• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Sowmya Sundar

IT IS three years since the life insurance industry was thrown open to competition from private players. During this time, 12 insurers have come in and are exploring opportunities for growth in a market that is vast, both in terms of population and geographical spread. They have met with varied levels of success.

LIC, the public sector behemoth regarded for all these years as a synonym for insurance, is finding its dominance increasingly challenged, as the growth recorded by private players show.

In just three years, the private players have mopped up a near 11 per cent share of the first premiums collected in the half-year ended September 2003, against 5.66 per cent in March 2003.

Read on to see how the private players have fared, where they stand in the industry and the strategies employed in terms of product preferences or market focus.

Private sector racing ahead

The small base with which they started out may have something to do with it, but the fact remains that most private players have registered explosive growth, with a blistering 50 per cent growth recorded in the first-half for this fiscal.

The year 2002-03 was exceptional for LIC as it migrated from assured return schemes to non-guaranteed schemes.

Also, LIC took a hit on single-premium policies due to a change in the taxation policy; thus the skew in the performance for 2002-03.

However, if the growth recorded in products such as group insurance is considered, the prospects look promising. For instance, LIC recorded a 108 per cent rise in group premiums as of November 2003.

Among the private players, ICICI leads, with a 3.4 per cent share of the total market as of September 2003, followed by Birla Sun Life, HDFC Standard and Tata AIG, each cornering more than one per cent of the market.

ICICI's business has almost tripled in the last six months.

It has a strong foothold in the pension arena, with a market share of over 23 per cent as of March 2003 and 70 per cent of the private segment.

It continued to grow, recording a 15.4 per cent rise in premiums collected in April-September 2003.

With more products introduced in the market, clear evidence of growth in certain areas was visible.

The popular single-premium plans lost sheen, paving the way for other products such as market-linked plans and group insurance plans.

Single-premium policies lose sheen

After the qualifying amount for a tax rebate was capped at 20 per cent of the premiums paid, single-premium policies lost investor fancy. For instance, first-year premiums collected under single-premium policies amounted to just 5.7 per cent of the total premium collections in September 2003.

In 2002-03, LIC's single-premium policies, including Bima Nivesh, took a major hit, resulting in LIC's new premium collections plunging 23 per cent.

`Market'-linked plans: An instant hit

Enamoured of the ongoing rally in the equity market, investors appear to be flocking towards market-linked plans.

For instance, the contribution from the market-linked plans for ICICI Prudential was 67 per cent and 77 per cent respectively of the total premiums collected in April-June and July-September 2003 period.

Varishtha Pension Yojana: Not a threat

The launch of LIC's Varishtha had created a sensation in the pension market. LIC mopped up a whopping Rs 3,278 crore as premiums under the plan within just five months of launch.

To put it in perspective, the plan accounted for more than half the first-year premiums collected for LIC.

However, `Varishtha' should not have too much of an impact on the regular pension market as it is targeted at a different segment of the population. The regular pension scheme would cater to the population in the younger age group that is looking for a regular savings avenue to provide for retirement. On the other hand, Varishtha caters to the older population looking for immediate regular income.

Group plans: Emerging segment

`Group' plans are emerging as a business segment with considerable potential. Contribution from group plans to the total premiums rose from 14 per cent in March 2003 to 19 per cent in September.

The cost-effectiveness, tax benefits and the increasing need for organisations to retain their manpower and provide financial security drive this business. Group plans are not only cost-effective as the premiums are calculated for a group of people and it is bulk business, the employers' contribution is not treated as a perquisite in the hands of the employee.

Moreover, the organisation is allowed to deduct the premium paid as business expenses. Thus, it is a win-win situation for all the parties concerned — the employee, the employer and, of course, the insurance company, which has gained an expanded market.

LIC, yet again, leads in this segment with a whopping 93 per cent share. Among private players, SBI Life, Birla Sun Life and Tata AIG corner close to 80 per cent of the private market and about 5 per cent of the overall group business in terms of premiums underwritten. For instance, over 50 per cent of the aggregate premium income for the first half of 2004 for SBI Life comes through the sale of group insurance cover.

Geographic focus

Private players have been concentrating on specific States or cities even as they make inroads into newer markets. Maharashtra, Gujarat, Delhi and Mumbai have been the traditional markets, generating a chunk of the insurance business.

Max New York Life has a good presence in West Bengal and is expanding there to make the most of its popularity. Tata AIG is concentrating more on the southern States whereas OM Kotak is now targeting the urban youth and the markets in Gujarat and Maharashtra. These two States contribute close to 30 per cent of the business for Kotak.

The market is segmented between various private players, each having a strong presence in a particular area and catering primarily to the urban population.

Going by the experience of the FMCG sector, the rural market has huge untapped potential. But selling insurance is a different matter, as awareness of life risk is limited in the rural sector.

Most insurance products are complicated, and insurers need to invest time to educate the customer and help him/her understand the product. The costs and efforts involved are much higher in these markets. Moreover, this market generates high volume-low premium business.

For instance, the average size per policy sold in the rural sector is about Rs 1.5 lakh as against Rs 1.9 to 2 lakh in urban areas. Due to these limitations, private sector penetration in rural India is not very impressive. On the other hand, LIC expects a 30 per cent contribution from the rural sector this fiscal.

Most private players just concentrate on fulfilling the minimum stipulated number of policies to be sold, as per IRDA regulations. SBI Life is making inroads into this market, expanding its network through a tie-up with regional rural banks for selling its endowment and group products. Simple, pure and savings-oriented plans are more popular in rural India.

Value and volume play

In the process of increasing their market share, private players are also concentrating on the creamy layer, leaving the low value segment to the LIC. For instance, though LIC accounted for 94 per cent of the total number of policies sold, it accounted only for 88 per cent of the total premiums.

The reason could be the higher minimum premium and minimum sum assured limits stipulated by a number of private companies, which would leave them with high-value policies. For instance, Om Kotak has a high average policy size of Rs 2.5 lakh as its emphasis is on high-net-worth individuals.

The insurance industry is undergoing an interesting phase of transition and evolution. Quite a few interesting developments have aided this growth and the evolution.

The insurance industry is becoming more sophisticated with time, thanks to the aggressive competition among players, and is now transforming into a buyers market.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Construction: Building on

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line