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International Section News

July 2005 – Issue No. 36 in India by K.S. Gopalakrishnan

Editor’s Note: Any views expressed in this arti- the better-off segments of the society. Though cle are purely those of the author. the Insurance Act of 1938 provided the legisla- tive framework, the large number of insufficiently regulated insurers provided for The Past an increased potential for abuse. The govern- ife insurance in its present form came ment of India, in September 1956, took over to India with the establishment of a the management of all life insurers and L British firm, Oriental Life Insurance created a nationalized monopoly in the form of Company, in 1823. The first Indian-owned life the Life Insurance Corporation of India (LIC). insurance company, the Bombay Mutual Life Assurance Society, was set up in 1871. The The Exciting Present Indian Life Assurance Companies Act, 1912, The wheel turned one full circle when the was the first statutory measure to regulate the government, as part of financial sector reforms, life insurance business. The concept of life insur- opened up the insurance industry for the ance, thus, is not a new concept to the country of private sector in 1999. The legislation paved a little over one billion people with a total land the way for an independent autonomous regu- area of over 3.2 million square kilometers. latory body called the Insurance Regulatory In 1956, India had an entirely privatized and Development Authority (IRDA). Foreign life insurance industry with 245 insurers, companies, are however, not allowed to own primarily writing business in the cities and for more than 26 percent in the private insurance companies. The IRDA quickly came out with regulations covering several areas including Foreign Insurer Joint Life Insurance Company Venture Partner licensing of intermediaries, appointed actuary, financial reporting, solvency and investments. 1 LIC of India None (Government-owned) The first private sector life insurance company opened for business in December 2000. Unlike 2 ICICI Prudential Prudential of UK in some other countries, a license to write life insurance business in India allows companies 3 Birla Sun Life Sun Life Financial (Canada) to do business across the country and also write all types of life insurance business. 4 Aviva Aviva

As of April 2005, there were 14 life insurance 5 MetLife MetLife companies, including the LIC (see chart in the 6 ING Vysya ING left column).

7 AMP Sanmar AMP It is reported that more foreign insurers are keen on setting foot on India but are perhaps 8 Tata AIG AIG deterred by the maximum of 26 percent they can own. The government has been indicating 9 SBI Life Cardiff that the 26 percent could go up to 49 percent, but the timing of this depends to a great extent 10 Kotak Life Old Mutual on how quickly a consensus is arrived at amongst the leading political parties. 11 Max New York Life New York Life

12 HDFC Standard Life Standard Life The Market The entry of new players has seen a paradigm 13 Bajaj Allianz Allianz shift in the market. The new companies ventured into different distribution channels 14 Sahara India Life None (fully Indian-owned) such as selling through banks. This channel

34 | INTERNATIONAL NEWS | JULY 2005 has become so successful in a short span of The Actuarial Profession time that it accounts for almost one-third of A growing actuarial profession in India stag- the business for the key new players. The nated after the nationalization in 1956. A approach to selling life insurance, too, under- single government employer market offered went a major change when it was made limited career prospects, forcing those qualify- mandatory for every sale to be preceded by a ing as actuaries to migrate to other countries. standardized sales illustration. The liberalization of financial markets has now Until the advent of new players, traditional revived interest in the actuarial profession. participating endowment type products ruled The profession in India is organized under The approach to the market. The new players brought in the Actuarial Society of India (ASI) since 1944. selling life insurance, contemporary unit-linked (variable universal The ASI was primarily a body for research and too, underwent a life) products and also introduced protection discussions until 1989 when it started its own major change when it products in the form of term products and criti- examinations leading to qualification as an was made mandatory cal illness riders. The popularity of unit-linked actuary. The ASI works very closely with the products forced every other player to take U.K. actuarial profession. As of 31 August for every sale to be another look at their market strategy. In fact, 2004, the ASI had 3,769 members, of whom 205 preceded by a every player now not only has unit-linked were fellows. standardized sales products, but also gives greater attention to The IRDA regulations have made the illustration. sales from this product line. Birla Sun Life can appointed actuary system mandatory for life claim credit for being the first private player to and P&C companies. This move has strength- launch this product line. Interestingly, this ened the role of actuarial advice within these company is the only company that does not insurance companies. Further, the government write any participating business in India. The is in the process of liberalizing the pensions success of unit-linked products can be seen in market. Efforts are also under way to promote that it accounts for a major part of the busi- health insurance in the country. All these ness for the two leading private players— present tremendous opportunities for actuaries almost 80 percent for the number one private to grow and contribute. sector player, ICICI Prudential and almost 100 The ASI has become a vibrant body in the percent for the number two private sector last couple of years by coming out with profes- player, Birla Sun Life. sional guidance notes on various areas, The potential for life is esti- changing its examination course in line with mated to be huge as the share of life insurance international trends, signing mutual recogni- premium to GDP was a low 2.26 percent (2003). tion agreements with the United Kingdom and A fast growing economy (over 6 percent p.a.), a Australia, organizing seminars and actively burgeoning middle class (over 300 million), high encouraging research work. per capita savings and low penetration of insur- ance point toward the opportunities that exist for Conclusion growth of life insurance. India is a country of several commonalities and Four years after the entry of new players, contradictions. The wide disparity in income LIC continues to dominate the market but levels of its people is a good example of this. has surprisingly lost market share faster than However, as the economic reforms unlock its anticipated. From a 100 percent market share true potential, it is expected that the country K.S. Gopalakrishnan, of new premium in the year 2000, the LIC’s will soon emerge as an economic powerhouse. A FIA, ASA, FCIA, FIII, FASI, is an actuary with share has dropped to 78 percent (for the high propensity for Indians to save, growing Birla Sun Life Insurance period April 2004 to February 2005). The economy and low insurance penetration indi- Company in Mumbai, sheer size of LIC can be seen from these cate a huge potential for the life insurance India. He has been impressive statistics—27 million new individ- industry. The current shortage of experienced actively involved in the Actuarial Society of ual policies sold in 2003-2004, 157 million actuarial skills makes it even more attractive India for more than 10 in-force individual policies as of March 31, for the actuarial profession! o years in various activi- 2004, more than one million agents, over 2000 ties. He can be reached branches and assets under management of Useful Web sites: at gopalakrishnan@ birlasunlife.com. Rs. 3,218 billion (approximately USD 73 www.irdaindia.org billion) as of March 31, 2004. www.actuariesindia.org

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