008-09 36162 646.32 56668 777.12 110142 2006.41

2009-10 76565 1526.82 66641 753.53 120326 2436.50

2010-11 90605 1784.76 32310 259.88 81437 1865.88

2011-12 13693 298.78 2403 16.13 12496 302.09


It can be inferred from the above table 3.5, that as far as third party insurance

claims are concerned, the claims outstanding for motor insurance business has decreased

drastically from 2007-08 to 2012 indicating efficiency in the third party claim settlement

aspect.

(ix) Rural/Social sector obligations

Rural sector means the places/areas classified as rural by population census of

India. Social sector includes unorganized sector, informal sector, economically

vulnerable or backward classes (i.e. persons below the poverty line) and other categories

of persons (i.e. persons with disability as defined in the Persons with Disabilities (Equal

Opportunities, protection of Rights and Full Participation) Act and who may not be

gainfully employed and also includes guardians who need insurance to protect spastic

persons/ persons with disability

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(x) Micro insurance:

A micro insurance product includes life as well as general micro-insurance

products. General micro-insurance product means a health insurance contract/any

contract covering the belongingness such as a hut, livestock, tools, instruments/in

personal accident contract of a personal or group (at least twenty persons). Life micro-

insurance product means any term insurance contract with or without return of

premium/any endowment insurance contract/health insurance contract with/without an

accident benefit rider, either on individual or on group basis

A micro insurance product therefore includes both life and general micro

insurance products and such plans are to be approved by the regulator. A micro insurance

product can be sold by micro insurance agents (including NGO, Self-Help Group (SHG),

Micro finance Institution, etc.), corporate agents or brokers. The guidelines also

incorporated code of conduct for agents overall commission, underwriting, compliance,

etc. Two types of micro insurance products have been suggested by the regulators,

namely, life micro insurance products and general micro insurance products. These

products can be launched by a general insurance as well as by any life insurance

company subject to fulfillment of certain conditions. Accordingly, important features of

such products are as follows.

(a) General Micro insurance Products

General micro insurance product means any health insurance contract, any

contract covering belongings, crop insurance, health insurance and personal accident

contract either on an individual or on a group basis. Accordingly under micro insurance

general micro insurance short-term cover for 1 year can be provided

(b) Life Micro insurance Products

Life micro insurance products include term insurance, endowment insurance,

contract or health insurance cover with or without accident benefit riders on an individual

or on a group basis.

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(c) IRDA Regulations towards micro insurance

IRDA has issued Insurance Regulatory and Development Authority (Micro

insurance) Regulations 2005, which provides the structure of micro insurance products

that, can be launched by Indian life insurance and general insurance companies. The

regulation also provided provisions for tie-up between life insurance and general

insurance. A life insurer can offer general micro product provided it has tied up with an

insurer carrying general insurance product. Similarly, a general insurance company can

offer life micro product provided it has a tie-up with a life insurance company carrying

out life insurance business.

All the insurers has to undertake during the first five financial years (total policies

to be return from 7 per cent to 18 per cent) to fulfill the obligation pertaining to the

persons in rural and social sectors.

Table 3.6 New Businesses under Micro Insurance Portfolio for 2011-2012

New Business Under Micro Insurance Portfolio for 2011-2012 (in lakhs)

Insurer Group

Policies Premium Schemes Policies Lives covered

Private 7,93,660 964.22 112 1150.67 750555

LIC 38,26,783 10603.49 5461 9831.63 9444349

Total 46,20,443 11567.71 5573 10982.30 10194904

Source: IRDA Annual Reports for the year 2011-12

Table 3.7 New Businesses under Micro Insurance Portfolio for 2012-2013

New Business Under Micro Insurance Portfolio for 2012-2013 (in lakhs)

Insurer Group

Policies Premium Schemes Policies Lives covered

Private 6,95,904 1,018.54 515 756.89 7,57,450

LIC 43,40,235 9,949.05 5,325 21,045.76 1,32,23,872

Total 50,36,139 10,967.59 5,476 21,802.65 1,39,81,322

Source: IRDA Annual Reports for the year 2012-13

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The above statistics in table 3.6 and 3.7 reveal that the Micro-Insurance portfolio

has made steady progress during the year 2011-12 to 2012-13. More life insurers have

rigorously pursued their Micro-Insurance operations and many new products have been

launched during the year. The distribution infrastructure has also been considerably

strengthened and the new business has shown a decent growth, though the volumes are

still small.

A further analysis of the above tables reveals that LIC of India has covered more

than 1.3 crore lives which are more than 15 times the lives covered by all the private life

insurers( 7.5 lakh lives) put together. This is an indication of the fact that LIC of India

has its branches throughout the length and the breadth of the country whereas private life

insurers are operating only in urban and semi urban localities and their micro insurance

business is only a compliance to IRDA regulations than the real urge to serve the rural

and urban poor for inclusive growth.

3.4.2 Regulations relating to Insurance/Corporate Agents.

(i) Licensing of Insurance Agents

Issue/renewal of license to a person (i.e. individuals, firm or company) desiring to

act as an insurance agent for life/general insurer should obtain or renew license from

IRDA. The applicant should have at least done higher secondary qualification and has to

pass pre-recruitment examination in life/general insurance conducted by insurance

institute of India. He has to get at least 50 hours of practical training which, includes

orientation, sales service and marketing etc. He has to identify with any insurance firms

and if doesn’t follow code-conduct his licenses will be cancelled.

Table 3.8 Number of individual agents

Number of individual agents (As on 31st march) (in lakhs) Year 2006-

07 2007-

08 2008-

09 2009-

10 2010-

11 2011-

12 2012-

13 Mean SD CV

LIC 8.90 13.27 15.93 15.72 13.02 10.81 11.72 12.77 2.55 0.20

Private 11.03 11.94 13.45 14.03 13.37 12.78 9.497 12.30 1.66 0.13

Total 19.93 25.21 29.38 29.78 26.39 23.59 21.22 25.07 3.78 0.15


104

0

2

4

6

8

10

12

14

16

18

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

LIC Private

The above table no. 3.8 and figure no. 3.2 reveal that the number of agents in LIC

of India increased from 8.9 lakh in 2006-07 to 15.93 lakh in 2008-09 and decreased to

10.82 lakh in 2011-12 and thereafter slightly increased to 11.72 lakh in 2012-13.

Correspondingly, in private life insurance segment, the number of agents recruited was

phenomenal in 2006-07 at 11.03 lakh and increased year on year to 14.03 lakh in 2009-10

and then slipped drastically to 9.49 lakh in 2012-13. This is an indication of the fact that

there is no stability of tenure of insurance agents/advisors in private life insurance. This is

a serious issue since insurance agents/advisors form a vital link between the firm and the

policy holders to enhance customer relationship and sustain it till the claim settlement.

LIC of India definitely has an edge in this crucial aspect of life insurance business. The

values of Co-efficient of variation indicate that the agents of LIC are less consistent than

the agents of private firms.

Fig. 3.2. Number of individual agents from 2006-07 to 2012-13 (in lakhs)


(ii) Corporate/Composite Corporate Agents

A corporate agent means any person/firm/company/bank/corresponding new

bank/ regional rural bank(RRB)/cooperative society/panchayat or local authority/ a NGO

(Non-Government organization) or a micro lending finance originations/any other

institution or organization specifically approved by the IRDA licensed by the IRDA act

105

as an insurance agent. A corporate agent who holds a license to act as an insurance agent

both for life insurer and a general insurer is a composite corporate agent. The main

elements of these regulations are issue/renewal of license, remuneration, code of conduct,

renewal license and miscellaneous.

The person to act as a corporate agent has to apply for license to IRDA, and the

person should have at least passed higher secondary qualification and has to pass pre-

recruitment examination in life/general insurance conducted by Insurance Institute of

India. He has to get at least 75 hours of practical training which, includes orientation,

sales service and marketing etc. He has to identify with any insurance firms and if does

not follow code-conduct his licenses will be cancelled.

Table 3.9 Number of Corporate agents

Number of Corporate agents (As on 31st march) (in lakhs)

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

2012-

13

Mean SD CV

Private 1906 2070 2091 2420 1870 642 532 1647.3 746.51 0.45

LIC 409 345 415 510 295 240 207 345.86 107.07 0.31

Total 2315 2415 2506 2930 2165 882 739 1993.14 842.55 0.42


The above table no. 3.9 and figure no. 3.3 indicate that LIC of India traditionally

relied more on individual agents since its inception than on corporate agents. Whereas the

private life insurers banked heavily on corporate agents and hence there were 2420

corporate agents by the year 2009-10. But it can be seen that there is a sort of collapse

thereafter to reach a paltry 532 corporate agents by 2012-13. Private life insurers lost

their way in the midst of global financial crisis and what was their key result area of sales

through corporate agents was dented beyond repair and now it would take Herculean task

to make a turnaround. The values of Co-efficient of variation indicate that the corporate

agents of private firms are less consistent than the corporate agents of LIC.

106

0

500

1000

1500

2000

2500

3000

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

LIC Private

Fig . 3.3 Number of Corporate agents from 2006-07 to 2012-13 (in lakhs)


(iii) Insurance Brokers

An insurance broker means who means a person (i.e. an individual, a firm, a

company, a cooperative society or any other person recognized by the IRDA) licensed by

the IRDA who far remuneration arranges insurance contracts with insurance/reinsurance”

companies on behalf of his clients. There are three categories of insurance brokers (i)

direct (ii) rein-insurance (iii) composite.

A direct broker is an insurance broker who carries out the functions like rending

advice on appropriate insurance cover and terms and conditions regarding pricing,

consultancy and risk management, negotiation of claims etc. in the field of general/life

insurance.

A reinsurance broker is an insurance broker who arranges reinsurance for direct

insurers with reinsurance companies.

107

A Composite broker is an insurance broker who arranges insurance for clients

with insurance companies and/or reinsurance for his clients. He performs the functions of

both the direct broker as well as the insurance broker.

(iv) Insurance Surveyors and Loss Assessor

The IRDA regulations relating to licensing, professional requirements and code of

conduct of insurance surveyors and loss assessors are discussed as follows.

The individual/company/firm intending to act as a surveyors and loss assessor in respect

of general insurance business should obtain a license from the IRDA, while granting

license, the IRDA would take into account all matters relating to his

duties/responsibilities/functions and satisfy itself that the applicant is a fit and proper

person for license. In particular it would satisfy that the applicant possesses technical

qualification as specified by IRDA and has undergone a period of practical training of

twelve of months.

3.4.3 Regulations relating Policy Holders.

(i) Protection of Policy Holder’s Interest

These regulations are in addition to any other regulations made by the IRDA

which may inter alia, provide for protection of the interest of the policy holder. They

apply to all insures, insurance agents, insurance intermediates and policy-holders. Their

main elements are point of scale, proposal of insurance, grievance redressal procedure.

Matters to be stated in life insurance policy, matters to be stated in general insurance

policy, claims procedure in respect of life insurance policy, claims procedures in respect

of general insurance policy, policy holders servicing.

The point of scale is a prospects that is the documents issued by a insurer or in its

behalf to the prospective by a of insurance containing insurances particulars, like type

and character of the riders on the main insurance product indicating the nature and scope

of benefits, the extended of insurance cover and the sum assured. The proposal for

insurance is a return document should be given to the person who has insured.

108

Table 3.10 Premium Underwritten by Life Insurers (First Year Premium in Crores)

Year LIC Private sector

2001–02 19588.8 2685.09

2002–03 15976.8 9656.89

2003–04 16989.3 2440.7

2004–05 11658.2 4223.09

2005–06 13728 7547.73

2006–07 56223.6 19425.65

2007–08 59996.6 33715.95

2008–09 53179.1 34152.01

2009–10 71521.9 38372

2010–11 87012.4 39368.65

2011–12 81862.3 32079.92

2012-13 76611.5 30749.58

Mean 47029 21201 SD 29476 14968 CV 0.62 0.71


As per table 3.10 and figure 3.4, it can be seen that the first year premium which

is reflection of new business underwritten each year shows that both LIC of India and

private life insurers are making steady progress though LIC is showing a better

performance only to stabilize during 2009-10 and slight decline thereafter. It shows that

the first year premium which includes single premium and regular premium, is a

measure of trustworthiness of life insurers, LIC of India, scores over private life insurers

for obvious reason that it is a public sector major and Indian insurance investors pose

more confidence than on private life insurers. The values of Co-efficient of variation

indicate that the First Year premium under written by LIC is more consistent than private

sector firms.

109

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012-13

LIC Private sector

Fig. 3.4 Premium Underwritten by Life Insurers (First Year Premium in Crores)


Table 3.11 Premium Underwritten by Life Insurers (Renewal Premium in Crores)

Year LIC Private sector

2001–02 30233.13 4.03

2002–03 38651.72 153.37

2003–04 46178.3 679.62

2004–05 54474.22 2162.93

2005–06 62276.35 4813.86

2006–07 71599.28 8827.36

2007–08 89793.42 17845.47

2008–09 104108.96 30345.43

2009–10 114555.41 41000.94

2010–11 116461.05 48762.94

2011–12 121027.03 52102.91

2012-13 132192.08 47649.33

Mean 81795.91 21195.68

SD 35593.36 21316.99

CV 0.435 1.006 Source: IRDA Annual Reports for the years 2001-02 to 2012-13

110

0

20000

40000

60000

80000

100000

120000

140000

2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012-13

LIC Private sector

The renewal premium is a measure of consistency with which the policy holders

make payments towards their premium obligations and the persistence efforts of

insurance agents/advisors. In this count also, LIC of India has far better record than their

private counterparts as shown in the table no. 3.11 and figure 3.5. The values of Co-

efficient of variation indicate that the renewal premium under written by LIC is more

consistent than private sector firms.

Fig. 3.5 Premium Underwritten by Life Insurers (Renewal Premium in Crores)


111

0

50000

100000

150000

200000

250000

2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012-13

LIC Private sector

Table 3.12 Premium Underwritten by Life Insurers (Total Premium in Crores)

Year LIC Private sector 2001–02 49821.9 272.54

2002–03 54628.5 1119.06

2003–04 63167.6 3120.32

2004–05 75127.3 7727.5

2005–06 90792.2 15083.53

2006–07 127823 28253.01

2007–08 149790 51561.42

2008–09 157288 64497.44

2009–10 186077 79373.06

2010–11 203473 88131.6

2011–12 202889 84182.83

2012-13 208804 78398.91

Mean 130807 41810.1

SD 62028.8 35977.78


As depicted in the above table3.12 and figure3.6 the total premium underwritten

by life insurers have increased steadily for both LIC of India and private life insurers.

But the premium underwritten by LIC of India shows much higher trajectory than private

life insurers. The values of Co-efficient of variation indicate that the total premium

under written by LIC is more consistent than private sector firms.

Fig 3.6 Premium Underwritten by Life Insurers (Total Premium in Crores)

112

Table 3.13 New Policies Issued - Life Insurers

Year LIC Private Sector 2003–04 26968069 1658847

2004–05 23978123 2233075

2005–06 31590707 3871410

2006–07 38229292 7922274

2007–08 37612599 13261558

2008–09 35913000 15011000

2009–10 38863000 14362000

2010–11 37038000 11114000

2011–12 35751000 8442000

2012–13 36782000 7405000

Mean 34272579 8528116

SD 5090610.7 4890914.65


As shown in the above table 3.13 and fig. 3.7 it can inferred that growth in Policy

issued by LIC of India has registered a consistent growth from 2003-04 from 2.7 crores

policies to 3.76 crores polices in 2007-08, then slow down a little up to 2011-12 at 3.57

cores policies. But the recovery can be seen in the past year with a slight increase to

3.678 cores policies issued. On the contrary new policies issued by private life insurers

show a steep increase from 2003-04 with 16.58 lakhs policies to 1.5 crores policies in

2008-09 then decline slightly to 1.43 corers polices and drastically slipped down to 74.05

lakhs policies which is less than half of what they sold during 2008-09 which is best

performance till date.

This is an indication of the fact that the Indian insurance investor’s trust and

confidence with private life insurers has eroded considerably and unless the private life

insurers come out with strong resilient strategies to penetrate deeper in to targeting all

segments, it would be difficult for them to arrest this kind of slide. The values of Co-

efficient of variation indicate that the LIC has shown more consistency in issuing new

policies when compare to private sector firms in life insurance sector.

113

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

45000000

2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

LIC Private Sector

Fig 3.7 New Policies Issued - Life Insurers


Table 3.14 New Policies Issued – Non-Life Insurers


As shown in the above table 3.14 and fig. 3.8 The number of policies issued in

non-life segment for both private sector and public sector after the initial inconsistency

Year Public Sector Private Sector

2003–04 3298827 38427204

2004–05 5106653 42141970.5

2005–06 2193079 8947516

2006–07 41241665 13553524

2007–08 38547040 18703219

2008–09 45137000 21922000

2009–10 43404000 24084000

2010–11 50576000 28765000

2011–12 52814000 32930000

2012–13 68968000 38056000

Mean 35128626.4 26753043.4

SD 23365231.6 11203130.8

CV 0.66 0.42

114

0

10000000

20000000

30000000

40000000

50000000

60000000

70000000

80000000

2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

Public Sector Private Sector

till 2005-06, has stream lined there after and stabilized to register a constant growth till

2012-13. The values of Co-efficient of variation indicates that the private sector firms

has shown more consistency in issuing new policies when compare to public sector firms

in non-life insurance sector.

Fig 3.8 New Policies Issued – Non-Life Insurers


Table 3.15 Gross Direct Premium Income in India: Non-Life Insurers (in crores)

Year Public Sector Private Sector 2002–03 13300.53 1350.63

2003–04 14151.77 2257.73

2004–05 13972.96 3507.64

2005–06 14997.06 5361.53

2006–07 16258. 90 8646.6

2007–08 16831.85 10992

2008–09 18030.74 12321.09

2009–10 20643.45 13977

2010–11 25151.83 17424.63

2011–12 30560.74 22315.03

2012–13 35022.12 27950.69

Mean 19902.25 11464.36

SD 7296.52 8531.55

CV 0.36 0.74


115

0

5E+10

1E+11

2E+11

2E+11

3E+11

3E+11

4E+11

4E+11

2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

Public Sector Private Sector

As shown in the above table 3.15 and fig. 3.9 the gross direct premium income for

non-life insurance segment is concerned the performance of both public and private

sector companies are more or less similar in the sense that the premium collected by the

public sector has gone up form 13,500 crore in 2002-03 to 35022 crore in 2012-13, where

as the private sector in the same period has gone up from 1350 crores to 27950 crores.

This show that line between public and private companies is getting thinner by the year

and sooner or later the private sector is poised to match the public sector performance

The values of Co-efficient of variation indicates that the public sector firms has shown

more consistency in collecting premium when compare to private sector firms in non-life

insurance sector.

Fig 3.9 Gross Direct Premium Income in India: Non-Life Insurers


116

Table 3.16 Status of Grievances – Life Insurance

Insurer Grievance reported during

Grievance resolved during 2011-12

Out standing

LIC 73034 72655 544 Private 267978 268415 680

2012-13

Total 341012 341070 1224 LIC 52300 52135 165

Private 257313 256196 1117 2011-12

Total 309613 308331 1282 LIC 2588 2672 66

Private 7068 7125 188 2010-11

Total 9656 9797 254 LIC 606 642 150

Private 1843 1870 245 2009-10

Total 2449 2512 395 LIC 481 980 186

Private 1313 1373 272 2008-09

Total 1794 2353 458 LIC 651 80 571

Private 1406 1100 306 2007-08

Total 2057 1180 877 Source: IRDA Annual Reports for the years 2007-08 to 2012-13

The above table 3.16 shows that the status of Grievances pending has shown a

declining trend for LIC and increasing trend for Private life insurers from 2007-08 till

2002-13. This shows that LIC of India for more serious in resolving the grievances

compare to private life insurers.

Lapse Ratio during the year = Lapses (including forfeitures) during the

year/Arithmetic Mean of the business inforce at the beginning and at the end of the year.

A policy is treated as lapsed if the premium is not paid within a period ranging from 15 to

60 days

117

Table 3.17 Lapsed ratios (based on number of policies)


An analysis of policies lapsed ratio shows that there is rampant mass-selling of

Life insurance policies by private life insurers as it can be seen from the above table that

almost all private life insurers have a high lapse ratio, some times as high as 60 per cent

where as LIC’s lapse ratio in all these years is less than 6 per cent. This is point of

serious introspection for both the regulator, IRDA and private life insurance companies.

Insurer 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 Aegon Religare NA 23 24 8.7 17.4 28.5 AVIVA 80 59 24 31.0 27.8 21.7 Bajaj Allianz 19 14 17 10.7 21.4 18.7 Bharti AXA 45 46 38 18.9 36.1 42.7 Birla Sunlife 6 9 39 71.6 51.0 61.3 Canara HSBC NA 4 0 2.7 23.9 21.5 DLF Pramerica NA 2 80 19.4 30.6 33.6 Edelweiss Tokio - - - NA 0.0 39.9 Future Generali 0 18 37 24.6 48.9 29.6 HDFC Standard 4 6 8 5.0 4.2 5.6 ICICI Prudential 40 53 81 46.5 41.9 34.1 IDBI Federal 0 0 0 5.6 10.7 15.9 Indiafirst - - - 0.0 4.4 14.2 ING Vysya 17 16 19 13.9 12.3 13.4 Kotak Mahindra 17 19 14 11.6 16.0 14.6 Max Life 17 19 23 13.3 12.6 10.9 PNB Metlife 24 18 25 30.7 29.8 17.0 Reliance 21 40 31 15.7 38.5 25.8 Sahara 24 22 21 15.5 13.8 16.9 SBI Life 16 9 7 6.6 9.4 12.3 Shriram Life 55 41 41 15.5 8.6 27.7 Star union dai-ichi NA 1 4 17.9 23.4 29.0 Tata AIG 35 26 42 33.4 28.3 18.7 LIC 6 4 4 4.9 5.0 5.6

118

85

89

93

97

101

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

LIC Private Total

Table 3.18 Death claim


As for as death claim (Table 3.18) settlement is concerned, LIC’s track record is

blemishless and unparalleled as the straight line in the fig 3.10 shows that their record is

a nearest to 100 percent for all these years. Where as the private life insurers’ record is

poor and inconsistent, as their claim settlement has dropped to 87 per cent in last year.

Fig. 3. 10 Death claim from year 2007-08 to 2012-13


From the above analysis the Hypothesis - Growth of insurance sector in India is

positively correlated with Insurance regulation is proved.

Year 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

Life Insurer

Claim Paid

Claims Pending

Claim Paid

Claims Pending

Claim Paid

Claims Pending

Claim Paid

Claims Pending

Claim Paid

Claims Pending

Claim Paid

Claims Pending

Private Total

84.43 9.66 92.51 3.93 96.80 1.58 93.33 5.36 97.83 0.24 87.79 11.03

LIC 99.88 0.11 99.76 0.24 99.80 0.19 99.66 0.33 99.64 0.36 99.54 0.54

Industry Total

97.85 1.37 98.63 0.03 98.90 0.01 99.73 2.66 98.96 0.31 95.69 3.92

119

3.5 Implications

IRDA should promote more awareness about insurance among the public. The

market structure of the insurance companies should be planned with a proper market

study. A wider product range should be made available to the masses. More sophisticated

technology should be put in place. A better yield should be made available to policy-

holders by reducing management expenses level and readjusting premium on the basis of

mortality studies. Finally, more vibrant customer services should be developed.

In addition, the IRDA has to develop legislation affecting public policy on

insurance and must also ensure the wide distribution of information relating to prices and

experience about the insurers.

The developmental role also envisages development of the institutions connected

with insurance, such as the Actuarial Society of India, the Insurance Institute of India,

and the Institute of Surveyors and Loss Assessors. In short, this arrangement offers to the

IRDA a unique opportunity of encouraging the system to function in a socially desirable

way.

With the introduction of professionals such as appointed actuaries, qualified and

trained intermediaries, quality loss adjusters, third-party service providers and a high

barrier ensuring the entry only of strong insurers, the IRDA with some pro-activity could

drive the market development in the right direction. In about five years time, it should be

withdrawing from pricing and product approval mode to solvency and rating monitoring.

As part of the developmental effort, the insurer is under obligation to write a

given percentage of insurance for the rural as well as social sectors in the first five years

of operation. In respect of life insurance companies, the obligation for rural sector

increases from 5 per cent in the first year to 15 per cent in the fifth year, in terms of total

policies written in that year. For non-life, it goes up from 2 per cent in the first financial

year to 5 per cent after the second year.

120

For the social sector, the obligation is in terms of lives covered from 5,000 lives

in the first year, to 20,000 lives in j the fifth year.

The obligations of the existing insurers are to be fixed in consultation with them;

but cannot be less than what they have recorded for the financial year ending on March

31, 2000.

The social sector includes the unorganized sector, the informal sector, economically

vulnerable or backward classes and other categories of persons, both in rural and urban

areas. All these categories have also been defined. As business develops, it may be

necessary to issue some clarifications as to how to reach these target groups. This is espe-

cially so when the insurance companies are expected to invest a given percentage in these

sectors, because there are hardly any instruments available for investment in this market.

3.6 Summary

1. Number of Life insurance and Non-life insurance companies: The number

of life insurance companies have gone up from only one company i.e., LIC of India in

1999 to drastically go up to five companies soon after setting up of IRDA in 2000-01 and

to 12 in 2001-02. From then onwards it stabilized and moved up to 22 companies in

2008-09 and slowed down to a final tally of 24 till date. The number of non-life

insurance companies has gone up from four public sector companies in 1999 to

drastically go up to ten companies soon after setting up of IRDA in 2000-01 and to 20 in

2007-08. From then onwards it stabilized and moved up to 24 companies in 2009-10 and

stabilized at to a final tally of 27 till date.

2. Solvency Ratios: The solvency ratios of all life insurers and non life insurers

are more than one indicating that the available solvency margin in more than the required

solvency margin. It underlines the capability of insurance companies to meet their

obligations with minimum time and effort. It can also be observed that in life insurance

segment the solvency margin of LIC of India is consistent in the range between 1.3 to

1.54 indicating that their business is now six decades of experience in Indian insurance

121

conditions and therefore, there is consistency in their maintenance of solvency ratio.

Whereas for other private life insurers, they have started their operations with a higher

solvency ratio as they invest into the business and as they started selling more and more

life insurance policies, their obligations increased and the solvency ratios started

declining but as things stand now, all the life as well as non life insurance firms in India

do have a healthy solvency ratios.

3. Obligations to Social and Rural Sector: This study reveals that the Micro-

Insurance portfolio has made steady progress during the year 2011-12 to 2012-13. More

life insurers have rigorously pursued their Micro-Insurance operations and many new

products have been launched during the year. The distribution infrastructure has also

been considerably strengthened and the new business has shown a decent growth, though

the volumes are still small.

A further analysis of the statistics reveals that LIC of India has covered more than

1.3 crore lives which are more than 15 times the lives covered by all the private life

insurers( 7.5 lakh lives) put together. This is an indication of the fact that LIC of India

has its branches throughout the length and the breadth of the country whereas private life

insurers are operating only in urban and semi urban localities and their micro insurance

business is only a compliance to IRDA regulations than the real urge to serve the rural

and urban poor for inclusive growth.

4. Individual agents/advisors and Corporate Agents: This study reveals that

the number of agents in LIC of India increased from 8.9 lakh in 2006-07 to 15.93 lakh in

2008-09 and decreased to 10.82 lakh in 2011-12 and thereafter slightly increased to 11.72

lakh in 2012-13. Correspondingly, in private life insurance segment, the number of

agents recruited was phenomenal in 2006-07 at 11.03 lakh and increased year on year to

14.03 lakh in 2009-10 and then slipped drastically to 9.49 lakh in 2012-13. This is an

indication of the fact that there is no stability of tenure of insurance agents/advisors in

private life insurance. This is a serious issue since insurance agents/advisors form a vital

link between the firm and the policy holders to enhance customer relationship and sustain

122

it till the claim settlement. LIC of India definitely has an edge in this crucial aspect of life

insurance business.

The study also indicates that LIC of India traditionally relied more on individual

agents since its inception than on corporate agents. Whereas the private life insurers

banked heavily on corporate agents and hence there were 2420 corporate agents by the

year 2009-10. But it can be seen that there is a sort of collapse thereafter to reach a paltry

532 corporate agents by 2012-13. Private life insurers lost their way in the midst of global

financial crisis and what was their key result area of sales through corporate agents was

dented beyond repair and now it would take Herculean task to make a turnaround.

5. Growth in Premium income of Life and Non- life insurance segment: It

can be seen that the first year premium which is reflection of new business underwritten

each year shows that both LIC of India and private life insurers are making steady

progress though LIC is showing a better performance only to stabilize during 2009-10

and slight decline thereafter. It shows that the first year premium which includes single

premium and regular premium is a measure of trustworthiness of life insurers, LIC of

India, scores over private life insurers for obvious reason that it is a public sector major

and Indian insurance investors pose more confidence than on private life insurers.

The renewal premium is a measure of consistency with which the policy holders

make payments towards their premium obligations and the persistence efforts of

insurance agents/advisors. In this count also, LIC of India has far better record than their

private counterparts. The total premium underwritten by life insurers has increased

steadily for both LIC of India and private life insurers. But the premium underwritten by

LIC of India shows much higher trajectory than private life insurers.

As for as gross direct premium income for non-life insurance segment is

concerned the performance of both public and private sector companies are more or less

similar in the sense that the premium collected by the public sector has gone up form

13,500 crore in 2002-03 to 35022 crore in 2012-13, where as the private sector in the

123

same period has gone up from 1350 crores to 27950 crores. This show that line between

public and private companies is getting thinner by the year and sooner or later the private

sector is poised to match the public sector performance

6. Growth in Number of Policies issued in Life and non-life segment: It can

inferred from the analysis of this study that growth in Policy issued by LIC of India has

registered a consistent growth from 2003-04 from 2.7 crores policies to 3.76 crores

polices in 2007-08, then slow down a little up to 2011-12 at 3.57 cores policies. But the

recovery can be seen in the past year with a slight increase to 3.678 cores policies issued.

On the contrary new policies issued by private life insurers show a steep increase from

2003-04 with 16.58 lakhs policies to 1.5 crores policies in 2008-09 then decline slightly

to 1.43 corers polices and drastically slipped down to 74.05 lakhs policies which is less

than half of what they sold during 2008-09 which is best performance till date.

This is an indication of the fact that the Indian insurance investor’s trust and

confidence with private life insurers has eroded considerably and unless the private life

insurers come out with strong resilient strategies to penetrate deeper in to targeting all

segments, it would be difficult for them to arrest this kind of slide.

The number of policies issued in non-life segment for both private sector and

public sector after the initial inconsistency till 2005-06, has stream lined there after and

stabilized to register a constant growth till 2012-13.

7. Grievances, policy lapsations and death claim records: The study shows

that the status of Grievances pending has shown a declining trend for LIC and increasing

trend for Private life insurers from 2007-08 till 2002-13. This shows that LIC of India for

more serious in resolving the grievances compare to private life insurers.

An analysis of policies lapsed ratio shows that there is rampant mass-selling of

Life insurance policies by private life insurers as it can be seen from the above table that

almost all private life insurers have a high lapse ratio, some times as high as 60 per cent

124

where as LIC’s lapse ratio in all these years is less than 6 per cent. This is point of

serious introspection for the regulator, IRDA and private life insurance companies.

As for as death claim settlement is concerned, LIC’s track record is blemishless

and unparalleled and shows that their record is a nearest to 100 percent for all these years.

Where as the private life insurers’ record is poor and inconsistent, as their claim

settlement has dropped to 87 per cent in last year.

From the above observation, it is noted that the regulation has positive impact on

growth of insurance sector in India.

125

Appendix : Regulation Framed Under the IRDA Act, 1999

(IRDA Annual Reports for the years 2000-01 to 2012-13)

Sl. No.

Date Notification

1 22-01-2014 IRDA (Licensing of Insurance Agents) (Amendment) Regulations, 2013

2 22-01-2014 IRDA (Registration of Indian Insurance Companies) (Fifth Amendment) Regulation, 2013

3 22-01-2014 IRDA (Licensing, Professional Requirements and Code of Conduct) (Second Amendment), 2013

4 22-01-2014 IRDA (Third Party Administrators-Health Services) (Second Amendment) Regulation, 2013

5 10-01-2014 IRDA( Insurance Brokers) Regulations, 2013 6 10-01-2014 IRDA(Web Aggregators) Regulations, 2013 7 08-08-2013 IRDA (Licensing of Banks as Insurance Brokers) Regulations,

2013 8 30-04-2013 IRDA (Insurance Brokers) (Second Amendment) Regulations,

2013 9 30-04-2013 IRDA (Scheme of Amalgamation and Transfer of Life Insurance

Business) Regulation, 2013 10 30-04-2013 IRDA (Places of Business) Regulations, 2013 11 30-04-2013 IRDA (Life Insurance-Reinsurance) Regulations, 2013 12 26-04-2013 Insurance Surveyors and Loss Assessors (licensing professional

requirements) Regulation, 2013 13 15-04-2013 IRDA (Health Insurance) Regulations, 2013 14 15-04-2013 IRDA (Linked Insurance Products) Regulations, 2013 15 15-04-2013 IRDA (Non-Linked Insurance Products) Regulations, 2013 16 15-04-2013 IRDA (Issuance of Capital by General Insurance Companies)

Regulations, 2013 17 15-04-2013 IRDA (Standard Proposal Form for Life Insurance) Regulations,

2013 18 15-04-2013 IRDA (Third Party Administrators-Health Services) (First

Amendment) Regulation, 2013 19 26-03-2013 Insurance Regulatory and Development Authority (Appointed

Actuary) (First Amendment), 2013 20 26-03-2013 Insurance Regulatory and Development Authority (General

Insurance – Reinsurance), Regulation, 2013 21 26-03-2013 Insurance Regulatory and Development Authority (Registration of

Indian Insurance) (Amendment) Regulation, 2013 22 26-03-2013 Insurance Regulatory and Development Authority (Sharing of

Confidential Information), 2013 23 18-03-2013 Insurance Regulatory and Development Authority (Health

Insurance) Regulation, 2013 24 18-03-2013 IRDA(Standard Proposal Form for Life Insurance ) Regulations, 2013

126

25 07-03-2013 Insurance Regulatory and Development Authority (Investment) (Fifth Amendment), 2013

24 12-11-2012 IRDA (Registration of Indian Insurance Companies) (Third Amendment) Regulation, 2012

25 01-12-2011 IRDA(Issuance of Capital by Life Insurance Companies)Regulations, 2011

26 23-11-2011 Exposure Draft on IRDA (Licensing of Bancassurance Agents) Regulations, 2011

27 08-06-2011 IRDA(Scheme for Amalgamation and Transfer of General Insurance Business) Regulation, 2011

28 12-07-2010 IRDA (Sharing of Database for Distribution of Insurance Products) Regulation, 2010

29 12-07-2010 IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010

30 12-07-2010 IRDA (Licensing of Corporate Agents) (Amendment) Regulations, 2010

31 12-07-2010 IRDA (Insurance Advertisements and Disclosure) (Amendment) Regulations, 2010

32 22-08-2008 IRDA (Investment) (Fourth Amendment) Regulations, 2008 33 18-02-2008 IRDA (Registration of Indian Ins.Cos.)(Second Amendment)

Regulation, 2008 34 11-02-2008 IRDA(Obligations of insurer's to Rural or Social Sector) (Fourth

Amendment), 2008 35 11-02-2008 IRDA(Obligations of insurer's to Rural or Social Sector) (Third

Amendment) 2008 36 02-01-2008 IRDA ( Insurance Brokers) (Amendment ) Regulations' 2007 37 26-12-2005 IRDA (Obligations of Insurers to Rural or Social Sectors)

Regulations, 2005 .38 24-11-2005 IRDA ( Micro-Insurance ) Regulations' 2005 39 10-11-2005 IRDA (Conditions of Service of Officers and Other Employees)

(Amendment) Regulation, 2005 40 06-06-2005 Insurance Advisory Committee (Amendment), 2005 41 18-08-2004 Comments on Concept Paper on Micro-insurance 42 30-07-2004 IRDA (Obligations of Insurers to Rural and Social Sectors)

(Amendment) Regulation, 2004 43 01-03-2004 IRDA(Qualification of Actuary)'2004 44 01-01-2004 IRDA(Investment)Amendment Regulations, 2004 45 26-02-2003 IRDA(Registration of Indian Insurance Companies ) (Amendment)

Regulation, 2003 46 13-12-2002 IRDA (Distribution of Surplus) Regulations, 2002 47 16-10-2002 IRDA (Obligations of Insurers to Rural Social Sectors)

Regulations, 2002 48 16-10-2002 IRDA (Licensing of Corporate Agents) Regulations 2002 49 16-10-2002 IRDA(Licensing of Insurance Agents) (Amendment) Reg'2002 50 16-10-2002 IRDA (Protection of Policyholders Interests) (Amendment) Regulations,

2002

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51 16-10-2002 IRDA (Manner of Receipt of Premium) Regulations, 2002 52 16-10-2002 IRDA(Insurance Brokers) Regulation, 2002 53 26-04-2002 IRDA (Protection of Policyholders' Interest) Regulations, 2002 54 30-03-2002 IRDA (Investment) (Amendment) Regulations, 2002 55 08-01-2002 IRDA(Re-insurance Advisory Committee) Regulation, 2001 56 17-07-2001 IRDA (Third Party Administrators - Health Services) Regulations,

2001 57 31-05-2001 IRDA (Investment) (Amendment) Regulations, 2001 58 22-12-2000 IRDA (Life Insurance - Reinsurance) Regulations, 2000 59 20-11-2000 Insurance Surveyors and Loss Assessors (Licensing, Professional

Requirement) Regulation, 2000 60 29-08-2000 (Conditions of Service of Officers and Other Employees)

Regulations, 2000 61 14-08-2000 IRDA (Investment) Regulations, 2000 62 18-07-2000 IRDA(Preparation of Financial Statements & Auditor’s report of

Insurance Companies )Regulation, 2000 63 14-07-2000 IRDA( Obligations of Insurers to Social sector) Regulations, 2000 64 14-07-2000 The Insurance Advisory Committee (Meetings) Regulations, 2000 65 14-07-2000 IRDA (Appointed Actuary) Regulations, 2000 66 14-07-2000 IRDA (Actuarial Report and Abstract) Regulations, 2000 67 14-07-2000 IRDA (Licensing of Insurance Agents) Regulations, 2000 68 14-07-2000 IRDA(Assets, Liabilities and Solvency Margins of

Insurers)Regulations,2000 69 14-07-2000 (General Insurance -- Reinsurance) Regulations, 2000 70 14-07-2000 IRDA (Registration of Indian Insurance Companies) Regulations

2000 71 14-07-2000 IRDA (Insurance Advertisements and Disclosure) Regulations,

2000 72 14-07-2000 IRDA (Meetings) Regulations, 2000 73 14-06-2000 Insurance Advisory Committee (Amendments), 2000

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