Developments in Indian Life Insurance Industry 16 th December 2010, Kochi

1. Developments in Indian Life Insurance Industry 16th December 2010, Kochi

2. Agenda Snapshot of Indian Life Insurance Industry Inclusive Growth of Life Insurance Sector Investment by Life Insurance Companies Expenses of Life Insurance Companies Protection of Policyholders Interest 2

3. Snapshot of Indian Life Insurance Industry • Life Insurance Industry completes a decade of opening up. • 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. 30,396 Cr deployed. • (As of 30th Sept 2010) • Foreign partners have brought in capital of Rs.5053 Crs as FDI. • (As of 31st March 2010) • India has the largest in-force policies in the world. 3

4. Snapshot of Indian Life Insurance Industry……….contd • More than 72 % of branches are located in Class C cities or lower Source: IRDA, Life Insurance Council (Apr-Sep 10 data is provisional)

5. Snapshot of Indian Life Insurance Industry……....contd • As per IRDA guidelines Life Insurance Companies have to mandatorily sell 18%policies in rural areas. Source: IRDA, Life Insurance Council (Apr-Sep 10 data is provisional)

6. Snapshot of Indian Life Insurance Industry ……..contd • The industry services largest number of life insurance policies in the world Source: IRDA

7. Snapshot of Indian Life Insurance Industry ……..contd Benefits Paid Source: IRDA, Life Insurance Council (Apr-Sep 10 data is provisional)

8. Agenda Inclusive Growth of Life Insurance Sector 8

9. Inclusive growth of Life Insurance Sector - • Companies are statutorily required to do rural business and cover lives from social sector -rural, un-organized and socially underprivileged from there first year of operation. • Companies have to mandatorily sell • 18% of new policies in rural areas. • Cover 25,000 lives in social sector every year. • 2.8 Crore rural policies were sold by companies in last two years. (1.55 Crore policies in 2007-08 and 1.26 Crore policies in 2008-09) • 3.36 Crore life's covered in social sector in last two years. (1.43 Crore in 2007-08 and 1.93 Crore in 2008-09) • 72% of the total 12,018 branches of insurance companies are in semi-urban or rural areas (33% in rural areas). • No such obligations for Mutual Funds which operate mostly in 16 cities. Source: IRDA, Life Insurance Council

10. Agenda Investment by Life Insurance Companies 10

11. Investment by Life Insurance Companies Rs. Crs • In FY 2009-10 life insurers invested 7,44,505 lakh crores in Central government, state government and other approved securities. Source: IRDA, Life Insurance Council

12. Investment by Life Insurance Companies……..contd Pattern of investment Rs. Crs Source: Life Insurance Council (data is provisional)

13. Agenda Expenses of Life Insurance Companies 13

14. 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. • In last four years (i.e. from FY 06-07 to FY 09-10) more than Rs.1,55,600 crores of premium was collected at a commission of less than 2.0% Source: IRDA

15. Agenda Protection of Policyholders Interest 15

16. Protection of Policy holders interest • All advertisements are to be filed with the regulator & must satisfy fairness criteria. • It is mandatory to explicitly give information on the definitions of all the applicable charges, method of appropriation of these charges and the quantum of all the charges during the entire term of the policy. • All ULIP sales illustration should highlight the rate of return calculated at 6% and 10% to enable comparison across various products. The illustration is to be signed by the proposer. • It is compulsory to mention on top each ULIP policy document “In this policy, the investment risk in investment portfolio is borne by policy holder. • Policy document should clearly mention inter-alia the grievance redressal mechanism, name and address of grievance officer, ombudsman to whom complaint can be registered.

17. Protection of Policy holders interest…………..…….Contd • Under regulation 6(1)Policy holders are given a 15 day free-look period from the date of receipt of policy document, where in the policy holder can review the terms and condition of the policy and opt to return the policy and claim refund. • Section 45 of the Insurance Act 1938 - “Policy not to be called in question on ground of mis-statement after two years”. • U/s 17d of Insurance Act 1938, there is a capping on expenses of management. • Overall capping of expenses for ULIP is:- • More than 10 years - 225 bps • Less than 10 years - 300 bps

18. Protection of Policy holders interest…………..…….Contd • Recent Regulatory Changes • Cap on surrender charges / discontinuance. • Lock in period increased to 5 years • Even spread of charges during the lock in period • Guarantee of return at maturity for ULIP Pension / Annuity Plans (4.5%) • Minimum life insurance cover should be 110% of Single Premium for age at entry of 45 years and above and 125 % for age at entry below 45 years. • Disclosure of Commission to the prospect.

19. Protection of Policy holders interest…………….Contd Transparency and Corporate Governance Public Disclosures • Companies are required to disclose detailed financial & statistical information on quarterly /half yearly and yearly basis on their website. • Companies are required to publish audited half yearly and annual financial statement in newspapers. Corporate Governance • Companies are required to follow Corporate Governance guidelines which are followed by all listed companies in India.

20. Protection of Policy holders interest…….………….Contd Grievance Redressal Mechanism • Note:- • There are 12 ombudsman Centre's in India. • The companies cannot challenge the decision of the ombudsman

21. Kerala Specific Data Source: IRDA

22. Thank You

23. Life Insurance New Business Premium Rs.Crs Note: Figures may not add up to 100% due to rounding off Source: IRDA

24. Life Insurance Business New Business Premium collected for Pension and Annuity schemes in last 5 years Rs.Crs Policies Source: IRDA