With the booming stock market in 2007-08, the life insurance business witnessed significant growth and private players were more aggressive than LIC. Vast untapped market will ensure steady growth in the future too, writes Dilip Maitra who closely follows this sector.

The process of economic liberalisation that started in the early 1990s has completely changed the face of business. And one industry where the impact of change is strikingly visible is the life insurance sector, which was opened up for the private sector in the late nineties.

Till then the government-owned Life Insurance Corporation (LIC) had its complete monopoly in life insurance business. As the sector was opened up, over the last seven years 17 companies from the private sector has joined the fray and three more are planning to join the bandwagon.

Slowly, the private sector is becoming a force to recon in the life insurance business. Till 2005, the share of private sector in the industry was an insignificant 15 per cent. Now, in the financial year 2007-08, its share has jumped to 36 per cent against 26 per cent in 2006-07. (See table).  
 
True that the giant LIC is still a dominant player with almost 64 per cent market share, but it is growing much slower than private players. Of the 17 private life insurance companies, six at the bottom of the table are new. The remaining 11 are having varying degree of growth.

The life insurance industry as a whole had a handsome 23 per cent growth in 2007-08 as the first year’s premium collections under various schemes reached Rs 92,989 crore against Rs 75,406 crore in 2006-07. LIC’s premium collection at Rs 59,182 crore grew 5.80 per cent, much slower than the industry average.  Players in the private sector, however, more than compensated for LIC. The Rs 33,806 crore first year’s premium collected by them in 2007-08 was 74 per cent higher than their previous year’s collection. Among the private players, ICICI Prudential is the largest, followed by Bajaj Allianz, SBI Life, Reliance life, HDFC and Birla Sunlife, etc, (see table).   

Fast growth

In terms of growth, among the top ten private players Reliance Life was the fastest growing. Its premium collection in 2007-08 at Rs 2,753 crore was almost three times (195 per cent) of the previous year. The second fastest growing company was Birla Sunlife whose premium collection in 2007-08 rose 122 per cent to Rs 1,965 crore. As a result of their aggressive growth, both Reliance and Birla have moved up one notch in industry ranking in 2007-08.

Interestingly, one of the major reasons behind the smart growth in premium collection by the private sector is the aggressive selling of unit-linked insurance plans. Under the unit-linked plan, premium paid is invested in stocks, in debts, and in various combinations depending on the scheme.

Investment or safety?

The boom in the stock markets in the first nine months of 2007-08 (till December 2007) was used by the private players to lure investors buy unit-linked plan. The LIC, on the other hand, saw lower growth because it was more conservative and pushed for endowment plans more than unit linked. As the stock prices remained depressed since the beginning of January 2008, the attraction of unit-linked plans has gone down dramatically and their sales have dwindled. This aspect of business also raised the debate if many private companies were at fault in selling life insurance policies mainly as an investment product and not a protection (against loss of life) tool.

Wide reach 

As the crash in stock prices has made many investors poorer, the more conservative ones, who stayed away from unit-linked schemes, are definitely reaping the benefit. Fast business growth of the private sector, however, does not mean that LIC has accepted a defeat. On the contrary, it is now much more market savvy and proactive in reaching out to the customers. Being the oldest in the industry, LIC has 10 lakh active agents on its roll. It has the widest distribution reach through 2,050 branches, 105 divisions, 75 Pension & Group Business units and 7 zonal offices.

 LIC’s reach in the rural areas is also enviable to the competition who focus mainly on urban areas. LIC gets nearly a fourth of its business from the rural areas. Huge brand awareness and, of course, the reliability-tag of government-owned company add to LIC’s attractiveness as safest place for one’s money.

With more companies to join the fray, the business of life insurance will continue to be exciting in the coming years. The large, untapped life insurance market in India — insurance premium account for only 1.8 per cent of GDP against eight per cent in South Korea’s and six per cent in UK — will provide enough room for everyone to grow. If the government raises the limit of foreign holding to 46 per cent, the industry will see a boom in investments and growth.

Editor Release: InsuranceHeadlines.com