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Mr.S.B. Mathur

Mr.S.B. Mathur. Life Insurance Industry. Life Insurance Industry was liberalized in the year 1999-2000. Currently there are 22 players in the Life Insurance Industry. 19 Insurance companies have JV’s with foreign partners.

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Mr.S.B. Mathur

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  1. Mr.S.B. Mathur

  2. Life Insurance Industry • Life Insurance Industry was liberalized in the year 1999-2000. • Currently there are 22 players in the Life Insurance Industry. • 19 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. • India has the largest in-force policies in the world. 2

  3. Growth Indicators Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  4. Growth Indicators Source: IRDA, Life Insurance Council (FY 08-09 and Q1 data is provisional)

  5. Growth Indicators As per regulations Life Insurance Companies have to sell 18% policies in rural area. India has largest number of in-force policies in the world (IRDA Annual report). Source: IRDA, Life Insurance Council (FY 08-09 and Q1 data is provisional)

  6. Benefits Paid Source: Life Insurance Council

  7. Global Indicators The industry services the largest number of life insurance policies in the world * Inflation adjusted Source: IRDA, Swiss Re

  8. Global Indicators Source: IRDA report 2007-08, Life Insurance Council

  9. Industry Contribution / Support to the economic development in FY 2008-09 A. New Offices • Life Insurance companies in India have opened 2,807 new offices. Total number branches of Life Insurance companies -11,720. 39% of the total offices are located in Class “C” location 31% of the total offices are located in less than Class “C” location. B. Employment Generation • Have provided direct employment to 30,333 people. • Part time employment to more than 3.8 lacs individual agents during the year. C. Improved Persistency • Increase in renewal premium collection by 24 % (Rs.1,07,638 Cr to Rs.1,33,318 Cr) • Increase in unit linked renewal premium collection by 106 % (Rs.22,380 Cr to Rs 46,239 Cr) • Decrease in surrender value payment • Increase in Total Premium collection by 10% (Rs.2,01,351 Cr to Rs.2,20,184 Cr) Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  10. Industry Contribution / Support to the economic development in FY 2008-09 Investment by Indian Insurance Companies • Insurance companies have invested approximately Rs.51,562 Cr in the Equity market. • FII pulled out approximately Rs.47,345 Cr from the domestic stock market. • Mutual funds invested approximately Rs.7,000Cr in the domestic stock market. • Increase in Infrastructure Investment by 25%(Rs.91,283 Cr to Rs.1,13,717 Cr) “Insurance industry was the saving grace for the domestic equity market”- Hindu Business Line Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  11. Industry Contribution / Support to the economic development in FY 2008-09 • Investment in the infrastructure sector amounts to Rs.1,13,717 Crores as on March 31,2009.(Last Year-91,283 Cr) • Investments Instruments Rupees in Crores • Equity 1,99,666 • Fixed Income (Debt) 7,08,622 • Others 25,742 Total: 9,34,030 • Prudent asset management strategies aligned to regulations adopted by the industry have provided consumers healthy returns over long-term Source: IRDA, Reports and internal estimates

  12. Expenses of Life Insurance Companies • Rule 17D of Insurance Act 1938, there is a capping on expenses of management. • Exemption is granted to companies in first 5 years of operation. • Maximum Commission payable to agents under various product heads is prescribed in the Insurance Act. • Percent Commission is lower on high premium policy and vice-versa. Competition will further drive down cost of commission. Source: Life Insurance Council

  13. Commission paid by Life Insurance Industry Source: IRDA, Life Insurance Council (FY 09 data is provisional)

  14. Commission paid by Life Insurance Industry • For the FY 2008-09 • Total premium of the Industry - Rs.2,20,184 Cr • Commission paid to intermediaries -Rs.15,337 Cr • Percentage of Commission as a percentage of total premium – 6.97 • Insurance is a long term contract with average tenure of 15 years. • Comparatively high start-up cost to be related to a long tenure. 14

  15. Commission paid by Life Insurance Industry Rate of Commission paid on Single Premium policy is 1.75-2.0% which is mandated in the Insurance Act In case of Group (Non-Single) policies business is obtained directly at less than 2% of commission. In case of differed annuity the commission rate is 2%. Commission rate on renewal premium is approximately 5% or below. 15

  16. Commission paid by Life Insurance Industry In last 2 years 42% of total premium is collected at a commission rate of 1.75-2.0% (with no trail commission) FY 2008-09 Rs.24,734 crores In last four years more than Rs.1,25,000 crores of single premium is been collected at a commission of 1.75-2.0% Under certain plans maximum commission payable to intermediaries is 35%.Incase of new companies the maximum commission payable is 40%. Generally the commission paid is dependent on the term of the policy.

  17. Inclusive growth of Life Insurance Sector - • Companies are statutorily required to do rural business from there first year of operation. • Companies which are in operation for 6 years or more have to mandatorily sell 18% of new policies in rural areas. • Companies are supposed to cover 25,000 lives in agriculture and unorganized sector. • 2.8 crs rural policies were sold by companies in last two years. (1.26 Crore policies in 2007-08 and 1.54 Crore policies in 2008-09) • Companies are to open branches in non-city areas to do some priority sector lending. • No such obligations for Mutual Funds which operate only in 16 cities. • 70% of the total 11,720 branches of insurance companies are in semi-urban or rural areas.

  18. Grievance Redressal Mechanism • Note:-There are 12 ombudsman Centres in India.

  19. Ombudsman Source: IRDA

  20. Issues faced by Life Insurance Sector - • As of now there is no separate provision for long term savings instrument including Life Insurance since the current provisions provides for deduction for investments in both short term and long term savings. • Currently short term savings also includes the home loan repayments along with plethora of other savings instruments life mutual funds , bank deposits etc. • To address the long term savings , investment in long term products can be incentivised through a separate deduction for such investments.

  21. Issues faced by Life Insurance Sector - • Disparity in service tax for similar financial products. • High incidence of Taxation • Double Taxation • Life Insurance companies are required to maintain high capital solvency requirements. • Life Insurance companies are also required to adhere to the the social obligation norms of IRDA to open offices in rural and cater to the rural market which increases the costs of the companies to a greater level.

  22. Thank You

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