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The word "Fear" has only four alphabets like love but both of them have very separate e meaning. Whatever man (malor female) does for the love of their families always starts with the background of fear. Ordinarily so many times we have been request our selves that, what will happen if we were not there, but we keep on request rather then doing something for it. Time is precious, it never stops for any one and we are living in the world of uncertainty; the uncertainty of job, the uncertainty of money, the uncertainty of property and like this the story goes continuous for the whole life of a man.
A successful guarnatee sector is of vital significance to every contemporary economy. Firstly because it encourages the habit of saving, secondly because it provides a security net to rural and urban enterprises and productive individuals. And possibly most importantly it generates long- term indiscernible funds for infrastructure building. The nature of the guarnatee business is such that the cash inflow of guarnatee companies is constant while the payout is deferred and contingency related.
This characteristic highlight of their business makes guarnatee companies the biggest investors in long-gestation infrastructure development projects in all developed and aspiring nations. This is the most compelling imagine why underground sector (and foreign) companies, which will spread the guarnatee habit in the societal and consumer interest are urgently required in this vital sector of the economy. Opportunity up of guarnatee to underground sector together with foreign participation has resulted into assorted opportunities and challenges in India.
Life guarnatee Market
The Life guarnatee store in India is an underdeveloped store that was only tapped by the state owned Lic till the entry of underground insurers. The penetration of life guarnatee products was 19 percent of the total 400 million of the insurable population. The state owned Lic sold guarnatee as a tax instrument, not as a goods giving protection. Most customers were under- insured with no flexibility or transparency in the products. With the entry of the underground insurers the rules of the game have changed.
The 12 underground insurers in the life guarnatee store have already grabbed nearly 9 percent of the store in terms of excellent income. The new business excellent of the 12 underground players has tripled to Rs 1000 crore in 2002- 03 over last year. Meanwhile, with regard to state owned Lic's new excellent business has fallen.
Innovative products, smart marketing and aggressive distribution. That's the triple whammy blend that has enabled fledgling underground guarnatee companies to sign up Indian customers faster than Whatever ever expected. Indians, who have always seen life guarnatee as a tax rescue device, are now suddenly turning to the underground sector and snapping up the new innovative products on offer.
The growing popularity of the underground insurers is evidenced in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the underground insurers have already wrested over 33 percent of the market. And in the beloved unit-linked guarnatee schemes they have a virtual monopoly, with over 90 percent of the customers.
The underground insurers also seem to be scoring big in other ways- they are persuading citizen to take out bigger policies. For instance, the mean size of a life guarnatee procedure before privatization was around Rs 50,000. That has risen to about Rs 80,000. But the underground insurers are ahead in this game and the mean size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh- way bigger than the business average.
Buoyed by their quicker than anticipated success, nearly all underground insurers are fast- forwarding the second phase of their expansion plans. No doubt the aggressive stance of underground insurers is already paying rich dividends. But a rejuvenated Lic is also trying to fight back to woo new customers.
Insurance Today
In 1993, Malhotra Committee, headed by former Finance Secretary and Rbi Governor R. N. Malhotra, was formed to value the Indian guarnatee business and suggest its time to come direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector.
With the setup of guarnatee Regulatory development Authority (Irda) the reforms started in the guarnatee sector. It has became needful as if we assess our guarnatee penetration and per capita excellent we are much behind then the rest of the world. The table above gives the statistics for the year 2000.
With the anticipated growth in per capita revenue to 6% for the next 10 year and with the revising in the awareness levels the query for guarnatee is anticipated to grow.
As per an independent consultancy company, Monitor Group has estimated a growth form Rs. 218 Billion to Rs. 1003 Billion by 2008. The estimations seems achievable as the operation of 13 life guarnatee players in India for the year 2002-2003 (up to October, based on the first year premium) is Rs. 66.683 million being Lic the biggest contributor with Rs. 59,187 million. As of now Lic has 2050 branches in 7 zones with strong team of 5,60,000 agents.
Impact Of Globalisation
While nationalized guarnatee companies have done a commendable job in extending the volume of the business, Opportunity up guarnatee sector to underground players was a necessity in the context of globalization of financial sector. If original infrastructural and semipublic goods industries such as banking, airlines, telecom, power etc., have needful underground sector presence, persisting a state of monopoly in provision of guarnatee was indefensible and therefore, the globalization of guarnatee has been done as discussed earlier. Its impact has to be seen in the form of creating assorted opportunities and challenges.
The introduction of underground players in the business has added colours to the dull industry. The initiatives taken by the underground players are very contentious and have given gigantic competition to the on time monopoly of the store Lic. Since the coming of the underground players in the store the business has seen new and innovative steps taken by the players in the sector. The new players have improved the assistance ability of the insurance. As a consequent Lic down the years have seen the declining in its career. The store share was distributed among the underground players. Though Lic still holds 75% of the guarnatee sector the upcoming nature of these underground players are sufficient to give more competition to Lic in the near future. Lic store share has decreased from 95%(2002-03) to 81% (2004-05). The following business holds the rest of the store share of the guarnatee industry.
Table - 1
Impact Of Globalisation
Name Of The Player store Share (%)
Lic 82.3
Icici Prudential 5.63
Birla Sun Life 2.56
Baja Allianz 2.03
Sbi Life 1.80
Hdfc Standard 1.36
Tata Aig 1.29
Max New York 0.90
Aviva 0.79
Om Kotak Mahindra 0.51
Ing Vyasa 0.37
Amp Sanmar 0.26
Metlife 0.21
Present Scenario Of Globalisation
In a tough battle to advance store shares the underground sector life guarnatee business consisting of 14 life guarnatee companies at 26% have lost 3% of store share to the state owned Life guarnatee Corporation(Lic) in the domestic life guarnatee business in 2006-07. According to the figures released by guarnatee Regulatory & development Authority, the total excellent of these 14 companies have shot up by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crore.
Lic with a total excellent mobilisation of Rs 55,934 crore has been able to maintain a store share of 74.26 % during the reporting period. In total the life guarnatee business in first year excellent has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07 operation has thrown a few surprises in the ranking among the underground sector life guarnatee companies. New entrants like belief Life and Sbi Life had shown a huge growth of over 381% and 210% respectively during the year. belief Life which has become one of the top five companies ended the year with a excellent of Rs 930 crore during the year.
Though Icici Prudential Life guarnatee remained as the No 1 underground sector life guarnatee business during the year. Bajaj Allianz overtook Icici Prudential in terms of monthly store share in March, for the first time ever. Bajaj's store share among underground players in non-single excellent for March stood at 29.1% vs. Icici Prudential's 23.8%. Bajaj gained 4.6 division point store share among underground sector players for Fy07.
Among other underground players, Sbi Life and belief Life continued to do well, each gaining 4% store share in Fy07. Sbi Life's growth was driven by expanding contribution from Ulip premiums. Someone else preeminent developments of the 2006-07 operation has been the expansion of sell markets by the life guarnatee comapnies. Bajaj Alliannz Life guarnatee has added 20 lakh policies while Icici Prudential has expanded over 19 lakh policies during the year.
With the largest amount of life guarnatee policies in force in the world, guarnatee happens to be a mega Opportunity in India. It's a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent to the country's Gdp. Gross excellent range is nearly 2 per cent of Gdp and funds available with Lic for investments are 8 per cent of Gdp.
Yet, nearly 80 per cent of Indian citizen is without life guarnatee cover while condition guarnatee and non-life guarnatee continues to be below international standards. And this part of the citizen is also field to weak social security and pension systems with hardly any old age revenue security. This itself is an indicator that growth inherent for the guarnatee sector is immense.
A well-developed and evolved guarnatee sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability. It is estimated that over the next ten years India would require investments of the order of one trillion Us dollar. The guarnatee sector, to some extent, can enable investments in infrastructure development to maintain economic growth of the country.
Insurance is a federal field in India. There are two legislations that govern the sector- The guarnatee Act- 1938 and the Irda Act- 1999. The guarnatee sector in India has become a full circle from being an open contentious store to nationalisation and back to a liberalised store again. Tracing the developments in the Indian guarnatee sector reveals the 360 degree turn witnessed over a period of practically two centuries.
Important milestones in the life guarnatee business in India
1912: The Indian Life guarnatee companies Act enacted as the first statute to regulate the life guarnatee business.
1928: The Indian guarnatee companies Act enacted to enable the government to obtain statistical information about both life and non-life guarnatee businesses.
1938: Earlier legislation consolidated and amended to by the guarnatee Act with the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. Lic formed by an Act of Parliament- Lic Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.
In a tough battle to advance store shares the underground sector life guarnatee business consisting 14 life guarnatee companies at 26% have lost 3% of store share to the state owned Life guarnatee Corporation(Lic) in the domestic life guarnatee business in 2006-07. According to the figures released by guarnatee Regulatory & development Authority the total excellent these 14 companies have shot up by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crore.
Lic with a total excellent mobilisation of Rs 55,934 crore has been able maintain a store share of 74.26 % during the reporting period. In total the life guarnatee business in first year excellent has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07 operation has thrown a few surprises in the ranking among the underground sector life guarnatee companies. New entrants like belief Life and Sbi Life had shown a huge growth of over 381% and 210% respectively during the year. belief Life which has become one of the top five companies ended the year with a excellent of Rs 930 crore during the year.
Though Icici Prudential Life guarnatee remained as the No 1 underground sector life guarnatee business during the year Bajaj Allianz overtook Icici Prudential in terms of monthly store share in March, for the first time ever. Bajaj's store share among underground players in non-single excellent for March stood at 29.1% vs. Icici Prudential's 23.8%. Bajaj gained 4.6 division point store share among underground sector players for Fy07.
Among other underground players, Sbi Life and belief Life continued to do well, each gaining 4% store share in Fy07. Sbi Life's growth was driven by expanding contribution from Ulip premiums. Someone else preeminent development of the 2006-07 operation has been the expansion of sell markets by the life guarnatee companies. Bajaj Alliannz Life guarnatee has added 20 lakh policies while Icici Prudential has expanded over 19 lakh policies during the year.
Opportunites
- A state monopoly has itsybitsy incentive to innovative or offers a wide range of products. It can be seen by a lack of determined products from Lic's portfolio and lack of thorough risk categorization in any Gic products such as condition insurance. More competition in this business will spur firms to offer any new products and more involved and thorough risk categorization.
- It would also consequent in good customer services and help heighten the range and price of guarnatee products.
- The entry of new players would speed up the spread of both life and general insurance. Spread of guarnatee will be measured in terms of guarnatee penetration and quantum of density.
- With the entry of underground players, it is anticipated that guarnatee business practically 400 billion rupees per year now, more than 20 per cent per year even leaving aside the relatively under developed sectors of condition insurance, pen More importantly, it will also ensure a great mobalisation of funds that can be utilized for purpose of infrastructure development that was a factor carefully for globalisation of insurance.
- More importantly, it will also ensure a great moblisation of funds that can be utilized for purpose of infrastructure development that was a factor carefully for globalisation of insurance.
- With allowing of holding of equity shares by foreign business either itself or through its subsidiary business or nominee not exceeding 26% of paid up capital of Indian partners will be operated resulting into supplementing domestic savings and expanding economic advance of nation. Agreements of assorted ventures have already been made to be discussed later on in this paper.
- It has been estimated that guarnatee sector growth more than 3 times the growth of cheaper in India. So business or domestic firms will endeavor to spend in guarnatee sector. Moreover, growth of guarnatee business in India is 13 times the growth guarnatee in developed countries. So it is natural, that foreign companies would be fostering a very strong desire to spend something in Indian guarnatee business.
- Most important not the least astronomical employment opportunities will be created in the field of guarnatee which is burning problem of the gift day today issues.
Challenges Before The Industry
New age companies have started their business as discussed earlier. Some of these companies have been able to float 3 or 4 products only and some have targeted to perform the level of 8 or 10 products. At present, these companies are not in a position to pose any challenge to Lic and all other four companies operating in general guarnatee sector, but if we see the ability and standards of the products which they issued, they can absolutely be a challenge in future. Because the challenge in the whole environment caused by globalisation and liberalization the business is facing the following challenges.
- The existing insurer, Lic and Gic, have created a large group of dissatisfied customers due to the poor ability of service. Hence there will be shift of large amount of customers from Lic and Gic to the underground insurers.
- Lic may face problem of surrender of a large amount of policies, as new insurers will woo them by offer of innovative products at lower prices.
- The corporate clients under group schemes and wages savings schemes may shift their loyalty from Lic to the underground insurers.
- There is a likelihood of exit of young dynamic managers from Lic to the underground insurer, as they will get higher package of remuneration.
- Lic has overstaffing and with the introduction of full computerization, a large amount of the employees will be surplus. However they cannot be retrenched. Hence the operating costs of Lic will not be reduced. This will be a disadvantage in the contentious market, as the new insurers will operate with lean office and high technology to cut the operating costs.
- Gic and its four subsidiary companies are going to face more challenges, because their management expenses are very high due to surplus staff. They can't cut their amount due to assistance rules.
- Management of claims will put strain on the financial resources, Gic and its subsidiaries since it is not up the mark.
- Lic has more than to 60 products and Glc has more than 180 products in their kitty, which are outdated in the gift context as they are not favorable to the changing needs of the customers. Not only that they are not competent sufficient to complete with the new products offered by foreign companies in the market.
- Reaching the consumer expectations on par with foreign companies such as good yield and much improved ability of assistance particularly in the area of village of claims, issue of new policies, replacement of the policies and revival of policies in the liberalized store is very difficult to Lic and Gic.
- Intense competition from new insurers in winning the consumers by multi-distribution channels, which will consist of agents, brokers, corporate intermediaries, bank branches, affinity groups and direct marketing through telesales and interest.
- The store very soon will be flooded by a large amount of products by fairly large amount of insurers operating in the Indian market. Even with itsybitsy range of products offered by Lic and Gic, the consumers are confused in the market. Their obscuring will further growth in the face for large amount of products in the market. The existing level of awareness of the consumers for guarnatee products is very low. It is so because only 62% of the Indian citizen is literate and less than 10% educated. Even the educated consumers are ignorant about the assorted products of the insurance.
- The insurers will have to face an acute problem of the redressal of the consumers, grievances for deficiency in products and services.
- Increasing awareness will bring amount of legal cases filled by the consumers against insurers is likely to growth substantially in future.
- Major challenges in canalizing the growth of guarnatee sector are goods innovation, distribution network, investment management, customer assistance and education.
Essentials To Meet The Challenges
- Indian guarnatee business needs the following to meet the global challenges
- Understanding the customer good will enable guarnatee companies to compose thorough products, settle price correctly and growth profitability.
- Selection of right type of distribution channel mix along with economical and productive Fos [Fleet On Street] management.
- An productive Crm system, which would eventually generate sustainable contentious advantages and build a long-lasting relationship
- Insurers must consequent best investment practices and must have a strong asset management business to maximize returns.
- Insurers should growth the customer base in semi urban and rural areas, which offer a huge potential.
- Promoting condition guarnatee and using e-broking to growth the business.
Conclusion
Thus, in the last on basis of above the consulation we can stop that need for underground sector entry is justifiable on the basis of enhancing the efficiency of operation, achieving greater density and guarnatee coverage in the country and for greater mobilization of long-term savings for long gestation infrastructure projects. In the wake of such competition it is needful for the government monopolies (Lic and Gic) that they swiftly up grade their technology, restructure themselves on more productive lines and operate as broad run enterprise. New players should not be treated as rivalries to government companies, but they can supplement in achieving the objective of growth of guarnatee business in India.
* Lecturer, agency of Commerce, Bharathiar University, Coimbatore-46
Email - buarticlecommerce@yahoo.com
** Ph.D Scholar, agency of Commerce, Bharathiar University, Coimbatore. Email - parentbala@sify.com
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