ITM Business School Chennai: Life Insurance in India: A Study by Prof.Sathya Saminadan

Though the Life Insurance Companies Act was passed in 1912, the Indian Insurance Sector begun only in 19th January 1956, since there was a disparity between Indian and Foreign companies during the early days. The first ever company existed in India for life insurance business was Life Insurance Corporation (LIC).

In a Society’s point of view Life Insurance increases the sense of ownership in a Family, responsibility and also increases the importance of protection during unemployment and health. Any individual will go through a phase of unemployment or financial constraint during his life span. Life insurance will help during those crisis period.LI reduces the insecurity factor for a customer which might in turn increases his productivity at his work place as well.

However until the private players entered the market in late 2000, the ratio of Life Insurance premium and the GDP was just 1.9% for India (Source: The Changing Product-Life-marketing case, ICMR) and around 80% of the LIC premium came only from endowment and Money back policies. Insurance being the nationalized industry fails to exploit the potentiality of the market. IRDA approved the entry of Private players in Apr 2000.

IRDA was particular on the financial stability of an entrant and stipulated a very high solvency margin and entry capital requirements. Foreign Direct Investment (FDI) was allowed up to 26. This forced the foreign companies to have collaboration with Indian Companies. The competition prompted the significant growth in LIC’s performance too with annual growth rate of 36% compared to only 16% prior to this reform. (Source – Indian Insurance Industry since 2000 – IRDA). In 5 years, Private players captured 35 % of the market share from LIC which in turn made LIC to think innovative products and marketing strategies and fight for their market share.

As per the Indian-Industries Report, Today the Indian Insurance Contributes up to 7 % to GDP. And according to the Insurance council Indian Life Insurance Council is the fifth largest life insurance market growing at a pace of 32-34%.

As a researcher, I would like to understand how did this happen? What was the difference made in the market which boosted Life Insurance Business 20% growth?

Definitely marketing of the product played a major role, but prior to that product innovation came in. There were ten private entrants in the year 2000-2001 (Source: IRDA), Some companies did an exhaustive market research about the products need to be offered. The market research evidenced that there are no customized offerings in the market. It was observed that only the endowment and money back policies were popular among public with high premium and less life cover. More over the findings also derived the term for paying premium was always high and this could lead policy lapsation.

The companies focused in bringing need-based products and effective marketing strategies which will delight the customer to buy an insurance policy. The outcome of this market study made the Private entrants to introduce innovative products in following categories:

a. Unit Linked Plans

b. Pension Policies

c. Health Insurance Policies

Life Insurance Industry growth in Rural Areas :

Selling new products to new consumers, Life Insurance companies followed Ansoff’s matrix model (Market expansion grid, Intensive growth strategies) to understand the market and brought in new varieties of products to the various segments of people. Customer can withdraw the money after 3 years but still the policy continues for few years.

Income Levels and Income tax: In the year 2000, When IT had a boom in India, many software companies and MNCs Invested money and created job opportunities in the country. Life insurance being one of the instruments to save tax under section 80 (C), 80 (CCC) and 80(D), Companies marketed the products as ‘Tax-Savers’ which facilitated the ‘Youngsters’ segment by saving the tax through Life insurance.

Threat Factor theory: Nothing is certain in human Life, So life insurance made Advertisements to show as to how to make Financial stability in case of Job insecurity. Insurance companies targeted accidental death, accidental inability, Health Issues as well. This created awareness about Life Insurance among public.

Rural Market, The insurance companies started designing products for rural markets as well. The Products were designed in such a way that the premiums are affordable for farmers and Lower income group. Many insurance companies implemented this since the huge potential is there in the Rural Market. IRDA came up with Rural Sector Obligations, which insist the companies to sell minimum number of policies in rural areas in a year. Insurance Companies introduced a Concept called ‘Spoke Branch’ which means Rural Branch.

As on 2010, there were 23 private life players and LIC, they have given different dimension to the product life insurance which created interest among the public buy a life insurance policies which in turn important for an economy as it is a one of the major contributors for GDP.

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