CHAPTER SEVEN SWOT ANALYSIS OF LIFE INSURANCE SECTOR

Transcription

1 CHAPTER SEVEN SWOT ANALYSIS OF LIFE INSURANCE SECTOR 7.1 Introduction In India the life insurance industry has been in existence since 1818 i.e. almost 200 years have passed since the establishment of first life insurance company in 1818 in Calcutta viz. Oriental Life Insurance Co. Ltd. The life insurance sector in India has seen many upheavals during this period and has undergone many changes. The life insurance sector has also undergone cycles of privatisation, nationalisation and privatisation during the above period of 200 years. Along with these changes in the ownership of the life insurance sector the interventions of the government through legislative and operational rules have also affected the working of the life insurance companies in India. The life insurance sector along with the general insurance sector got a major boost when India attained independence in 1947 and when the life insurance business was nationalised in The policy of liberalisation of the Indian economy has been so far the most significant development which has affected the life insurance business. The liberalisation process which began in 1991 resulted in the privatisation of the insurance sector in This allowed entry of foreign companies and foreign capital in the insurance sector in India since However this liberalisation was sought to be well regulated with the establishment of IRDA (Insurance Regulatory & Development Authority ) in The main aim of all these legal initiatives was the sustainable growth of the life insurance sector in India in the desired direction. The requirements as to the capital contribution, investment norms, disclosure of data norms and operating norms were clearly laid down for a well regulated life insurance business in India. This also enabled a level playing field for all the companies operating in the life insurance sector. Another factor which has affected the life insurance sector in India has been the growth of the Indian GDP particularly the growth of the services sector in India. It is an accepted fact that the life insurance business is affected by the growth in the 297

2 economy and the prosperity of the population. The Indian economy has been one of the fastest growing economies of the world and this has resulted in the faster growth of the life insurance business in India. The insurance sector is the beneficiary of the growth of the services sector in India. The composition of the Indian economy has also changed after liberalisation in the sense that the share of agricultural sector has gone down and that share has been captured by the services sector. (Refer Table 3. 2 in Chapter 3). The Indian economy has been growing at an average of 6 % after liberalisation and the life insurance sector has been growing at an average of % per annum after the liberalisation. The life insurance business in India has achieved a scale of US Dollars 41 billion and is the fifth largest growing economy in the world. Profile of the Districts : Kolhapur and Sangli districts have also been growing in keeping with the growth of the Indian economy. A major change in the net district income has been taking place in the sense that the share of the industry and services has been slowly increasing and the share of the agriculture has been decreasing. This shows similarity with the national trend. As a result of the shift towards the industrial and service sector the prospects for growth of life insurance in these two districts also improve. This is also manifested in the growth in the premium income of life insurance companies in these districts along with the growth in number of policies and increase in the number of employees and agents. Similarly 18 life insurance companies have been carrying on life insurance business in these two districts since : Meaning of SWOT Analysis : The government initiatives and the working of the life insurance sector during the last 200 years has given rise to a number of important features in the life insurance sector in India. The life insurance sector has been strengthened due to a number of government initiative both in the legislative and operational fields. Also on account of the changing economic conditions the sector is also impacted in a number of ways. As a result the companies have to face many challenges and they need to overcome them to stay in business. 298

3 With a view to identify these features of life insurance, SWOT Analysis i.e. (Strengths, Weaknesses, Opportunities and Threats) is carried out. The main purpose of SWOT analysis is to identify these features along with their relative importance to the sector and companies. In this analysis the strengths of the sector are identified. The strengths refer to the advantages of life insurance from the point of view of the economy as well as for the companies operating in the life insurance sector. Similarly the weaknesses point out the matters which are needed to be rectified either by the government or the companies. The opportunities refer to matters which, if done properly, will help the sector grow and the companies can also increase their business if they can remove the weaknesses from their working. The threats are matters which normally affect the sector at the macro level. They are likely to endanger the existence of the sector or can materially affect the sector and the companies. 7.3 : Relevance of SWOT : The SWOT analysis is relevant for the economy as a whole as well as for the companies operating in the sector. This analysis can throw light on the actual results achieved by the sector and the companies particularly in the light of the policies implemented by government and the companies. The actual results can also be compared with the results expected at the time of policy determination and necessary changes can be made to achieve the desired results. This analysis is also helpful for companies planning to enter the sector. The companies planning to enter the sector are more interested in the opportunities available in the sector. They can make use of the opportunities for their growth. The weaknesses persisting in the sector can help government and other regulatory bodies to take corrective steps in order to contain the weaknesses. The companies are also required to remove the weaknesses in their working in order to grow consistently in the long term. The weaknesses show the room for improvement in the sector. The weaknesses along with the threats enable government to properly frame the policies needed for the long term growth of the sector. 299

4 The SWOT analysis is also relevant to the research study. While studying the sector the swot analysis is helpful to understand the growth achieved by the sector and the direction of the growth. The strengths of the sector show the stage of development of the sector and this analysis will throw light on the development of the sector either in comparison with the regions or other countries. Similarly the research can identify the future prospects of the sector with the help of this analysis. The impact of the government policies can also be understood with the help of this analysis. The correlation among the various factors governing the sector can also be studied with the help of this analysis. The swot analysis done at different periods will show the trends in the sector and how the weaknesses have been dealt with by the sector. The severity of the weaknesses can also be understood at different periods : STRENGTHS OF LIFE INSURANCE : The strengths of life insurance emanate from the above position of life insurance in the Indian economy and Indian GDP. It is recognised that the potential for growth of Indian economy and consequently for insurance sector in India is huge and is untapped to a great extent. The life insurance has reached to only 23 % of the Indian population. The net income of both the districts also has been rising and the potential of life insurance in these two districts has also remained untapped. LIC as well as the private sector life insurance companies have largely restricted themselves to the cities. Even LIC has not established offices at all the taluka places. The private sector companies have restricted themselves to the cities in both the districts. The following considerations applicable to the life insurance sector as a whole also apply to the life insurance sector in both the districts : Life insurance, by its very nature, is essential for any humanbeing. Every humanbeing at some stage in his life, depending on his income, is inclined to opt for life insurance either on his own life or on the lives of his family members. Thus life insurance business is expected to grow with the increasing population and increasing income. This nature of life insurance facilitates entry of many companies in the life insurance business. This forms the sound foundation for increase in the 300

5 life insurance business in India. This is expected to result in increased inflow of funds in India as well as healthy competition : As stated above, the life insurance sector in India is very well regulated sector which creates a fair level playing field for both the public sector companies and private sector companies. This makes the entry of new companies easier and contributes to the healthy competition in the sector. With the transparent rules and regulations relating to capital, investment and other operations of the business in force, the companies are able to do business in a transparent and hassle free environment. This further enables entry of new companies in the sector along with increase in the capital, competition and better and efficient services to the policyholders` : Life Insurance Corporation of India which is owned by the government of India has been the single company dominant in life insurance sector in India. It has a market share of 70 % of the total life insurance business in India and has investment portfolio of Rs. 11, 50, crores as on (Refer Table No in chapter 3 and comments below it). It being a government company, it has a stabilising effect on the total life insurance business in the sense that any shocks in the life insurance business would not result in elimination of a large number of life insurance business or products in life insurance. As a result the life insurance business in India can grow at a faster pace and in an orderly manner. LIC also dominates the life insurance sector in both the districts. A single branch of LIC has been quite large in comparison to any single branch of a private sector life insurance company. A major reason for this is that LIC has been operating in these districts from the 1980s and therefore it is natural that LIC controls the life insurance sector in the two districts. In terms of the employees, agents and offices LIC is way ahead of the competitors : As LIC controls majority of the life insurance business in India, majority of the policyholders` who have opted for LIC are assured of their life cover and the returns from their life policy. In fact 45% of policyholders` still prefer safety of their investment as a factor while taking out life insurance policy. This factor makes the growth of the life insurance business in India a sustainable one. 301

6 : As stated above the life insurance business in India has been in existence for the last 200 years. As a result of such a long practice of life insurance all the critical aspects of life insurance like mortality rates, actuarial calculations, scientific calculations of premium and claim settlements etc., are well researched and well documented. This makes the risk evaluation of the life insurance business realistic and offers itself for good scrutiny. This in turn attracts many new companies in the sector which in turn helps the sector grow at a rapid pace : Even after the existence of the life insurance business in India for almost 200 years, the potential for expansion of life insurance business has not been fully exploited i.e.the life insurance sector has not reached the saturation stage. In fact there are many segments of life insurance which are still not catered. The life insurance has not reached all the rural and remote areas of India. LIC and other private sector companies have reached only tier I and tier II cities of India. Similarly there are no special schemes and differentiating premiums to attract the women and rural artisans to opt for life insurance. A comprehensive health insurance scheme and expansion of micro insurance can serve a major portion of Indian population. The postal life insurance scheme can also be expanded. The life insurance sector requires innovative products which are designed for the specific needs of certain categories of the population. All these areas offer tremendous scope for expansion of the life insurance business in India. With the entry of the private sector life insurance companies in these two districts the life insurance sector has been growing at around 12 % p. a. on an average. The premium income has been rising for the period to continuously. The premium income has slightly come down in Thus even after increase in the number of companies the premium income has increased. The health insurance and term insurance have not been marketed in these two districts as shown by the policyholders` response : The life insurance business in India, due to the above strong plus points, is poised to attract huge capital inflows by way of foreign capital in India. Huge amount of capital will come into India once the cap on foreign direct investment in the life insurance sector is raised to 49 % and gradually to 74%. The major 302

7 advantage of such capital is that this capital is long term in nature and since the life insurance sector is still largely untapped, this capital will remain in India for a period of years. This will help accelerate the growth of the life insurance sector and help increase the foreign exchange reserves with the consequential advantages to the Indian economy : WEAKNESSES OF LIFE INSURANCE SECTOR : The weaknesses of the life insurance sector refer to the things expected to be done but not done. These things are internal to the workings of the life insurance sector. The weaknesses of life insurance sector point out the matters which can be improved in order to grow the sector and refer to matters which are lacking from the point of view of operational working. The weaknesses stated below for the life insurance sector as a whole are also seen to be prevalent in the two districts. The number of new policies issued each year are much below the insurable population. The sum assured and the number of insured also do not show significant growth. In addition the dominance, even though reducing, of the agriculture sector also acts as a weakness of life insurance in these two districts. A large number of non working population in the form of females and uneducated population also is a weakness in both the districts. The non existence of speedier internet service and lack of necessary infrastructure in rural areas also prevents the growth of life insurance in both the districts. As a result the direct selling mode through internet and mobile cannot be resorted to extensively in these two districts : The life insurance business in India was regulated by the government through the nationalisation of the business since Only in 2000 the insurance sector was opened for private sector participation. The nationalisation resulted into the following major weaknesses : i) No operational efficiency ii) Slow decision making iii) Unsatisfactory customer service iv) Slow growth 303

8 v) No suitable life insurance products : One of the reasons of liberalisation of the insurance sector in India was the reluctance of the insurance companies to go into the rural areas of India. The life insurance was not easily accessible to the persons living in rural and far off areas. This has affected the growth of the life insurance business in India and has kept a large number of people outside the life insurance benefits : A large number of policyholders were dissatisfied with the service rendered by LIC in the pre liberalised period. The terms and conditions of the policy were not properly explained to them resulting in delay in the claim processing. The settlement of claims was also not efficient. The quality of service was also not upto the mark. Even though many of the above weaknesses have reduced after liberalisation due to competition, still these weaknesses are evident in the responses of the policyholders` : In general, the operations of the many life insurance companies suffer since the technological initiatives for the purpose of customer services are not implemented. The payment of premiums facility through online payment mode is still not available to a large number of policyholders`. In Kolhapur and Sangli districts the availability of good network of internet connections in rural areas as well as the awareness of the policyholders` are seen as an impediment to the use of such modern technological facilities. Similarly the claim processing can be made faster through the use of technology. The reminders about the payment of premiums, payment of claims are not available electronically to a large number of policyholders` : The products basket of the life insurance sector in India is quite limited and no new relevant products have been added to the total products. The lack of suitable products as per the requirements of the general population has been one of the major weaknesses of the life insurance business in India. This became evident in when the ULIP product which was marketed by all the companies was discontinued by IRDA for mis-selling and lack of proper communication with policyholders` regarding the returns under ULIP. The IRDA came up with the Unit Linked Insurance plan (ULIP) Guidelines in July IRDA put restrictions on 304

9 upfront charges and returns under the ULIPs to be offered by the life insurance companies and restricted the commission payouts under the plans. LIC itself has introduced health insurance products only in the year and the total health insurance business of LIC consisted of policies with premium of Rs crores in A total of lives were covered under health insurance policies as on (LIC Annual Report ) The heavy dependence of the companies on ULIP exposed the companies to fall in revenue in financial year During the period April 2010 to September 2010 the sector grew at 32 % over the previous year. However with the regulatory intervention in ULIP w. e. f July 2010 the sector registered a fall of 24 % on a retail weighted premium basis. (ICICI Prudential annual Report ). There was fall in the premiums to the extent of 19 % per annum in FY 2011 and FY 2012 and loss of business for all the insurance companies. This forced the life insurance companies to discontinue ULIPs and shift to the traditional life insurance products. Similarly in December 2013 many traditional products were discontinued by LIC and thereafter the premiums and business of LIC has recorded a heavy fall. This is the result of over dependence of the life insurance companies on two or three major products. The depth of the life insurance business has not increased in terms of either geographical reach or number of sound products : The table numbers & relating to investment income and net profit / loss of the life insurance companies in chapter 3 clearly show the dependence of the life insurance companies on the income received from their investment for the source of cash generation. The life insurance business for the private sector companies and to some extent LIC has not been able to generate cash. It is the investment income which has been adding to their cash generations or limiting losses in case of private sector companies. The risk here is that the investment income is directly related to the performance of the economy and in case of external shocks the investment income goes down very rapidly. Thus the dependence of the companies on the investment income is not a sign of sound financial health of the sector as a whole. The life insurance companies should 305

10 attempt to break even in the life insurance business itself for the long term growth of the sector : The life insurance penetration and life insurance density in India is quite low compared to the Asian and world standards. (Refer table & under Chapter 3) This is due to the fact that a large number of population is not served by the life insurance companies. The awareness about the benefits of life insurance has also been a major factor in the low insurance penetration in India. The life insurance companies have also not made any meaningful efforts in creating the awareness of the life insurance. In addition the lack of suitable policies tailormade for the requirements of working classes, women, micro insurance, health insurance etc. have also affected the life insurance penetration in India : The life insurance companies in India are not able to post profits in the core life insurance business. The profitability of the private life insurance companies is under pressure and most of the private sector life insurance companies have been in losses. As a result they need to put in more funds by way of capital introduction. At the same time there is a question mark on the transparency in the financial information presented. None of the life insurance companies are listed on the stock exchanges in India. This makes it very difficult for the private sector life insurance companies to raise the required additional funds through issue of shares to general public. These companies have to rely on the contribution from their promoters for their capital requirements. This makes the life insurance sector shallow for new investments : OPPORTUNITIES IN LIFE INSURANCE : The opportunities in the life insurance sector arise from the weaknesses of the life insurance sector as well as because of changes in the government policies and growth of the economy. In addition the opportunities can also arise with new business initiatives proposed by the life insurance companies like introduction of new products, entry into new territories both in India and outside India. The opportunities for life insurance in these two districts relate to the rural population not served by the life insurance companies and the opportunity for 306

11 bancassurance. These two districts are served by a wide network of cooperative societies and cooperative banks. The bancassurance business can be easily done through the banking channels as the rural areas are served by either the cooperative patsansthas, cooperative banks or branches of scheduled commercial banks. In addition as seen from the responses of the policyholders` the scope to increase the health insurance in these two districts is very large. The policyholders` have not purchased the health insurance policies except in some sporadic cases. Similarly, the scope for term insurance is also not explored in these two districts. In addition the following opportunities available for all the life insurance companies an all India basis are also applicable in these two districts : The low life insurance penetration and low life insurance density itself presents a big business opportunity for the life insurance companies. The life insurance companies need to expand into new territories within India to increase penetration of life insurance. Similarly majority of the population can be brought under the life insurance by offering attractive insurance products & affordable premium rates. In addition proper steps need to be taken to increase the awareness of the general public regarding the life insurance benefits and various products. The following steps may further increase the life insurance penetration : i) The life insurance companies should, as a long term measure, reduce the premiums and aim for larger volume of life insurance policies i.e. the life insurance companies should try to take into the life insurance fold maximum persons and thereby increase the premium income instead of increasing the premium income by increasing the premiums. This would make the life insurance sector grow on a sound base and there would be stability in the life insurance business. ii) At present the rural areas of India are not extensively covered in the life insurance. Even though there is some improvement in the rural life insurance business, the growth in the rural life insurance is far too low as compared to the potential. The life insurance companies need to open offices in the tier III cities from which the rural population can be covered. It is seen that the life insurance business is obtained by the insurance agents in larger proportion. The insurance agents through their contacts and persuasion skills encourage the people to take out 307

12 insurance. For this purpose it is essential that the life insurance companies approach the people at their residences and workplace by establishing their office nearby. In addition the following contacts can be explored to increase the rural business. a. As per 2011 Census, there were 589 district panchayats, 6321 intermediate panchayats and village panchayats across India. b. As on 31 March 2012, there were 713 Multi State Cooperative Societies operating in India c. As on 31 March 2012, there were 9743 branches of Micro Finance Institutions (MFI s) d. As on 31 March 2012, there were government schools covering 644 districts in India e. There are voluntary organisations / state organisations registered under NGO partnership system with the government of India. With the help of the above agencies the life insurance in the rural areas and micro insurance business can be developed so as to serve the interests of the life insurance companies and the rural population. iii) Insurance also can be sold through the use of mobiles which is very cost effective as compared to the online format. As per the TRAI Press release of 08 /2013 dated titled Highlights of telecom subscription` data there are 865 million mobile users out of which 535 million are urban users while 330 million are from rural areas. The banks have already put in place the infrastructure to offer mobile banking recognising this low cost model of offering banking services. Similarly with such a large number of mobile users available in India, insurance also needs to be sold to these mobile owners. While the life insurance companies have to install the necessary infrastructure, it is worthwhile in view of the low costs involved : It is seen that the trend of buying life insurance online i.e.by directly accessing the website of the life insurance companies is slowly increasing in India. In this mode the prospective buyer of life insurance obtains information of the products from the website of the life insurance company and after deciding on the particular product fills out the application form and pays the premium online for 308

13 purchasing the life insurance policy. In case it is required to carry out further formalities then only the prospective buyer needs to visit the office of the life insurance company. In this format the costs of the life insurance company are reduced significantly and therefore many private life insurance companies offer the facility of online life insurance. The time taken for buying online life insurance is also greatly reduced. This will help the life insurance company in the form of increase in business and reduced costs. The policyholders` are also benefitted in the form of reduced premiums and faster issue of policy. It is also seen that the premiums paid for online life insurance policy are less than that of the offline policy. In the last two three years health insurance products have also been sold through the online mode. Earlier the term insurance plans were sold through the online mode. It is also seen that the claims payout in case of the online mode has also been lower as compared to the traditional mode which makes the online mode a low cost model : An emerging channel of selling insurance is the Bancassurance i.e.the banks sell the life insurance policies to their customers in tie up with the respective life insurance company. In this type the banks identify the depositors and the borrowers for selling the life insurance through their branches and earn agency commission from the life insurance companies. The life insurance companies are also happy in going in for this mode of life insurance since the costs of selling life insurance policies through bancassurance is very low as compared to the traditional route of selling the life insurance policies through the agents or their branches. The life insurance companies who have already been carrying out banking business in India stand to gain more as compared to the other life insurance companies doing only life insurance business in India. The following life insurance companies have their sister concerns doing banking business in India : 01. State Bank of India & SBI Life insurance Co Ltd. 02. ICICI Bank Ltd. & ICICI Prudential Life Insurance Co. Ltd. 03. Punjab National Bank & PNB Metlife Life insurance Co. Ltd. 04. HDFC Bank Ltd. & HDFC Life Insurance Co. Ltd. 05. ING Vaishya Bank Ltd. & ING Life Insurance Co. Ltd. 309

14 Other life insurance companies have tied up with banking companies in order to sell life insurance through bancassurance. As with the mode of taking out online insurance this form has been advantageous both for the life insurance companies as well as for the policyholders`. As the life insurance policies are sold across the bank counters the customers get the additional advantage of receiving service and information from familiar source. The payments of the premiums can also be linked to the respective bank account and the maturity proceeds can also be linked to the same bank account. The following table shows the % of bancassurance business in India in comparison with other countries : Table 7.1 : Share of Bancassurance Distribution in 2006 in % Selected Bancassurers Agents Brokers Others United States NA NA NA Canada Brazil NA NA Chile U. K France Germany South Korea India (Source : Re Sigma 5/2007) This table shows the comparative bancassurance business in India with some of the countries and shows that the developed countries of the world particularly in Europe are doing bancassurance business substantially higher than India. This also shows the scope of increasing business through bancassurance channel in India. It is expected that bancassurance will account for 13% of total life insurance business done in India in the next 5 years. As per a report the life insurance products sold through the banks accounted for 35% of new business premium of private life insurance companies (accounting for 20% of new policies issued) in financial year (IRDA Monthly journals, IRDA Annual report ). In the case of ICICI Prudential Life insurance co Ltd. the bancassurance accounts for 20% of new policies issued. (ICICI Annual 310

15 Report ). In case of LIC the bacassurance channel contributed policies with premium of Rs crores in This is 1.88% of total business of LIC and 2.91% Of First Premium Income. (LIC Annual Report ) : In addition to the low insurance penetration and low insurance density, the rising GDP and increase in the per capita income of the population presents a flourishing opportunity for the life insurance companies to expand their business. It is an established fact that life insurance and increase in the income level of an individual have a direct correlation i.e. with increasing income the life insurance premium also increases. The Indian economy has been one of the five fastest growing economies of the world in terms of growth of economy in percentage term. The consistent growth in the economy has added to the increase in the middle class population in India. The Indian economy has been projected to grow at 8% p. a. in the coming years. The service sector which consists of financial and other sectors has been growing continuously. The banking and insurance services form a majority of the service sector. This continuous growth in the Indian economy lays a strong foundation for the growth of life insurance in India. In addition the life insurance sector is regulated by IRDA in a strong and fair manner. This facilitates the growth of life insurance sector in India : The life insurance sector has been performing well since 2000 with the privatisation of the life insurance sector. With the introduction of private sector companies in the sector the quality of customer service has improved and the life insurance companies are striving to gain market share through further improvements in customer service. The healthy competition in the sector has further enabled the life insurance companies to look at their marketing, operating and technological strategies in order to reach out to the customers. The life insurance companies have scope to increase their market share by improving their delivery systems. Some of the areas for improvements are as under : i) The marketing strategy of any life insurance company occupies a very important place in the overall performance of the company. With the technological advancement the life insurance companies need to adopt innovative marketing 311

16 initiatives in order to reach to the customers and inform them of the superior features of their products. The present form of marketing of life insurance products is centred around the efficiency of the agents and the ability of the respective offices of the life insurance companies. This form has proved to be very costly for the new private sector companies as they have not been able to post profits. The private life insurance companies therefore need to adopt more cost efficient techniques to market their products. The additional advantage of reaching to the customers directly is that the awareness of the customers about the life insurance companies, products and about the life insurance will increase. This will in turn help the life insurance grow in the right direction. ii) In order to bring down the costs of operations the life insurance companies will have to look at their existing organisational structure. The strategies and form of organisation adopted for the underwriting, marketing, house keeping and policyholders` servicing will have to be scrutinised in order to be cost effective and efficient. Thus life insurance companies will have to determine the thrust areas for all these operations and by adopting the technology, these operations can be done by removing the inefficient procedures and avoiding duplications in the operations. iii) In order to gain the market share in the highly competitive life insurance sector, it is essential that the pricing of the premiums is done after scientific study of the life insurance business and risk parameters. No life insurance company can afford to work inefficiently and thereby charge higher premium to the customer. Therefore the premiums will have to be lowered in order to gain the market share. This will force the life insurance companies to increase the number of policyholders` throughout India by covering maximum geographical area. Those life insurance companies who can adapt to this strategy can gain market share year after year and can register good business growth. This will further help increase the depth of the life insurance business in India : THREATS : Threats with respect to the life insurance sector in India refer to the factors that harm the sector in terms of the growth and fundamentals of the sector. The threats may manifest themselves in the form of factors that prevent the growth of the sector for a prolonged period of time or may endanger the existence of the 312

17 companies operating in the sector. Alternatively the threats may take the form of changes in the business environment which will make the sector work unprofitably or the threats may emanate from changes in the government policies which will make the functioning of the life insurance companies unviable. The life insurance sector in India has been in existence since the last 200 years. The foundation of the life insurance sector is very strong in the sense that 70 % of the life insurance sector is controlled by the government organisation i.e.lic. Therefore in case of any unforeseen shocks to the sector the government can extend the necessary support to tide over any crisis. In addition LIC itself is very strong in terms of financial and infrastructural resources and can also withstand any such shocks by itself. In order to shake the roots of the life insurance sector in India, the shocks also have to be very big in their impact. Such shocks can only come from external environment. The life insurance sector is regulated very efficiently by IRDA keeping in view the objectives of growth and fair regulation. The life insurance companies have to submit quarterly and yearly data to IRDA which is scrutinised by IRDA and necessary modifications in the procedures and policies are made by IRDA. Similarly IRDA regulates the operational matters with respect to life insurance in the form agent commission, approval of new insurance products, control over advertising by the companies, claims processing, TPA (Third Party Agencies) workings and policyholders` service by the insurance companies, disclosure norms to be complied by the life insurance companies etc. In view of the above threats to the life insurance sector in India are perceived to be minimal and are likely to threaten the existence of the life insurance sector in India only in exceptional circumstances. Even when such threats materialise, the life insurance sector can face them on account of the above mentioned reasons. Still the likely threats to the life insurance sector can be stated as under : : As stated above the life insurance sector can be affected adversely due to any external shocks in the form of economic recession for a prolonged period, war, insolvency of the foreign partner of the private life insurance companies, huge life insurance claims at one go due to any natural calamity etc. Such types of threats can disrupt the life insurance sector in the form of substantial drop in the life insurance premium and heavy claims to be paid to the policyholders`. The 2008 sub prime 313

18 crisis of the United States had such an effect on the global economy. The world GDP came down sharply and many countries plunged into economic recession. Many countries have yet to recover from this external shock. In India also the insurance sector as a whole suffered in the form of sharp decline in the premiums and losses to the life insurance companies. This did affect the life insurance business in India for 2 years but the sector has steadily recovered from this shock and has been growing in normal manner : As stated above, the life insurance sector in India is controlled by LIC i.e.by the government. Therefore it is natural that the government policies will affect the fortunes of the sector. The government initiatives in the form of the insurance legislation or other operating policies will affect the sector. The major initiative of the liberalisation of the insurance sector since 2000 has resulted in the significant growth of the sector during the last 14 years. Still it is perceived that the government has been conservative in the policy of allowing only 26 % Foreign Direct Investment in the insurance sector. It is projected that the life insurance sector will grow very fast from the current levels in case FDI is allowed at 74 %. Similarly at present the life insurance premium paid is given deduction upto Rs / in the computation of taxable income under the Income Tax Act, This incentive has also been a factor in the growth of the life insurance business in India. The response from the policyholders` has also listed this factor as a major factor considered while purchasing a life insurance policy. The maturity proceeds of the life insurance policy are also tax exempt in the year of receipt of the proceeds. Thus the payment of life insurance premium upto Rs, / is tax deductible and the maturity proceeds of the life insurance policy are also exempt from payment of tax in India. There is a proposal to remove the exemption available to the maturity proceeds of the life insurance policy and tax the same in the year of receipt. This removal is expected to result in heavy claims on the life insurance industry in India and loss of business in the subsequent years. In another instance, IRDA asked the life insurance companies to discontinue some traditional products with effect from December 2013 and asked the companies to come out with new life insurance products. This has also resulted in drop in the sales of life insurance policies since Jan Similarly the IRDA put restrictions on the sale of ULIP product in

19 08. This also resulted in fall of premium in the year 2008 and 2009 in case of the life insurance companies. However, since the foundation of the life insurance sector is very strong, it is expected that such types of reversals will affect the life insurance sector in India only for a short period of time CONCLUSION : It can be seen from the above discussion regarding the factors affecting the life insurance sector in India that the sector is operating on a strong footing and the fundamentals of the sector are quite strong. The districts of Kolhapur and Sangli have grown during the above period of 2001 to 2011 on account of entry of private sector life insurance companies and due to the growth in the income of these two districts. The economies of the two districts have been growing and as a result the life insurance sector has grown in these districts. The opportunities for life insurance will only increase in these two districts on account of low insurance density and untapped rural population. The rate of growth of the life insurance sector can further increase with introduction of new products and enlargement of existing products like health insurance, micro insurance, postal life insurance, bancassurance etc. The private life insurance companies have been aggressive in targeting the rural population by visits to the village local bodies and other business promotion activities. It is to be hoped that the weaknesses persisting in the sector will be removed over time by the companies through cost effective ways of doing business and objective of bringing maximum population under life insurance. 315