Insurance Industry

SATYENDRA VEER SINGH

 Insurance
2

We face a lot of risks in our daily lives. Some of these

lead to financial losses. Insurance is a way of
protecting against these financial losses. For a
payment (premium), an insurance company will take
the responsibility of compensating your financial
losses
 Insurance Sector

INTRODUCTION AND
OVERVIEW
 Insurance Introduction
4

What is “insurance”?
Why do we need it?
How has the insurance industry
and the law of insurance evolved?
 What is “Insurance”?
5

 Commercial mechanism for transferring risk and

spreading loss

 Economic Concept of Insurance:

1. Insurer offers policy to cover specified risks
2. Insurer collects policy premiums from
customers
3. Insurer invests premiums
4. Insurer pays money to insured customers in
the event of losses covered by policy.
 What is “Insurance”
6

Theoretically, everybody comes out ahead (so long as

losses do not exceed returns of invested premiums;
and all parties honor their contractual obligations).

Theoretically, the insurance industry bridges private

interests and public good.
Why do we need insurance?
7
Why do we need insurance?
8
 Insurance Law
9

Sources of Insurance Obligations

 Policy/Insurance Agreement
 Common Law (contract theories; tort theories)
 Statutes
 Regulations

The law of insurance is multi-layered. The prudent

researcher will consider each of the layers when
approaching a research problem.
 The History of Insurance
10

HISTORICAL CONTEXT PROVIDES INSIGHT AND

PERSPECTIVE INTO TODAY’S INSURANCE INDUSTRY
 The History of Insurance
11

3000 B.C.E. Mesopotamian merchants assess “risk

surcharges” in transactions with caravan operators
and traders to protect their capital.

 1750 B.C.E. Code of Hammurabi formalizes

concepts of “bottomry” and “respondentia”
(protection against loss of hull and cargo,
respectively) – the underpinnings of maritime
insurance.
 History of Insurance
12

1574 Queen Elizabeth I grants to Richard Candler

the right to establish an insurance office in the Royal
Exchange Building for the preparation and
registration of policies.

1601 Britain’s Parliament enacts the Assurances Act

of 1601 creating an assurance commission for
resolving policy disputes. 43 Eliz. 1 c. 12.
 History of Insurance
13

1666 Great Fire of London. Shortly thereafter,

Nicholas Brabon opens the first fire insurance office
in England. It eventually becomes The Phoenix
Assurance Company. Over the next two decades,
more fire insurance companies start up.
History of Insurance

1690s Fire
insurance
companies form
the first
professional fire
brigades.

14
 Lloyd’s of London

Late 1600s
Edward Lloyd’s
Coffee House.
Seafarers,
merchants and
insurers meet for
insurance business
and coffee.
Lloyd’s of London

1688 Edward Lloyd

starts a shipping
newspaper and reads
out shipping news
from a pulpit in his
coffee house; attracts
even more shipowners
and insurers

16
 History of Insurance

1751 Benjamin
Franklin and other
capitalists start the
Philadelphia
Contributorship,
the first successful
fire insurance
company in
America.
 History of Insurance
18

Mid-18th Century Many insurance companies are

more likely than banks to have substantial cash
reserves. Insurance companies function as lending
institutions.

Mid-18th Century Insurance underwriting is

prosperous industry in America. Lloyd’s of
London also draws a significant share of Colonial
America’s underwriting business (capitalization).
 Rise of Risk Management

1906 S.F.
Earthquake

Lloyd’s underwriter,
Cuthbert Heath,
orders agents to
“pay all claims in
full regardless of
policy terms”.
Lloyd’s pays $50
Million in claims.
Rise of Risk Management

Public confidence in
insurance industry
soars; industry booms;
risk management
innovations; new types
of insurance emerge.

20
 Lloyd’s of London

Today, Lloyd’s of
London is an
insurance icon

Not an insurance
company, but an
exclusive insurance
market
Changing Customer Expectations
in Insurance Sector
22

PRE TO POST LIBERALIZATION

 Comparisons of factors influencing Insurance market
23
Pre Liberalisation Post Liberalisation
Motivating Factor(s) for Considering Insurance
• Security 43% • Security 50%
• Savings 14% • Savings* 34%
• Tax Rebate 43% • Tax Rebate 16%
* children’s education, daughter’s marriage, retirement plan
Sources of Information on Insurance & Product Awareness
• Friends, Colleagues, Relatives and Agent • Additionally from direct mailers, consumer
meets, internet & media (mass media & outdoor)
• Low awareness of several insurance products • Rising level of awareness of new products of both LIC and
due to poor communication in spite of availability private companies

Choice of First Policy

• Money Back 60% • Money Back 42%
• Endowment 40% • Endowment 48%
• Whole Life 0% • Whole Life 10%
This change in product-mix reflects maturing of the insurance
customer
 Pre Purchase Process : LIFE
24

Pre Liberalisation Post Liberalisation

Approach of the Agent and Consumer’s Experience
• Approach of Agent - informal and through • Approach - more professional, sometimes
referral aggressive (in one or two private company
• Long term family type of relationship agents)
• Often selling insurance as commodity • Proactive in contacting prospects directly,
• Average communication skills often has to start from selling concept of
insurance rather than product
• Conducts financial health check up and then
offers suitable products / solutions
• Better communicator & presenter
• Handles larger number of queries

Awareness & Consideration of Private Players

Private Companies Overall SECA SEC B SEC C
Awareness 73% 93% 83% 50%
Consideration 35% 65% 30% 10%
• SEC B & C prospect not influenced much by direct contact of agent and generally takes decision only after consulting
informed family member or friend.
 Awareness of New Products- LIFE
25

 Though most SEC A & some SEC B customers have generally heard of change in
product offering after liberalization but unable to provide any details.
 Only some customers have mentioned new products such as
 Products with multiple riders-medical, accident, waiver of premium rider

 Pension/retirement benefit plans

 Flexi premium plans – product with single premium and short time premium option

 Some customers exposed to new products perceive new products similar to old ones
and do not offer any additional advantage.
“ New policies are like old wine in new bottle”
 Purchase Process : LIFE
26

Pre Liberalisation Post Liberalisation

Discount Offering Practices
• No. of customers getting discount : 50% • Customers getting discount : 33% (highest in Delhi)
• Rate of discount : More or less same
• Rate of discount : 25%-50% of first year premium

Policy Delivery
• Mode • Mode
- Registered post for LIC, hand delivered by - Registered post for LIC
agent in 23% cases - Courier for private companies
• In both cases, policy comes in attractive,
protective plastic jacket
• Time taken • Time taken LIC Private Co
Up to 1 week 0% Up to 1 week 5% 85%
One month 65% Up to one month 77% 15%
> 1 month 35% > 1 month 18% 0%
 Post Purchase Process : LIFE
27

Pre Liberalisation Post Liberalisation

Correspondence (other than premium notice) from Company / Agent
• Generally no correspondence from either • Mailers from both private companies & LIC on
company or agent except for late premium products & services, greeting cards on birthdays,
payment reminder from company anniversary and new year
• Agent maintained informal contact with close • Phone calls from private company call centres
customers • Agent in regular contact for offering new
products
Delay in Premium Payment
• Incidence of delay high 30% • Incidence of delay low 15%
(due to irregular receipt of premium notice from (more regular receipt of premium notice from
company / reminder from agent) company / reminder from agent)
 Changing Customer Expectations - LIFE
28

Role of IRDA
 Educate public on regulatory safeguards, investment guidelines and plough back of profits
(several people had expressed concern about security of their money, credibility of private
insurance company’s investment of funds in foreign markets and repatriation of profits to foreign
countries)
 Inform public on Social and Rural obligations of private players (several people believed that only
LIC was responsible for insuring the poor)
 Changing Trends in Savings Pattern
29

Pre Liberalisation Post Liberalisation

Saving Instruments % of Respondents Saving Instruments % of Respondents
Insurance 23 Insurance 33
Bank Deposit 28 Bank Deposit 44
PPF 19 PPF 8
NSC 12 NSC 0
Shares 7 Shares 3
Post office 7 Post office 3
Bonds 0 Bonds 9
Gold 4_ Gold 0_
TOTAL 100 TOTAL 100

* When the respondents were asked where they would invest their extra
income, if any, the top responses were recorded as above
 Other Non-life Policies (Health, Property, Accident)
30

 Awareness of Tata AIG, ICICI Lombard, Cholamandalam, Bajaj Allianz and Royal
Sundaram among private companies
 No respondent interviewed had taken insurance from any private company
 Respondents did not feel the need to take a separate accident insurance policy, as
most of them perceived it to be covered under life insurance
 Companies regular in sending notice for renewal of policy (pre and post
liberalisation)
 Instances of paying premium by credit card observed (post liberalisation)
 Customers satisfied with both company and agent (pre and post liberalisation)
 Claim Settlement Process – NON-LIFE
31

Vehicle Insurance
Accident Claim
 Surveyor comes unannounced and after several days, customer unable to meet him and
explain his case face to face
 Company approves claim for amount much less than repair estimate submitted
 Agent often does not take responsibility to facilitate process of claim settlement
 Owner has to pay repair bill and only then claim payment from company
 Claim settlement takes from 1 to 3 months
Theft or Total Loss
 Claim settlement process lengthy and cumbersome – FIR, RC, road tax and other
documents to be submitted.
 In theft cases, company awaits non-recovery closure of case by police before settling
claim. For this reason claim settlement takes months. General perception is that amount
paid is lower than market value
 Claim Settlement Process – NON-LIFE
32

Health Insurance (only one case encountered)

 Hospital bill has to be paid by insured and this causes heavy financial burden
 Claim process involves much paper work - first customer has to send request
to company for sending claim form, then he puts together all bills in original,
doctor’s medical prescriptions and hospital discharge certificate giving history of
illness and treatment and sends these documents along with claim form
 Several queries from company on pre-existence of disease, settlement process
cumbersome and time consuming

No claim settlement encountered in Property and Accident Insurance

Changing Customer Expectations – NON-LIFE
33

Motor Vehicle Insurance

 Renewal notice should be received regularly from company/agent
 Collection centres should be set up for depositing renewal cheque
 Premium payment at petrol pumps
 Accident/Total Loss claims should be settled for full estimated value
 Claim should be settled in 30 days
 Inclusion / Exclusion clauses should be explained at the time of issuing
policy to avoid problems at time of claim settlement

Health Insurance
 Non hospitalisation cases should also be entitled for claim settlement
 Pre-existing diseases should be detected through rigorous medical check-up at policy
issue stage, company should not reject claim for this reason later
 Direct payment by company to hospital through TPA arrangement
 Issue Medi-Card so that patient can be admitted in hospital without having
to deposit heavy admission fee
 Non Policy Holders (Life)
34

Reasons for not taking Insurance

 Low liquidity in insurance
 Low returns in insurance compared to other investments
 No assured regular source of income of respondent
 Lack of knowledge about insurance process & how it works

Future intention & inclination towards taking Insurance

 Among non-policy holders, SEC A generally not interested in insurance,
prefer other Investments for better returns (bank deposits)
 SEC B & C undecided as yet, may consider insurance in future for family
security reasons, only from LIC ( likely to be money back)
 General Insurance
35

Insurance other than ‘Life Insurance’ falls under the

category of General Insurance. General Insurance
comprises of insurance of property against fire,
burglary etc
 General Insurance
36

The non-life insurance sector is on an upswing! The

non-life insurance industry in India has grown by
over 16 % p.a. over the last 5 years. There is a vast
business potential that lies untapped, as more and
more cities enter the development phase….
 Conduct
37

INDIAN INSURANCE INDUSTRY

MAJOR PLAYERS OF GENERAL INSURANCE

MARKET
 Big Companies of General Insurance
38

Bajaj Allianz
ICICI Lombard
Tata Aig
National insurance
New India Assurance
Oriental insurance
 Bajaj Allianz
39

 Bajaj Allianz General Insurance Company Limited is a

joint venture between Bajaj Auto Limited and Allianz SE.
Both enjoy a reputation of expertise, stability and strength

Bajaj Allianz today has a network presence in over 200 towns spread
across the length and breadth of the country. From Surat to Siliguri
and Jammu to Thiruvananthapuram, all the offices are
interconnected with the Head Office at Pune.
 Bajaj Allianz
40

Dealing in these sectors:-

1. Travel Insurance
2. Health Insurance
3. Corporate Insurance
4. Motor Insurance
 ICICI - Lombard
41

 ICICI Lombard General Insurance Company Limited is a

74:26 joint venture between ICICI Bank Limited and the
Canada based $ 26 billion Fairfax Financial Holdings
Limited. ICICI Bank is India's second largest bank

 Lombard Canada Ltd, a group company of Fairfax Financial

Holdings Limited, is one of Canada's oldest property and
casualty insurers. ICICI Lombard General Insurance
Company received regulatory approvals to commence
general insurance business in August 2001.
 ICICI - Lombard
42

Dealing in three sector:-

1. Health Insurance
2. Motor Insurance
3. Home Insurance
 Health insurance
43

A health insurance policy will provide a cover to you

and your family against sudden medical contingency
or bodily injury.
 Motor Insurance
44

 Motor insurance protects you and your vehicle against

every comprehensible risk related to your vehicle – theft or
damage to it, death of the driver and passengers in an
accident, and damage caused by your vehicle to another
person or property.
 Home insurance
45

It is imperative that you secure your home from

natural and man-made catastrophes.

The maximum coverage is up to Rs. 1,00,000 for

up to 6 months. The cover is available only if you
are insuring the structure of your home.
 TATA-AIG
46

Tata AIG General Insurance Company Ltd. is a joint

venture company, between Tata Sons  and American
International Group

Tata AIG General Insurance Company, which started

its operations in India on January 22, 2001 offers the
complete range of general insurance for automobile,
home, personal accident, travel, energy, marine,
property and casualty, as well as several specialized
financial lines.
 TATA - AIG
47

Dealing in three sector:-

1. Individual
2. Small business
3. Corporate
 Individual
48

“Every stage of life, you are open to immense risk and

immense opportunity and Tata AIG has the ideal
bouquet of insurance products for each of those risks
and opportunities.”
 Small business
49

Tata AIG offers a comprehensive risk solution

through various Multiline Package Policies:-
Society Policy
Office Policy
Manufacturing Unit – Package Policy
 Corporate
50

"From blue chips to local marketers,

whatever the size of your business, Tata AIG
has the insurance you are looking for.”

Accident & Health

Travel
Energy
Property
Marine
 National Insurance Company Limited
51

National Insurance Company Limited was

incorporated in 1906 with its Registered office
in Kolkata. Consequent to passing of the General
Insurance Business Nationalisation Act in 1972, 21
Foreign and 11 Indian Companies were
amalgamated with it and National became a
subsidiary of General Insurance Corporation of
India (GIC) which is fully owned by the
Government of India
 National Insurance Company Limited
52

It deals in these policies:-

1. Personal line Insurance

2. Rural Line Insurance
3. Industrial Line Insurance
4. Commercial Line Insurance
 Performance
53

CONTRIBUTION OF LIFE
INSURANCE SECTOR IN THE
INDIAN ECONOMY
STRUCTURE OF INSURANCE INDUSTRY
54

Historical Perspective

(i) Prior to 1956 242 companies operating

(ii) 1956 – 2001 Nationalisation – LIC
Monopoly player
Government control
(iii) 2001 -- Opened up sector
 Present Structure of Insurance Industry
55

• (i) (a) LIC – Fully owned by Government

(b) Postal Life Insurance
 Present Structure of Insurance Industry
(contd...)
56

• (ii) Private players -

1. Bajaj Allianz Life Insurance Co. Ltd.
2. Birla Sun Life Insurance Co. Ltd. (BSLI)
3. HDFC Standard Life Insurance Co. Ltd. (HDFC STD
LIFE)
4. ICICI Prudential Life Insurance Co. Ltd. (ICICI
PRU)
5. ING Vysya Life Insurance Co. Ltd. (ING VYSYA)
6. Max New York Life Insurance Co. Ltd. (MNYL)
 Private players –(contd…)
57

7. MetLife India Insurance Co. Pvt. Ltd. (METLIFE)

8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd.
9. SBI Life Insurance Co. Ltd. (SBI LIFE)
10. TATA AIG Life Insurance Co. Ltd. (TATA AIG)
11. AMP Sanmar Assurance Co. Ltd. (AMP SANMAR)
12. Aviva Life Insurance Co. Pvt. Ltd. (AVIVA)
13. Sahara India Life Insurance Co. Ltd. (SAHARA LIFE)
14. Shriram Sunlam
Present Structure of Insurance Industry
(contd...)
58

(iii) Other likely players –

1. PNB Life Insurance
2. Reliance Life Insurance
3. Axa Bharti Enterprises
 CONTRIBUTION TO INDIAN ECONOMY
59

Life Insurance is the only sector which garners long

term savings
Spread of financial services in rural areas and
amongst socially less privileged
Long term funds for infrastructure
Strong positive correlation between development of
capital markets and insurance /pension sector
Employment generation
 Aggregation of Long Term Savings
60

(i) Total Assets of Life Insurance Companies

 2002 – 2003 2,80,450 cr
 2003 – 2004 3,52,608 cr
 2004 – 2005 4,23,000 cr

(ii) Total Premium generated

 2002 – 2003 57,708 cr
 2003 – 2004 66,278 cr
 2004 – 2005 79,000 cr
 2005 – 2006 94,000 cr
 2006 – 2007 1,12,000 cr
 2007 – 2008 1,33,000 cr
 Aggregation of Long Term Savings
61

(iii) Industry is growing @ 19 p.a.

(iv) Life Insurance funds account for 15% of household

savings.

(v) The industry has the potential to increase the share

to 20%.
Spread of financial services in rural areas
and amongst socially
62
underprivileged

• IRDA Regulations provide certain minimum

business to be done
(i) in rural areas
(ii) in the socially weaker sections
• Life Insurance offices are spread over nearly 1400
centres.
• Presence of representative in every tehsil – deeper
penetration in rural areas.
 Spread of financial services in rural areas
and amongst socially underprivileged
63

• Insurance agents numbering over 6.24 lakhs in rural

areas.
• Policies sold in rural areas (2004-05) –
No. of policies - 55 lakhs
Sum assured - 46,000 crores
• Social security - No. of lives covered
2003-04 17.4 lakhs
2004-05 42.1 lakhs
 Long term funds for infrastructure
64

• For GDP to grow at 8 to 10%, qualitative

improvement in infrastructure is essential.
• Estimates of funds required for development of
infrastructure vary widely.
• An investment of 6,19,600 crore is anticipated in the
next 5 years (Source : SSKI India)
• Tenure of funding required for infrastructure
normally ranges from 10 to 20 years.
• Major portion of these funds are routed through
debt/private equity participation.
Long term funds for infrastructure(contd...)
65

• Part funding through Central Government/State

Government budgetary allocations. Insurance
companies invest in Central/State Government
approved securities which ultimately also used for
infrastructure projects.
• As per IRDA norms, the pattern of investment of life
insurance companies’ funds are
(i) In Central Government, State Government and
other approved securities – not less than 50%
(ii) Infrastructure – 15%
Long term funds for infrastructure(contd...)
66

• Investment in the infrastructure projects is a natural

fit for life insurance companies who have long
duration funds. Average Term of Life Policies is 23
years.
• Has investments of over Rs.40,000 cr in
infrastructure.
• It is expected life insurance sector be able to generate
approximately Rs.15,000 cr for infrastructure
investment in 2006-2007 with amount increasing
every year.
Development of Capital Markets/Economic Growth
67

•Industry also contributes in economic development

through investments in capital market. Present level
of investments is over Rs. 40,000 crore. (Mark to
Market basis around 80,000 crores).
•Annual Investment of around 9000 crores in capital
markets.
•Contribution to Five Year Plans
9th Plan 2,30,900 crores
Last Two Years 1,70,900 crores
•
Development of Capital Markets/Economic Growth
68

Helps inculcate a sense of security by protecting

earning of people in case of untimely death.
Benefits to Policy Holders
2002 – 2003 20,800 cr
2003 – 2004 24,200 cr
2004 – 2005 28,700 cr
 EMPLOYMENT GENERATION
69

• Life insurance industry provides increased

employment opportunities.
• Employees in insurance sector as on 31st March,
2005 is around 2 lakhs.
• Many agents depend on insurance for their livelihood
– No. of agents on 31st March 2004 – 15.59 lakhs
•Brokers, corporate agents, training establishments
provide extra employment opportunities.
• Many of these openings are in rural sectors
 SPECIAL FEATURES
70

Capital Intensive Industry

2002 – 03 2003 – 04
(i) Total Income 1631 cr 4053 cr

(ii) Capital employed 2219 cr 3239 cr

(Data excludes LIC)

 GROWTH POTENTIAL
71

At present insurance penetration in India is quite

low – 2.26% of GDP.

In Korea the penetration stands at 6.77%,

In Singapore – 6.38%.

 PHASE OF TRANSITION
72

• Life Insurance industry is under the phase of infancy

after 50 years of monopoly

• Competition from within and other sectors of

financial market

• Needs environmental support till it reaches a comfort

zone
Indian Insurance Sector
73

FICCI CONFERENCE

“INDIAN INSURANCE INDUSTRY:

NEW AVENUES FOR GROWTH”

NEW DELHI, 19 OCTOBER 2004

 INDIA INSURANCE INDUSTRY STATUS
India Has Come A Long Way74In The Last Four Years

Life Non-Life
2000 2004 2004 2000
Number of players 1 14 14(1) 4

CAGR: 23% CAGR: 16%

Premium income 27.5 63 17 9.4
(Rs '000 Cr)

Insurance premium ~1.2% 2.3% 0.62% ~0.4%

as % of GDP

Insurance premium ~280 590 160 ~100

per capita (Rs)

Several new products and channels

) Includes 4 nationalised companies
urce: IRDA, Swiss Re
 INDIA'S COMPARATIVE ECONOMIC POSITION IS IMPROVING
Relative to Developed and Developing Economies
75
Twelfth largest economy in the world (2002) High, steady growth among different economies
Real GDP (USD Bn) GDP CAGR from 1993 to 2002

% GDP growth
USA 10290
Japan 1313
4280 11 India's Average GDP
Germ a 2390 109
growth (93-02)
France 1640 7

UK 1510 55
3
Italy 1300
0-11
China 1290
Brazil 940 -3
-5-5
Canad 770 Max
Spain 670
-7
Average
-10-9
Min
Korea 590 -11
-13
India 570 -13

Mexic 500 India China S HK Mexico UK USA

Russia 480 (83-02) Korea
Taiw a 370 India Taiwan Thailand Malaysia Brazil Japan
Poland 180 (93-02)

Stable BoP position (2002) Stable and low inflation rates

Current account surplus as a % of GDP Average inflation rate from 1999-2002

12.5%
8.3
6.3 10.0%
4.7 5.4
6.7% 6.3%
1.9
0.3 0.7 3.8%

0.5% 0.3% -0.2% 0.0%

-3.4
-4.4 Indonesia Brazil India Korea Thailand
India '94 Brazil China Thailand Malaysia

India '02 Mexico Indonesia Philippines Russia Poland Taiwan China

Note: Real GDP estimates

Source: EIU, World Bank, Analyst reports, Literature review
 ... INSURANCE IS POISED FOR GROWTH
76

Example: Life insurance penetration increases with affluence

Insurance premium Three avenues for growth
as % GDP
12 Threshold for
insurance pick-up 1 Addition of new
customers
10

8
2 Existing customers
6 buy more

4
INDIA
2 3 Extension to new
geographies
0
1000 1,000
1 10,000
2 100,000
3
GDP per capita in USD (log scale)
(1) PPP adjusted GDP per capita higher by a factor of ~5-6; lower income categories not shown
Source: Swiss Re; NCAER
 OVERALL HOWEVER INSURANCE STILL UNDER
PENETRATED
77 ...
... with some product
... But still remains # 19 in insurance terms... categories nascent

Premium income ($ Bn) • Pension scheme

1 USA 1055
• Annuity scheme
Japan 479
UK 247 • Health insurance
Germany 171
France 164 • Disability and critical illness
Italy 112 insurance
S Korea 60
• Professional liability
Canada 59
Netherlands 50
• Crop insurance
Spain 47

11 China 47 • Income protection

...

19 India 17 • Credit insurance

 AS A FULLER PRODUCT LIST COME ON OFFER LATENT
DEMAND WILL78GET RELEASED

Pre 2000 Today Tomorrow

Endowment and money back Variety of products with riders Pension scheme
policy - ~98% to total premium covering disability,critical
income illness, accidents etc. Annuity scheme

Products with guaranteed Increasing acceptance of Income protection

Life returns, limited, if any term variable returns and pure term
products Increased term
Products viewed as necessary
evil for tax-breaks Unit linked products

Personal non-life insurance New products emerging to Home building – structure and
products (except motor) cater to personal needs: contents (penetration in India
virtually nil • Health ~1% v/s ~70% in UK)
Non • Travel (overseas/domestic)
• Household articles
Life Corporates buying Non life • Building (structure/content)
Health insurance (penetration
in India 1-2% v/s 10% in UK)
• Mobile insurance
• Credit insurance Corporate and professional
• ... liability
 CUSTOMER AWARENESS IS KEY
79

Low penetration of personal non life ... due to low awareness for several
products... types of insurance
% customers having bought % customers with unaided awareness of
insurance in metros different types of insurance in metros

Auto 39 Auto 45

Health 12 Health 19

Accident 8 Accident 17

Home 2 Home 9

Fire 1 Fire 6

Theft 2 Theft 2

rce: Survey of about 306 customers across Delhi, Mumbai and Kanpur conducted in 2002
Porter's 5 Forces Analysis

1. THREAT OF NEW ENTRANTS

2. POWER OF SUPPLIERS
3. POWER OF BUYERS
4. AVAILABILITY OF SUBSTITUTES
5. COMPETITIVE RIVALRY
 1-Threat of New Entrants.

 . The average entrepreneur can't come along and start a

large insurance company. The threat of new entrants lies
within the insurance industry itself. Some companies have
carved out niche areas in which they underwrite
insurance. These insurance companies are fearful of being
squeezed out by the big players.
 Another threat for many insurance companies is other
financial services companies entering the market. What
would it take for a bank or investment bank to start
offering insurance products? In some countries, only
regulations that prevent banks and other financial firms
from entering the industry. If those barriers were ever
broken down, like they were in the U.S. with the Gramm-
Leach-Bliley Act of 1999, you can be sure that the
floodgates will open.
 2-Power of Suppliers.

The suppliers of capital might not pose a big

threat, but the threat of suppliers luring away
human capital does. If a talented insurance
underwriter is working for a smaller
insurance company (or one in a niche
industry), there is the chance that person will
be enticed away by larger companies looking
to move into a particular market.
 3-Power of Buyers

The individual doesn't pose much of a threat

to the insurance industry. Large corporate
clients have a lot more bargaining power with
insurance companies. Large corporate clients
like airlines and pharmaceutical companies
pay millions of dollars a year in premiums.
Insurance companies try extremely hard to
get high-margin corporate clients
 4-Availability of Substitutes

This one is pretty straight forward, for there are

plenty of substitutes in the insurance industry.
Most large insurance companies offer similar
suites of services. Whether it is auto, home,
commercial, health or life insurance, chances are
there are competitors that can offer similar
services. In some areas of insurance, however, the
availability of substitutes are few and far between.
Companies focusing on niche areas usually have a
competitive advantage, but this advantage
depends entirely on the size of the niche and on
whether there are any barriers preventing other
firms from entering.
 5-Competitive Rivalry. 

  The insurance industry is becoming highly

competitive. The difference between one insurance
company and another is usually not that great. As a
result, insurance has become more like a commodity -
an area in which the insurance company with the low
cost structure, greater efficiency and better customer
service will beat out competitors. Insurance companies
also use higher investment returns and a variety of
insurance investment products to try to lure in
customers. In the long run, we're likely to see more
consolidation in the insurance industry. Larger
companies prefer to take over or merge with other
companies rather than spend the money to market and
advertise to people.
Thank You

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