Life Insurance



Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise.

As with most insurance policies, life insurance is a contract between the insurer and the policy owner (policyholder) whereby a benefit is paid to the designated Beneficiary (or Beneficiaries) if an insured event occurs which is covered by the policy. To be a life policy the insured event must be based upon life (or lives) of the people named in the policy.

Insured events that may be covered include:

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide, fraud, war, riot and civil commotion.

Life based contracts tend to fall into two major categories:

  • Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance.
  • Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US anyway) are whole life, universal life and variable life policies.


ICICI Prudential
Birla Sun Life
Bajaj Allianz
SBI Life
Tata AIG
Max - NYL
Met Life
Om Kotak
ING Vysya
AMP Sanmar

India is emerging as one of the two of the largest markets in the world for life insurance products, the other being China. In the case of India, the three key drivers of growth are a large insurable population, a high savings rate, roughly at about 25 per cent and a low penetration, at a mere 2.3 per cent. In the 11 months of fiscal year 2004-05, life insurance companies collected premia worth Rs 172 billion and the market grew by a whopping 32.4 per cent during the year. Of this, the public sector Life Insurance Corporation (LIC) had the lion's share of the market with premia totaling Rs 134 billion. Private sector players recorded a spectacular growth of 129 per cent over the last year, compared to LIC's growth of 18 per cent. India's GDP growth rate of 6 per cent per annum holds great potential for the sector. According to one estimate real life premia are expected to grow at a compounded annual rate of 15 per cent over the next ten years.

How does India's life insurance market compare with China's? While India's market is currently the fifth largest, China's is the third largest in Asia after Japan and Korea. Low penetration rate of insurance products is common to India and China - at just about 2.3 per cent. In China, the savings rate is at 35 per cent while for India it is a little lower at 25 per cent. A large part of the growth of the life insurance market in China was driven by the conversion of bank deposits into endowment products. Demographically, China's population is ageing faster than India's.

FDI in Insurance Sector
The government of India is planning to increase the equity limit for foreign direct investment from the current 26 per cent to 49 per cent in the insurance sector. Liberalisation of the FDI policy, including the Budget proposals for raising the sectoral caps in insurance is one of the main factors for the higher FDI inflows during the current year. In 2003-04 the total FDI inflows in the country touched $3.4 billion. Indian insurance companies have been pushing for the FDI limit to be raised. The current paid-up requirement of Rs 1 billion for general insurance and Rs 2 billion for life insurance have become difficult targets to achieve for the companies. The companies feel that injection of additional foreign equity would reduce their costs. The sector was liberalised for private players towards the end of 1999. Currently, there are 14 insurance companies, including the key public sector company Life Insurance Corporation, in the life insurance sector and 13 general insurance companies.

Changing Demographics

In 1999, according to KSA-Technopak, savings and investments comprised 14 per cent of an Indian consumer’s expenditure. The other items included grocery (44 per cent), personal care items (6 per cent), consumer durables (6.6 per cent), clothing and books and music (5 per cent each), eating out (8 per cent), movies (1 per cent). By 2003, expenditure on savings and investments had declined to just 4.1 per cent. The other items included grocery (41 per cent), personal care items (7.6 per cent) , consumer durables (6.6 per cent), clothing (6.9 per cent), eating out (10.8 per cent), movies and theatres (4.6 per cent), books and music (7.6 per cent), vacations (3.9 per cent). Clearly, the increased spending on other items have had a huge impact on the amount people are spending on savings and investment products. (Source: Business World’s Marketing Whitebook 2005).

Composition of Household Financial Savings
1991 1996-97
Currency 10.6% 8.6%

Deposits 33.3% 48.2%

Of which Deposits with nonbanking companies 2.2% 16.4%

Shares and debentures 14.3% 6.6%

Small savings (centralgovt.schemes) 13.2% 7%

Life insurance 9.5% 10.1%

Providentand pension funds 16.9% 19.1%

Source: RBI Annual Reports.

Key Players in the Indian Market

While the public sector LIC dominates the Indian life insurance market with nearly 80 per cent of the market share. It has 248 branches, 115,000 employees and over 1 million agents. It has also been improving internal processes and systems, upgrading skills of its agency force and managers and developing innovative products. LIC sold 1.69 crore policies during the year compared to 18 lakh policies sold by all the private players.

ICICI Prudential is the leader among the private players with a market share of 6.69 per cent after its premia collection totaled Rs 11.54 billion. Bajaj Allianz with sales of Rs 4.9 billion had a market share of 2.86 per cent. Birla Sun Life with sales of Rs 4.8 billion had a market share of 2.81 per cent and SBI Life with premium collection of Rs 3.9 billion, a market share of 2.29 per cent. With its combination of aggressive marketing through an agency force and the use of the banking channel, ICICI has emerged as a key player. Initially, the company drove new business by opening branches in new locations. The focus has now shifted to penetrating these locations for increasing market share. The company is also trying to get higher penetration in the High Net Worth segment. The company has seven bancassurance partners and this is the largest contributor to non-agency business. It also has 15 key non-bank partners and 800 financial sales consultants. As of September 2004, it had 90 branches in 60+ locations. It took the initiative in launching non-traditional products such as life-stage products, retirement solutions and child plans. It also focused on Unit Linked Plans (ULIPs) to target new consumer segments. It has a presence in 15 states through partnership arrangements and as of 2003-04, it sold 64,764 policies in rural areas.

HDFC Standard Life has established its branches in 110 locations and is targeting non-metro towns. It is hoping to leverage its “pedigree/parentage” to gain more customer acceptance. As a result, it is focusing on quality – not just volume growth. It has developed some innovative products like the Loan Cover Term Assurance Plan which provides a lumpsum in case of death of the assured life during the term plan. Aimed at the growing segment of home loan takers, the plan helps the family to repay the outstanding loan. Given that HDFC has a huge database of home-loan customers, it can easily tap into this resource to acquire new business. The compnay is leveraging its large customer database of home loan and banking clients to cross-sell insurance products.
Birla Sun Life

Birla Sun Life was the first to offer ULIPs in the Indian insurance market. And this has been the primary driver of its growth over the last one year. The company has been investing in customer education and feels that as a result customers don't view ULIPs as mutual funds but long term insurance. As of 2004, the company had 33 branches, 10,274 agents, 79 corporate relationships and 10 bancassurance partners.

Bajaj Allianz has been focusing on second tier towns and cities which are yet to witness the entry of other life insurance players apart from LIC. It is using first mover advantage by opening an office in the most prominent location in a non-metro town. It hires local people who are trained. Its mantra is to develop only the indispensable infrastructure so that it can match the pricing of LIC. Apart from that it claims that it is the only private player to provide policy servicing at the branch level. Standard Chartered is currently its biggest partner followed by Syndicate Bank and Centurion Bank. The biggest challenge that the company faces is the weak infrastructure – particularly transport and communications – in the smaller cities. It is also facing a challenge in terms of banking channels, particularly for customers who bank with cooperative banks, where delays in clearing cheques are inevitable. Tied agencies comprise the biggest channel (68%) of new business acquisitions for Bajaj Allianz. Bancassurance (27%) is the other significant channel of growth for the company.