Business Environment – PGP 2017-2019
Business Environment Project Report
Group 4
NIC - Section K - Financial and insurance activities
Division 65 - Insurance, reinsurance and pension funding, except compulsory social security
Group 651 - Insurance
Submitted by:
Nitin Mohanbhai Vasava (17PGP092)
Pillai Vivek Venudas (17PGP099)
Shakti Swarup Kar (17PGP130)
Shivam Chugh (17PGP135)
Sunil Rai (17PGP147)
Adwitiya Gupta (17FPM002)
Indian Institute of Management Raipur 1
Business Environment – PGP 2017-2019
Introduction
Insurance is combination of Pure good and Public good, Insurance companies provides an umbrella to
individuals for risk mitigation, protect themselves from infrequent but extreme losses at a cost of small
amount to be paid in form of premium. Insurance in other words can be called as a risk management device.
Insurance in India is 350-400-billion-dollar market but with a very low spread. Currently LIC enjoys
monopoly in Indian Life insurance industry while General Insurance corporation does it in general insurance
business, due to their far rooted business, decades old business setup and satisfaction in people’s mind.
One more reason of their success is their working on the principle of Economies of Scale, this industry is
extremely competitive with a very low switching cost. Addition of FDI made this sector more progressive
and helped the citizens in getting better deals, fear of losing out on market share acts as a catalyst for this
industry to provide innovative, personalized and low-cost products as per customer needs. Basic need of
insurance was to provide protection to individual and their dependents in their absence, it stated off with a
temporary needs threat then became a lucrative option of savings along with providing insurance cover,
now also acts an investment and after retirement provision.
History of Insurance in India
Reading the old Indian scripts like the Manusmriti, Arthshastra and the Dhrmashastra one can easily
recognize the presence of insurance like practice prevailing and been exercised in India. At that time
resources were collected well in advance to prepare for situations like droughts, flood, or any such epidemic
etc. The collected resources were then given back to the people in the occurrence of any such calamity.
Later much evolved form of insurance, imitated from other countries like England, could be found been
practiced in Indian history as loans and carriers’ contract for Marine trade.
The establishment of the Oriental Life Insurance Company in Calcutta in 1818 marked the beginning of the
life insurance business in India. The chronological events that occurred later in Exhibit 1:
General insurance as a practice came to India from West during the 17th century because of the increase
in sea travels and trades. Chronological events in the growth of general insurance in India is depicted in
Exhibit 2.
Later R N Malhotra committee was formed by the Indian government in 1993 to give revolutionary
suggestions to reform the insurance industry. Among the suggestion given, one of the major idea was the
opening of the insurance sector for the private players. The same was enacted by the government in 1994
along with permission to let foreign investors to form joint ventures with Indian companies. The same
committee led to the formation of an autonomous IRDA in 1999. IRDA’s responsibility was the regulation
and development of the insurance sector. In the year 2000, IRDA was recognized as statutory body and
can hence make regulations under the section 114A of the Insurance Act, 1938.
According to the latest count, India today has a total of 57 companies operating in this industry. With 33
being non- life, 24 being life insurers. In these 57 companies, only 7 belong to the public sector- 1 is LIC
offering life insurance and other 6 offering non-life insurance. General Insurance Corporation of India is the
only national body engaged in re-insurance.
Indian Institute of Management Raipur 2
Business Environment – PGP 2017-2019
Insurance Industry: National and International Scenario
According to the data retrieved from the annual report of IRDA for the year 2015-2016, 55.3% of the global
insurance premium comes from the premium of life insurances across all countries in the world. It is
expected that there will be an improvement in the growth of the global life insurance premiums and the
drivers of this improvement will be the emerging economies of the world. However, the growth in the
premiums of the non-life insurances is going to be only moderate. The general scenario for the changes in
premiums in the international insurance industry has been tabulated in exhibit 4:
In India, the premiums from the life insurance forms nearly 78% of the total premium collected. And India
holds the 10th rank (out of 88) in the life insurance business. India recoded a growth of 8% in the total life
insurance premium collected during 2016 (against a 2.5% global growth). A 12.9% of recorded growth was
observed in the premium collection of the non-life insurances while the global average was only 3.7%.
A trend of the penetration of insurance and its density in India is depicted in the table Exhibit 5.
Around 28.80 crore lives were insured with the Health insurance during the fiscal year 2014-15 and this
figure increased to 36 crores in the next fiscal year. Premium collected for life insurance spiked 14.04% in
financial year 2017 to around 4180 billion rupees. The total of the annual premium collected by both public
and private players in Life Insurance industry also recorded a growth of 24% in August 2017.
Major Firms in the Insurance Sector
List of the major firms in the life insurance based on the premium earnings are listed in Exhibit 6.
Product, Service and Customers
Four major product and services in an Insurance sector in India are: Marine Insurance, Fire Insurance, Life
Insurance and Miscellaneous Insurance. Some other types of New Insurance products are also introduced
by the government of India which are as follows: 1) Policies under LIC mutual fund, 2) Jeevan Akshay – V
3) Jeevan Dhara 4) Jeevan Kishore 5) Jeevan Chhaya and 6) New Jeevan Suraksha- I
Marine Insurance: If the ship gets lost then the loan and interest were forfeited under marine insurance.
Various types of risk are involved during marine transport such as highway robbery, heavy winds, or
capturing by some others. So, to safeguard that, various traders apply for the marine insurance to prevent
loss.
In fire Insurance if the office, house or a property were burnt then the loss can be claimed from the insurance
companies by applying fire insurance. In India Life insurance can be sub divided into Whole life insurance,
Endowment, Term insurance, investment linked, medical and health insurance, life annuity plan etc., In life
insurance risk covered are premature death, Income during retirement and illness. Miscellaneous Insurance
Includes accident insurance, Liability insurance, fidelity insurance, Motor insurance, Travel insurance etc.,
The insurance industry in India consists of around 53 insurance companies of which 29 are non-life-insurers
while the remaining 24 are involved in life insurance business. Employee of Firms such as Bank,
Pharmaceutical companies or any Industry which are directly or indirectly related to avail the services of
Insurance to secure the life or a business can be the customers of the firms operating in the segment. Even
common man can also apply for an Insurance if he is able to pay the premium amount of the Insurance.
Indian Institute of Management Raipur 3
Business Environment – PGP 2017-2019
PEST Analysis
Political factors affecting Insurance industry in India are: Capital requirement, Tax policy and insurance
sector, renewal of registration, Investment of funds outside India, Insurance business in rural sector, Power
to inspection or investigation.
Economic Factors affecting Insurance Industry in India are: Inflation rates, Interest rates, customer
satisfaction, Adequacy of capital, Market related factors, Increased economic activity.
Socio-cultural factors affecting Insurance Industry are: Educational level, Population, Life style, societal
benefits and Level of earning.
Technological factors affecting Insurance Industry in India are: E-business Insurance in India and
Maintaining the database.
One of the crucial factor which is very important to be taken into consideration is the technological factor
which affects the business operations of the firms in the segment, because in the present scenario the
products are sold with the help of Internet, In the digital world, Social Media as well as Internet marketing
plays a very important role to drive customers. Internet reduces the transaction cost as well as time. The
quality of services can be improved by providing all the important information over Internet, it also increases
customer satisfaction.
Business Model
Business model of insurance industry involves an agreement between parties named as insurer (Company)
and insured (Policy holder) with a condition to compensate on damage occurred on insured (Person,
tangible or intangible item). This compensation is taken in return of a premium for purchased policy which
is supposed to be paid at specified regular intervals. Business model of insurance industry works on
principle of sharing risk and pooling funds, herculean task in this industry is to determine and evaluate the
risk which is done using Actuaries (Actuaries works on principle of probability involving various types of risk
and determine the returns to be paid for those claims. Insurance policies are priced in a way such that
claims + expenses equal premiums over a substantial period. Underwriting the risk is the major contributor
of profit to Insurance firms in India. Major sources of Income for insurance companies are Underwriting risk,
interest from Investment, paid up capital, premium loading, Contract pricing. All these have been explained
in Fig. 1
Most of the insurance companies use the same model and makes profit. Insurance companies invests a
huge amount of their paid-up capital i.e. premiums collected in other organizations as short term or medium-
term investment. Earning through such means add up as a huge revenue helping the insurance companies
in paying out the returns. Insurance companies calculates the risk associated with insured through several
steps like considering the current condition and evaluating the risk based on future needs, risks, health,
physical, psychological condition, nature of work, marital status, hobbies, location, past records and family
hereditary.
Competition and market Structure
Insurance industry is highly competitive, and it is clear from Porter's 5 force analysis that switching cost
before purchasing the contract is high and all the options seems lucrative enough. Threat of substitutes
acts as a major hinderance in this industry, now a day’s people us insurance not only as a life cover but
Indian Institute of Management Raipur 4
Business Environment – PGP 2017-2019
also as an investment strategy to obtain high interest while being insured too, this gives rise to high threat
of substitute to other avenues. In Life insurance itself there are 52 competitors all offering similar products.
Strategy of all firms is to compete on low price and high return strategy to lure customers. Although IRDAI
which acts as regulator for both life and Non-life insurance governs all the actions of the firm. Non-Life
insurance sector provides coverage for many types of intangible and tangible assets. This sector is
expected to increase by 2-2.5 times by 2020 despite having long list of contemporary challenges.
Insurance sector is highly organized and developing a very high pace, however penetration of Insurance in
India is considerably low especially in rural parts of the country. Insurance industry have both Public as well
as private players, while private sector concentrating much on urban population and providing value added
services to customers. Most of the Private players came to industry through a joint venture with any global
giant. Health insurance sector was first one to be liberalized but still it is one of the less developed sectors
in industry. Out of total 53 companies, 26 are in life insurance business, 24 in general insurance business
while one in re-insurance business. General Insurance corporation is the only re insurer in the country.
Market is expecting few more private players in the sector who should help in increasing the penetration of
Insurance in rural part of country, this growth is expected to come from the recent announcement of
increase in FDI in this sector.
Revenue, expenditures, profit and tax patterns
The insurance industry can be divided into two segments: the life insurance segment and the non-life
insurance segment. If we look at the 2013 IBEF Insurance Reports, out of the total share of 70 Billion USD
around 61 Billion USD was contributed by the life insurance segment while the rest of the 9 Billion USD by
the other segment. If we look at the same scenario in 2018, the market size has grown to 85 Billion USD
with life insurance contributing 64 Billion USD and the rest by the non-life insurance segment. The rapid
growth in this segment can be attributed to mainly 3 factors - Increased life expectancy due to increase in
access to medical facilities, increase in income levels of the people and introduction of tax benefits on
insurances.
From the above data and the data in Exhibit 9, we can see that the life insurance segment is not grown as
expected and this has led to more competition. This competition has led to decrease in market share of
companies like HDFC, Reliance, Max New York etc. in this segment. However, the growth in the non-life
insurance sector, there is a very well fought competition as well. Most companies which were doing
business in 2013 has very similar market shares in the year 2018 as well. This trend can be attributed to
the fact that international funding in the form of FDI is more directed towards the non-life insurance segment,
mainly the automobile insurance sub-segment.
Insurance products in India are brought under the (EEE) method of tax exemption. This coincides to a tax
benefit of approximately 30 per cent on select investments (including life insurance premiums) every
financial year. This has also encouraged more people to invest in insurance and has led to the growth of
the industry.
Unique business attributes
While the rest of the industry, has just managed to maintain its market share, SBI Life has been able to
manage to grow its market share in the life insurance segment.
SBI Life Insurance, a venture between State Bank of India (74%) and BNP Paribas Assurance, France
(26%). The company primarily deals in life insurance and pension plans with 758 offices all over India. In
the year 2017, it issued around 1.274 million insurance policies. Between FY08 and FY17, SBI Life’s profits
increased at a CAGR of 36.91 per cent with its annual profits increasing to US$ 141.99 million by FY17. In
Indian Institute of Management Raipur 5
Business Environment – PGP 2017-2019
FY16, it accounted for a market share of 17.2 per cent among all life insurance companies. The company
earned US$ 837.5 million as net premium in Q2FY18. The company was able to perform so well due to the
brand equity of the major partner, SBI which enjoyed in the market. Apart from that BNP Paribas brought
in a lot of technical and operational efficiency which led to a higher customer satisfaction. Its main
differentiator apart from having a huge credibility in the market is that it created products which are
accessible to all segments across age groups, income levels, insurance needs like automobile, healthcare,
etc. This also made SBI Life a one stop solution for different insurance products.
Challenges
One of the biggest challenge in this industry is to secure the right talent due to very high attrition rate of
insurance (especially observed in case of agents), which in turn leads to low switching cost for customers.
Investing in right technology and in an era of data, having a control over the data gives edge to any
organization. Artificial Intelligence acting as a catalyst for improvising the customer needs and molding the
product features in accordance with their needs. As per the growth report by PwC, increase in Productivity
due to use of AI in insurance sector is expected to provide half of the gains by 2030. Increasing life
expectancy due to advancements in medical industry, greater employment leads to a challenge for
insurance industry to reduce premiums and still manage in highly competitive industry. Biggest challenge
for insurance industry is to overcome the low level of penetration which is below 3.5% in India while globally
its more than 6.3%. Financial inclusion and awareness is what the Indian Industry needs to improve,
considering the below par penetration of Insurance in Indian industry with respect to other countries like
Taiwan where penetration is more than 15%. Meeting personalized expectations for individuals is major
hurdle for insurance industry, very low amount of evolution in the industry in past decades acts as a hurdle
in the industry. Due to gaps in workforce especially at mid management level, although technology helps
in improving the process but in case it is acting as a foe as well as friend to the companies. Quick re
imbursement is expectation of insurer with minimal amount of paperwork. Most of the industries targeting
the use of Big Data in each industry, handling the utilizing huge amount of data to decipher the activities
and nature of person and determining the risk associated with it and using the algorithm to provide accurate
and personalized products to individual remains a challenge ahead of the industry.
Future Growth
Future of this sector depends upon the effective ability of insurance companies to provide innovative
products and mapping the product features with customer needs. Future growth depends on how well
companies can change the perception of Indian customers and making them aware of various risk involved.
Rise in this growth will also be linked to international triggers, FDI involvement, addition of big giants to the
industry. Future of this industry looks positive with the current government trying hard to provide low cost
insurance to individual, especially those who cannot afford it easily (people below poverty line), along with
helping them in understanding of its significance remains a challenge for the industry. Introduction of
schemes with lower and lower middle-income categories helps to utilize the low premium policies like
(PMSBY Pradhan Mantri Suraksha Bima Yojna, PMJJBY Pradhan Mantri Jeevan Jyoti Bima Yojna, RSBY
Rashtriya Swasthya Bima Yojna) introduced by current government.
Indian Institute of Management Raipur 6
Business Environment – PGP 2017-2019
Exhibit 1
1829: life insurance
1834 : Oriental 1870: British
started by Madras
Insurance failed Insurance Act made
Equitable
1938: Major 1912: Estb. of 1871-1897: Bombay
amendmends to Indian Life Mutual, Oriental
protect the Insurance and Empire of India,
insurers' interest Companies Act started
1950: Principal
agencies abolished
1956: LIC is born
through Insurance
Amendment Act
Exhibit 2
1850 : Triton 1957: General
1907: Mercantile
Insurance Co Ltd insurance council
Insuarnce Ltd estb.
estb. formed
1968: Insurance Act
1973: 107 insurers 1972: General
amended for
combined to form 4 Insurance business
regulating
major companies Act passed
investments
Indian Institute of Management Raipur 7
Business Environment – PGP 2017-2019
Exhibit 3
Exhibit 4:
International Scenario
Insurance Premiums (life and non-life together) Grew by 4.3% in 2015 and then by 3.1% in 2016
Global Life premiums Grew by 4.4% in 2015 and then by 2.5% in 2016
Premiums in emerging markets Grew by 17% in 2016 (driven majorly by China)
Premiums in developed markets Fell by 0.5%
Global Non-Life premiums Grew by 4.2% in 2015 and then by 3.7% in 2016
Premiums in developed markets Grew by 3.3% in 2015 and then by 2.3% in 2016
Premiums in developed markets Grew by 7.9% in 2015 and then by 9.6% in 2016
Indian Institute of Management Raipur 8
Business Environment – PGP 2017-2019
Exhibit 5:
Exhibit 6
Indian Institute of Management Raipur 9
Business Environment – PGP 2017-2019
Exhibit 7:
1. Aditya Birla Sun Life 2024.95
2. Bajaj Allianz Life 3485.35
3. Canara HSBC Life 1073.99
4. DHFL Pramerica Life 1272.19
5. HDFC Standard Life 9305.89
6. ICICI Prudential Life 8065.99
7. India First Life 1087.78
8. Kotak Mahindra Life 2676.64
9. Max Life 3420.83
10. PNB Met Life 1155.14
11. SBI Life 9203.34
12. Tata AIA Life 1136.40
13. LIC 115803.52
List of the major firms in the non-life insurance based on the premium earnings are listed below:
List of General Insurers Stand Alone Private Health Insurers
1. Bajaj Allianz 8,598.92 1. Apollo MUNICH 1,446.09
2. Bharti AXA General 1,565.08
2. Star Health & Allied Insurance 3,346.26
3. Cholamandalam 3,758.57
4. Future Generali 1,734.25
5. HDFC ERGO General# 6,637.75
6. ICICI-Lombard 11,502.00
7. IFFCO-Tokio 4,627.64 Specialized Insurers
8. National 14,605.01 1. AIC 7,168.72
9. New India 20,185.07 2. ECGC 1,084.59
10. Oriental 10,213.33
11. Reliance General 4,645.38
12. Royal Sundaram 2,367.44
13. SBI General 3,058.42
14. Shriram General 1,855.64
15. Tata-AIG 4,872.00
16. United India 15,338.34
17. Universal Sompo 1,801.74
Indian Institute of Management Raipur 10
Business Environment – PGP 2017-2019
Exhibit 8:
Underwritin
g Income
Others (Paid
up capital
interest and
Business Investment
Contract
Pricing)
Model Income
Premium
Loading
Indian Institute of Management Raipur 11
Business Environment – PGP 2017-2019
Exhibit 9
Indian Institute of Management Raipur 12
Business Environment – PGP 2017-2019
References:
1. https://www.ibef.org/industry/insurance-sector-india.aspx
2. https://www.acko.com/articles/general-info/insurance-sector-india/
3. http://www.indianmirror.com/indian-industries/insurance.html
4. https://www.scribd.com/doc/6070482/Introduction-to-Insurance-Industry
5. https://www.educba.com/insurance-sector-in-india/
6. https://www.ibef.org/download/Insurance_Report_Feb_20181.pdf
Indian Institute of Management Raipur 13
