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Present Scenario of
Life Insurance
Industry
2
 AGENDA
Snapshot of Indian Life Insurance Industry

Components of Costs in Life Insurance Industry

Valuation of Life Insurance Companies

Opportunities in Life Insurance Industry

Challenges for Insurers & Role of Advisor & Role of IRDA

Buyer Behavior of Indian Consumer

33
Snapshot of Indian Life Insurance Industry
Life Insurance Industry was liberalized in the year 1999-2000.

Currently there are 23 players in the Life Insurance Industry.

20 Insurance companies have JV’s with foreign partners.

LIC, Reliance Life Insurance and Sahara Life Insurance company are the
three companies who do not have JV’s.

All the major international players are present in the Indian Insurance
market.

A high capital intensive industry-Rs.28,929 Cr deployed

Foreign partners have brought in capital of around Rs.5000 Cr as FDI

(as on 31st March 2010)

 India has the largest in-force policies in the world.

44
 Snapshot of Indian Life Insurance Industry
FY 09-10

Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09

(provisional)

Number of players 1 16 18 22 23

Capital Deployed (Rs. Cr) 5 9,485 16,692 24,988 28,929

Branches 2,048 5,373 8,913 11,815 11,927

Employees (in Lacs) 1.23 1.87 2.54 2.85 2.68

Individual Agents (in Lacs) 7.14 19.93 25.20 29.37 29.15

Over 70% of the branches are located in Class C cities or lower

6
Source: IRDA, Life Insurance Council
 Individual
Non-Single
Premium in
Rs. Crore

Insurer Upto June, 10 Rank

S No.
1 LIC 5009.23 1
2 ICICI Prudential 1059.52 2
3 HDFC Standard 588.25 3
4 Reliance Life 529.25 4
5 SBI Life 403.25 5
6 Birla Sun Life 392.75 6
7 Bajaj Allianz 385.03 7
8 Max New York 378.52 8
9 Tata AIG 185.34 9

10 Kotak Mahindra Old Mutual 149.01 10

11 Canara HSBC OBC Life 146.78 11

 PREMIUM IN
CRORES.

Insurer Upto June, 10 Rank

S No.
13 ING Vysya 110.60 13
14 Met Life 94.08 14
15 Bharti Axa Life 83.88 15
16 Future Generali Life 65.41 16
17 IndiaFirst Life 60.76 17
18 IDBI Fortis Life 46.44 18
19 Shriram Life 43.84 19
20 Star Union Dai-ichi 32.86 20
21 AEGON Religare 32.11 21
22 DLF Pramerica 14.89 22
23 Sahara Life 9.46 23
 Number of
Polices
Insurer Upto June, 10 Rank
S No.
1 LIC 5326276.00 1
2 Reliance Life 486662.00 2
3 Birla Sun Life 336615.00 3
4 ICICI Prudential 334839.00 4
5 Bajaj Allianz 327155.00 5
6 Max New York 203633.00 6
7 HDFC Standard 129107.00 7
8 Tata AIG 120419.00 8
9 SBI Life 109213.00 9
10 Future Generali Life 56674.00 10

11 Kotak Mahindra Old 56020.00 11

Mutual
 Number of
Polices
Insurer Upto June, 10 Rank
S No.
12 ING Vysya 48952.00 12
13 Aviva 45417.00 13
14 Bharti Axa Life 35793.00 14
15 Met Life 35492.00 15

16 Canara HSBC OBC 22560.00 16

Life
17 IndiaFirst Life 21093.00 17
18 Shriram Life 17975.00 18
19 IDBI Fortis Life 16669.00 19
20 Sahara Life 11305.00 20
21 AEGON Religare 10177.00 21
22 Star Union Dai-ichi 9599.00 22

23 DLF Pramerica 6506.00 23

 Snapshot of Indian Life Insurance Industry
FY 09-10 Increase
from
Parameters FY 99-00 FY 06-07 FY 07-08 FY 08-09
(provisional) FY 00 to
FY 09

New Business Premium

8,299 75,649 93,713 87,006 1,09,213 +13 times
(Rs.Cr)

Renewal premiums
17,951 80,427 1,07,639 1,34,785 1,51,812 +8 times
(Rs. Cr)

Total Premium (Rs. Cr) 26,250 1,56,076 2,01,351 2,21,791 2,61,025 +10 times

Expenses of management
3,171 12,259 14,704 15,533 17,535 +5 times
– Commission (Rs.Cr)

Expenses of Management-
3,756 13,585 20,299 25,724 23,815 +6 times
operating expenses (Rs.Cr)

11
Source: IRDA, Life Insurance Council
 Snapshot of Indian Life Insurance Industry
FY 09-10
Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 (provisional)

New Business Policies (In Cr) 1.69 4.61 5.08 5.09 5.32

In force Policies (In Cr) 10.14 22.70 25.76 29.6 33.0

The industry services largest number of life insurance policies in the world

12
Source: IRDA, Life Insurance Council
 Snapshot of Indian Life Insurance Industry
FY 09-10
Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 (provisional)

India’s share of world premium (Life) 0.50% 1.53% 1.83% 1.93 NA

Penetration as % of GDP 1.39% 4.1% 4.0% 4.0% 4.90*

Source: IRDA, Swiss Re,RBI 13

*FY 2009-10 data Life Insurance Council ( before adjusting to inflation)
 Life Insurance Penetration

14
12
% of premium to GDP

10
8
6
4
2
0
USA UK Germany Japan India Russia Brazil China
Countries

India has largest number of in-force policies in the world (IRDA Annual report).

14
Source: IRDA report 2008-09
 AGENDA
Snapshot of Indian Life Insurance Industry

Components of Costs in Life Insurance Policies

Valuation of Life Insurance Companies

Opportunities in Life Insurance Industry

Challenges for Insurers & Role of Advisor & Role of IRDA

Buyer Behavior of Indian Consumer

15
15
Components of Cost with Life
Insurance Companies

 Fixed Cost

 Operating Cost
 Fixed Cost

It is same for Term & Whole Life Policies

Its not related to size of Policy

It depends on No. of Life Insurance
policies sold in this year

Amount of Whole Life policies sold

Amount of Term policies sold
 Operating Expenses

Manpower related expenses

Capital Expenses

Material Cost consists of other expenses
 Manpower related expenses

Cost of Manpower =
(Total cost of agents and employees /
Total number of agents and employees)

Total Cost of Agents = ( Direct Commissions +
Contributions to Benefit plans+ Agent Welfare )

Total Cost of Employees = ( Salaries Paid +
Contributions to benefit plans + Travel
Expenses + Employee Welfare + Incentives +
Rewards & Trips )
 Capital Expenses

(Rent for Space utilized for Office + Equipment
rent + Infrastructure cost + Depreciation cost )

It is calculated as capital expense per employee.
 Material Expenses

Expenses related to selling new policies and
servicing existing policies.

New Softwares technology used

New Infrastructure

Mailers
Need for Capital
•Financing of new business.

•Meeting regulatory solvency.

•Meeting the cost of adverse events.

•Acquisitions ,establishing new operations.

 Cost of Life Insurance Policy for
Customer depends upon :

Type of Policy

Age and gender of Applicant

Presence or absence of dangerous life
style habits
 Cost of Term Policies

Its Simple and least expensive as it pays benefit
only on policy holder's death.

Best for younger people with children and limited
funds and not covered through employer

It covers all liabilities such as loan &
responsibilities such as Child education and
marriage,home.
 Cost of Whole Life Policies

Very Expensive for company as cost of holding is
very high.

Policy gives cover till age 100 so it increases all
costs.

Client can take some amount in between.

Added security for Retirement savings.
Cost of Universal Life Insurance

Less expensive than Whole life Policies.

It's not based only on cost of Insurance
but on rate of interest offered on
investments

Similar to Term policy with fixed rate of return
guaranteed for one year.
Expenses of Life Insurance
Companies
Expenses of Life Insurance Companies
 Insurance is a long term contract with average tenure of 15 years.

 Comparatively high start-up cost to be related to a long tenure.

 Under Section 40 B of Insurance Act 1938, there is a capping on expenses of

management.
- Exemption is granted to companies in first 5 years of operation.
- Any non-compliance later is viewed adversely by IRDA.

 Maximum Commission payable to agents under various product heads is

prescribed in the Insurance Act (section 40 A).

 Longer the term of the policy, lower is the premium and therefore percent
commission is higher. For shorter term policies the percent commission is lower
as premium is higher. This ensures that the absolute commission is reasonable.

28
Source: IRDA
 Expenses of Life Insurance Companies

Commission as percent of premium has been declining.

FY 09-10
FY 99-
Parameter FY 06-07 FY 07-08 FY 08-09 (provisional
00
)

Commission as
12.0
% of total 7.85 7.30 7.00 6.71
premium 8

Competition will continue to drive down commission expenses in future.

29
Source: IRDA, Life Insurance Council
Commission will further come down due to following factors:-

As new generation companies will complete 10

years of operation ,maximum first year commission
payable on long term policy will come down to 35%.

Introduction of capping of expenses under new

ULIPS effective from 01st October 2009 and for
existing products from 1.1.2010.

 Impact on commissions to be felt from this year.

Increasing shift towards alternate cheaper

distribution channels like Corporate agents , banc
assurance, institutional agencies, direct marketing.

30
Source: IRDA
 AGENDA
Snapshot of Indian Life Insurance Industry

Components of Costs in Life Insurance Industry

Valuation of Life Insurance Companies

Opportunities in Life Insurance Industry

Challenges for Insurers & Role of Advisor & Role of IRDA

Buyer Behavior of Indian Consumer

31
31
 Embedded Value [EV]
• EV is a measure of how much a life insurance
company is worth. It is one of the determinants of the
market[fair] value of the life insurance company
• EV is made up of four components:
– Value of Business (VOB)
– Free Surplus
– Mark to Market Adjustment
– Expense Gap Adjustment
• The other determinant of market value is the appraisal
value which is defined as :
 Value Of Business (VOB)
• VOB is defined as the present value of the
Statutory Distributable Earnings of the in-force
business as on the valuation date
• The key drivers of VOB are :
 Sales – Determines size of In-Force
 Mode of Premium Payment
 Lapses
 Changes in Statutory Reserves
 Investment Earning Rate
 Required Solvency Margin
• Discount Rate or Cost of Capital
 Free Surplus :

It is defined as the capital available to a life

insurance company for meeting the capital
requirements over and above the regulatory
solvency requirement.
Mark To Market Adjustment
• For statutory purposes, the Free Surplus
has to be measured at Book Value.

• MTM Adjustment is required to measure

the free surplus at market value.
For example, the MTM Adjustment
can be the unrealized capital gains on the
long term bond portfolio.
Expense Margin/Gap
Expense Margin is defined as the expense loadings
built into the premium income less actual operating
expenses. If the margin is negative, it is termed an
Expense Gap.
For example :

Rs.300 Million
A. Expense loading built into the premium income

B. Operating Expenses (including commission) incurred Rs.1,200 Million

C. Expense Gap (B-A) Rs.900 Million

 AGENDA
Snapshot of Indian Life Insurance Industry

Components of Costs in Life Insurance Industry

Valuation of Life Insurance Companies

Opportunities in Life Insurance Industry

Challenges for Insurers & Role of Advisor & Role of IRDA

Buyer Behavior of Indian Consumer

37
37
38
TRENDS IN TYPES OF POLICIES SOLD

Term Plan

Endowment Plan

Money Back Plan

Whole Life Plan

Retirement Plan

ULIP Plan

Universal Life Plan
 Universal Life Insurance

Universal life insurance is new form of life insurance
that gives you advantage of paying flexible
premiums.

The amount of premiums you pay can increase or
decrease the benefit value, making it easier to fit
into your monthly budget.

But the payout on a universal life policy isn’t
guaranteed.

If you don’t pay enough in premiums over the
course of the policy, it may not provide a payout at
all.
Advantages of Universal Life Insurance:

* Your universal life plan will let you adjust your benefits
if your needs change.
* The value of a universal life policy can be used as
collateral for a non-taxable loan.
* Universal life offers you the flexibility to pay either a
smaller or larger premium — depending on your
circumstances. This can be an important feature if your
household income fluctuates.
 IRDA is keeping Checks on
Universal Life Policies

After tightening the norms for unit-linked insurance
plans, or Ulips, the Insurance Regulatory and
Development Authority (Irda) is set to shift its focus to
universal life insurance policies.

Universal life insurance policies, like Ulips, combine
investment and insurance. One part of the premium for
such policies goes to buy life insurance and another gets
invested in bonds or equities.

“Universal life policies can be dangerous without a
separate set of regulations. The customers can be
exposed to very high risks unless stringent regulations are
imposed on these investment-cum-insurance products,”
IRDA is keeping Checks on Universal
Life Policies

Typically, the product has two elements—investment and insurance.
The investment amount earns interest, but as the cost of insurance
increases every year with the policyholder getting older, more money
flows from the investment account to the insurance account of the
policyholder.

As the policy holder gets older, more money is used for the insurance
cover and less and less money gets invested. In such a situation, the
premium goes up, and if the policyholder is not able to pay the higher
premium to keep the policy alive, it lapses and the customer loses the
money.



Secure Dreams of Max New York Life Insurance Co. Ltd.
A few Indian life insurers launched universal life insurance
policies in 2009 after Irda capped Ulip charges:

 Traditional Reliance Super Invest Assure Plan by

Reliance Life Insurance Co. Ltd
 Secure Dreams by Max New York Life Insurance
Co Ltd.

Met Ultimate by Met life India Insurance Co. Ltd.
Opportunities in Life Insurance
Industry
 LIFE INSURANCE INDUSTRY -
Opportunities

• After opening up of the sector the life insurance

industry has grown leaps and bounds. The industry
has earned $ 55 billion total premium income
during the F.Y 2009-10.

• The life insurance companies are the largest

institutional investors in India.
 LIFE INSURANCE INDUSTRY-
Opportunities
• The life insurance companies have brought in
huge capital for investment and expansion. They
have generated good employment opportunities,
both direct and in-direct.

• The latest technology is being introduced by all

the companies thereby improving the servicing
standards.
LIFE INSURANCE INDUSTRY IN
INDIA - Opportunities
• Innovative and market driven products are being
offered by all the companies.
• All companies are building the distribution channels
with strong tied agency network.
• Alternate distribution channels are also being
developed in order to strengthen the overall process of
procuring of business and delivery of service.
• India has a total of 2.5 million agents of which 50% are
with LIC alone.
• There is a sharp increase in the remuneration of life
insurance professionals
 LIFE INSURANCE INDUSTRY -
Opportunities
• One of the key drivers of the Indian economy has
been the dramatic increase of the urban
population.

• Urban India today is already more populous than

the entire United States. By 2025, it will exceed
the current population of the European Union.

• Apart from this, the real potential lies in the rural

India where prosperity is on the rise

• Go Rural is the slogan for most of the companies

in India today.
Life Insurance Industry
Challenges
 Challenges : Many

• Professionals and experts are in short supply. Man power

requirement has increased manifold.

• Increase in salaries to employees leading to high levels of

attrition. Retention of employees is a major challenge.
 Challenges faced by Insurance
Industry
Threat of New Entrants: The insurance industry has
been budding with new entrants every other day.
Therefore the companies should carve out niche areas
such that the threat of new entrants might not be a
hindrance. There is also a chance that the big players
might squeeze the small new entrants.

Power of Suppliers: Those who are supplying the
capital are not that big a threat. For instance, if
someone as a very talented insurance underwriter is
presently working for a small insurance company, there
exists a chance that any big player willing to enter the
insurance industry might entice that person off.
 Challenges faced by Insurance
Industry
Power of Buyers: No individual is a big threat to the
insurance industry and big corporate houses have a
lot more negotiating capability with the insurance
companies. Big corporate clients like airlines and
pharmaceutical companies pay millions of dollars
every year in premiums.
Availability of Substitutes: There exist a lot of
substitutes in the insurance industry. Majorly, the
large insurance companies provide similar kinds of
services – be it auto, home, commercial, health or
life insurance.
 Challenges : Many

• India being a vast country and with huge

population, is a challenge for the life companies.

• Designing products for the people of various

economic strata is a daunting task indeed.
 Other Challenges
• Prosperity of all companies depends upon
their capability to innovate and include all
sections of the society into their business
portfolio.
• Micro Insurance and financial inclusion will be
major challenges for all the companies.
• There is a shift from traditional endowment
policies to unit linked policies.
 Challenges - Many
• There is a shift from long term policies to
short term.

• Customers are expecting higher returns

and thereby a strong emphasis on unit
linked plans.

• When stock markets are volatile can the life

insurance companies overcome the
turbulence? Are they equipped to tide over
the storm?
 Key Issues for Life Insurers


Building institutions for development of self
regulation for better market conduct


Development professionalism and organizing
research for industry to develop on scientific
lines


Ensuring profitability and return to stakeholders
by cost competitive policies.
 Buyer Behavior of Indian
Consumer

Reasons for buying Insurance

1 Moving or buying a house 33%

2 Re-mortgage of existing property 25%

3 Provide for family 9%

4 Becoming a parent 6%

5 Getting married 6%

6 Peace of mind 6%

7 To ensure mortgage is paid off 5%

8 In case of death 3%

9 Old policy expired 2%

10 Change in income level 1%

 Living Benefits paid to customer
FY 09-10
Parameter FY 06-07 FY 07-08 FY 08-09
(provisional)

Total Death Benefit paid(Rs.Cr) 4,794 5,288 6,125 8,385

Total Maturity claim paid(Rs. Cr) 34,356 34,543 37,806 NA

Total Benefits paid (Rs.Cr) 56,887 61,686 58,343 83,327

64
Source: IRDA, Life Insurance Council
Other Reasons to buy Life Insurance
• To protect your wealth
• Show your love to your family
• Show that you are responsible person
• Our health is deteriorating everyday
• To practice the habit of forced savings
• For funding the Trust
• Funding a business operation
• Funding the Partnership in Business
• For Charity purpose
Reasons for not buying Life
Insurance
Reasons for not buying life Insurance
• You are never going to die.
• Nobody is going to care when you die.
• You don't want to talk about death.
• I am going to be old when I die.
• You don't love your kids.
• Life Insurance agent is very annoying.
• You enjoy your cigarettes and drinks too much.
Reasons for not buying Life Insurance
• You are afraid the company will go under
before you can cash in.
• You are just selfish.
• Your Children are filthy rich.
• You feel your relatives will take care of your
family.
• Its wastage of money.
• Paper work is very boring.
Product Suitability Matrix
How to buy Insurance ?
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