Life In­surance Busi­ness in Pri­vate Sec­tor- An Anal­y­sis of In­surance Pre­mium

Economic Challenger - - CONTENTS - - Dr. Vazir Singh & San­jay Ku­mar


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.


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:


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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Web­sites Con­sulted

1. www.licin­ 2.­dain­ 3.­di­ain­fo­ 4. www.hd­fcin­sur­ 5. www.maxnewyork­ 6. www.ici­ 7. www.omko­takmahin­ 8. www.bir­la­sun­ 9. 10. www.sbil­ 11.­lianzba­ 12.­

Fig. 1.3

Fig. 1.2

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