Life Insurance Business in Private Sector- An Analysis of Insurance Premium
In the back drop of Malhotra Committee Report (1994), the IRDA bill was promulgated on October 24, 2000. This enactment opened the gateway for private insurance companies both in the general insurance as well as in the life insurance business. The present paper makes an attempt to comparatively analyse life insurance business of private sector. It further evaluates private insurance sector on the basis of mean scores of their life insurance premiums and accordingly ranks private life insurance companies. With the help of variate difference method, researcher tries to forecast position of private life insurance companies in terms of life insurance premium.
The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector it reveals the 360 degree turn witnessed over a period of almost two centuries.
In 1993, Malhotra Committee, headed by former finance secretary and the RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and to recommend its future direction. In 1994, the committee submitted the report with some innovative and revolutionary recommendations.
Reforms in the insurance sector were initiated with the passage of the IRDA bill in parliament in December 1999. The IRDA, since its incorporation as a statutory body in April 2000, has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies.
Under the IRDA act, private companies can now operate in India's insurance industry. However, they must obtain a license from the IRDA before being permitted to underwrite business. To have its licensee application considered, a domestic private company must be registered in accordance with the companies Act 1956 and have approximately US$ 20 million of investment capital.
In the year 2000-01, the Govt. of India lifted all entry restrictions for private sector investors. Foreign investment in insurance market was also allowed in the Indian market and the face of Indian Insurance sector changed dramatically.
TWO OBJECTIVES OF THE STUDY
Comparison of Business Earned Amongst the Private Insurers
Comparison of Business Earned with respect to Yearly Premium
Year wise data on the life insurance premium received from the policy holders by the various private life insurance companies were collected from annual reports and searching the IRDA website for the years from 2000-2001 to 2010- 2011 to compare the life insurance business amongst private insurers.
To compare the life insurance business earned amongst the private insurers, there was a need to study, through graphs, the behaviour, of the annual premiums received by private life insurance companies on their new business. The trend graphs can be plotted for each of the 22 companies, but to have meaningful and manageable inference we have confined this exercise to top 9 private life insurance companies which have maximum share of life insurance business. Before plotting the graphs, the problem was to plot that curve which is best fitted to the observed data. To select the curve best fitted to the given data we adopted the technique "variate difference method" of time series analysis.
Descriptive statistics for all the 22 private life insurance companies with respect to mean yearly insurance premium is given as under:
The table reveals that there is significant difference between the mean premiums received by 22 private life insurance companies. On the basis of their performance with respect to life insurance premium, the private insurance companies have been ranked in descending order which is obvious from the above table.
With the help of variate difference method the line of best fit is ascertained. The detailed calculations for one private life insurance company i.e. ICICI Prudential Life is exhibited as under:
As R1 <1.96, hence V1 and V2 may be treated as same, the degree of polynomial best fitted to the data may be taken as 1 and hence the straight line of the form y = a +bx is best fitted to the given data.
To fit the curve of the form y = a+bx to the data and to obtain the Estimated values of y
Similarly variate difference method was applied for rest top nine private life insurance companies, values of R1 for each of these companies shown at serial no. 2 to serial no. 9 in the table 1.1 were obtained and found to be 0.7643, 0.3970, 0.9753, 0.6883, 0.6814, 0.8165, 0.7130 and 0.8861 respectively. As R1<1.96 for each of the above companies therefore, the degree of polynomial best fitted to the data may be taken as 1 and hence the straight line of the form y = a +bx is best fitted to the given data.
The lines of best fit for the companies Bajaj Allianz, SBI Life Insurance Company, Reliance Life Insurance Company, HDFC Standard Life Insurance Company, Birla Sun Life Insurance Company, Max New Life Insurance Company, Kotak Life Insurance Company and Tata AIG Life Insurance Company are 2721+310.42*x, 2896.27+ 476.85* x, 1447.1 + 245.04* x, 1472.95+ 426.14* x, 1147.2+ 304.56* x, 837.442+ 240.67* x, 659+87.29* x and 643.08+83.7*x respectively.
Actual and estimated yearly life insurance premiums earned by top 9 private life insurance companies are shown in Fig. 1.4 and Fig. 1.5:
The trend as shown in Fig. 1.3 reveals that the positions of the top nine companies are tending to the following positions:
CRUX OF ANALYSIS
To wrap up the discussion, we may conclude from above analysis of first premium earned by private life insurer that the position of private insurance companies by and large remains the same. ICICI has the highest mean value and as per trend analysis it is expected to retain the first rank among all private life insurers. The HDFC Standard life and Reliance Life have been interchanging their position as per trend value. Reliance Life is loosing its ground to accommodate HDFC at fourth rank. The remaining seven life insurance companies are retaining their ranks.
The credit for spreading awareness among masses must go to the private sector. The private life insurance sector performed tremendously to canvas business from the people by organising various awareness programmes. Though the private Life Insurance companies played a key role in making the general public aware, yet the data explores that the efforts putup by the private life insurance companies could not achieve desirable results.
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