Allianz Home Insurance - Globlization And Its Impact Of insurance industry In India
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Globlization And Its Impact Of insurance industry In India
Introduction
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Allianz Home Insurance
The word "Fear" has only four alphabets like love but both of them have very distinct e meaning. Anyone man (malor female) does for the love of their families all the time starts with the background of fear. Ordinarily so many times we have been asking our selves that, what will happen if we were not there, but we keep on asking rather then doing something for it. Time is precious, it never stops for any one and we are living in the world of uncertainty; the uncertainty of job, the uncertainty of money, the uncertainty of asset and like this the story goes continuous for the whole life of a man.
A prosperous assurance sector is of vital importance to every contemporary economy. Firstly because it encourages the habit of saving, secondly because it provides a protection net to rural and urban enterprises and productive individuals. And maybe most importantly it generates long- term invisible funds for infrastructure building. The nature of the assurance business is such that the cash inflow of assurance companies is constant while the payout is deferred and contingency related.
This characteristic highlight of their business makes assurance companies the biggest investors in long-gestation infrastructure amelioration projects in all advanced and aspiring nations. This is the most compelling fancy why inexpressive sector (and foreign) companies, which will spread the assurance habit in the societal and consumer interest are urgently required in this vital sector of the economy. Opportunity up of assurance to inexpressive sector including foreign participation has resulted into various opportunities and challenges in India.
Life assurance Market
The Life assurance market in India is an underdeveloped market that was only tapped by the state owned Lic till the entry of inexpressive insurers. The penetration of life assurance products was 19 percent of the total 400 million of the insurable population. The state owned Lic sold assurance as a tax instrument, not as a goods giving protection. Most customers were under- insured with no flexibility or transparency in the products. With the entry of the inexpressive insurers the rules of the game have changed.
The 12 inexpressive insurers in the life assurance market have already grabbed nearly 9 percent of the market in terms of selected income. The new business selected of the 12 inexpressive players has tripled to Rs 1000 crore in 2002- 03 over last year. Meanwhile, with regard to state owned Lic's new selected business has fallen.
Innovative products, smart marketing and aggressive distribution. That's the triple whammy compound that has enabled fledgling inexpressive assurance companies to sign up Indian customers faster than Anyone ever expected. Indians, who have all the time seen life assurance as a tax saving device, are now suddenly turning to the inexpressive sector and snapping up the new innovative products on offer.
The growing popularity of the inexpressive insurers is evidenced in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the inexpressive insurers have already wrested over 33 percent of the market. And in the popular unit-linked assurance schemes they have a virtual monopoly, with over 90 percent of the customers.
The inexpressive insurers also seem to be scoring big in other ways- they are persuading population to take out bigger policies. For instance, the mean size of a life assurance course before privatization was nearby Rs 50,000. That has risen to about Rs 80,000. But the inexpressive insurers are ahead in this game and the mean size of their policies is nearby Rs 1.1 lakh to Rs 1.2 lakh- way bigger than the manufactures average.
Buoyed by their quicker than startling success, nearly all inexpressive insurers are fast- forwarding the second phase of their expansion plans. No doubt the aggressive stance of inexpressive insurers is already paying rich dividends. But a rejuvenated Lic is also trying to fight back to woo new customers.
Insurance Today
In 1993, Malhotra Committee, headed by old Finance Secretary and Rbi Governor R. N. Malhotra, was formed to value the Indian assurance manufactures and suggest its hereafter direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector.
With the setup of assurance Regulatory amelioration Authority (Irda) the reforms started in the assurance sector. It has became valuable as if we correlate our assurance penetration and per capita selected we are much behind then the rest of the world. The table above gives the statistics for the year 2000.
With the startling growth in per capita revenue to 6% for the next 10 year and with the correction in the awareness levels the interrogate for assurance is startling to grow.
As per an independent consultancy company, Monitor Group has estimated a growth form Rs. 218 Billion to Rs. 1003 Billion by 2008. The estimations seems achievable as the carrying out of 13 life assurance players in India for the year 2002-2003 (up to October, based on the first year premium) is Rs. 66.683 million being Lic the biggest contributor with Rs. 59,187 million. As of now Lic has 2050 branches in 7 zones with strong team of 5,60,000 agents.
Impact Of Globalisation
While nationalized assurance companies have done a commendable job in extending the volume of the business, Opportunity up assurance sector to inexpressive players was a necessity in the context of globalization of financial sector. If customary infrastructural and semipublic goods industries such as banking, airlines, telecom, power etc., have valuable inexpressive sector presence, persisting a state of monopoly in provision of assurance was indefensible and therefore, the globalization of assurance has been done as discussed earlier. Its impact has to be seen in the form of creating various opportunities and challenges.
The introduction of inexpressive players in the manufactures has added colours to the dull industry. The initiatives taken by the inexpressive players are very competitive and have given massive competition to the on time monopoly of the market Lic. Since the arrival of the inexpressive players in the market the manufactures has seen new and innovative steps taken by the players in the sector. The new players have improved the aid quality of the insurance. As a consequent Lic down the years have seen the declining in its career. The market share was distributed among the inexpressive players. Though Lic still holds 75% of the assurance sector the upcoming nature of these inexpressive players are adequate to give more competition to Lic in the near future. Lic market share has decreased from 95%(2002-03) to 81% (2004-05). The following business holds the rest of the market share of the assurance industry.
Table - 1
Impact Of Globalisation
Name Of The Player market Share (%)
Lic 82.3
Icici Prudential 5.63
Birla Sun Life 2.56
Baja Allianz 2.03
Sbi Life 1.80
Hdfc Standard 1.36
Tata Aig 1.29
Max New York 0.90
Aviva 0.79
Om Kotak Mahindra 0.51
Ing Vyasa 0.37
Amp Sanmar 0.26
Metlife 0.21
Present Scenario Of Globalisation
In a tough battle to develop market shares the inexpressive sector life assurance manufactures consisting of 14 life assurance companies at 26% have lost 3% of market share to the state owned Life assurance Corporation(Lic) in the domestic life assurance manufactures in 2006-07. According to the figures released by assurance Regulatory & amelioration Authority, the total selected of these 14 companies have shot up by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crore.
Lic with a total selected mobilisation of Rs 55,934 crore has been able to preserve a market share of 74.26 % while the reporting period. In total the life assurance manufactures in first year selected has grown by 110% to Rs 75, 406 crore while 2006-07. The 2006-07 carrying out has thrown a few surprises in the ranking among the inexpressive sector life assurance companies. New entrants like confidence Life and Sbi Life had shown a huge growth of over 381% and 210% respectively while the year. confidence Life which has come to be one of the top five companies ended the year with a selected of Rs 930 crore while the year.
Though Icici Prudential Life assurance remained as the No 1 inexpressive sector life assurance business while the year. Bajaj Allianz overtook Icici Prudential in terms of monthly market share in March, for the first time ever. Bajaj's market share among inexpressive players in non-single selected for March stood at 29.1% vs. Icici Prudential's 23.8%. Bajaj gained 4.6 percentage point market share among inexpressive sector players for Fy07.
Among other inexpressive players, Sbi Life and confidence Life prolonged to do well, each gaining 4% market share in Fy07. Sbi Life's growth was driven by increasing contribution from Ulip premiums. Other preeminent developments of the 2006-07 carrying out has been the expansion of sell markets by the life assurance comapnies. Bajaj Alliannz Life assurance has added 20 lakh policies while Icici Prudential has vast over 19 lakh policies while the year.
With the largest whole of life assurance policies in force in the world, assurance happens to be a mega Opportunity in India. It's a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent to the country's Gdp. Gross selected collection is nearly 2 per cent of Gdp and funds ready with Lic for investments are 8 per cent of Gdp.
Yet, nearly 80 per cent of Indian population is without life assurance cover while health assurance and non-life assurance continues to be below international standards. And this part of the population is also field to weak public protection and pension systems with hardly any old age revenue security. This itself is an indicator that growth inherent for the assurance sector is immense.
A well-developed and evolved assurance sector is needed for economic amelioration as it provides long term funds for infrastructure amelioration and at the same time strengthens the risk taking ability. It is estimated that over the next ten years India would require investments of the order of one trillion Us dollar. The assurance sector, to some extent, can enable investments in infrastructure amelioration to preserve economic growth of the country.
Insurance is a federal field in India. There are two legislations that govern the sector- The assurance Act- 1938 and the Irda Act- 1999. The assurance sector in India has come to be a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian assurance sector reveals the 360 degree turn witnessed over a duration of almost two centuries.
Important milestones in the life assurance business in India
1912: The Indian Life assurance companies Act enacted as the first statute to regulate the life assurance business.
1928: The Indian assurance companies Act enacted to enable the government to acquire statistical facts about both life and non-life assurance businesses.
1938: Earlier legislation consolidated and amended to by the assurance Act with the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalised. Lic formed by an Act of Parliament- Lic Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.
In a tough battle to develop market shares the inexpressive sector life assurance manufactures consisting 14 life assurance companies at 26% have lost 3% of market share to the state owned Life assurance Corporation(Lic) in the domestic life assurance manufactures in 2006-07. According to the figures released by assurance Regulatory & amelioration Authority the total selected these 14 companies have shot up by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252 crore.
Lic with a total selected mobilisation of Rs 55,934 crore has been able preserve a market share of 74.26 % while the reporting period. In total the life assurance manufactures in first year selected has grown by 110% to Rs 75, 406 crore while 2006-07. The 2006-07 carrying out has thrown a few surprises in the ranking among the inexpressive sector life assurance companies. New entrants like confidence Life and Sbi Life had shown a huge growth of over 381% and 210% respectively while the year. confidence Life which has come to be one of the top five companies ended the year with a selected of Rs 930 crore while the year.
Though Icici Prudential Life assurance remained as the No 1 inexpressive sector life assurance business while the year Bajaj Allianz overtook Icici Prudential in terms of monthly market share in March, for the first time ever. Bajaj's market share among inexpressive players in non-single selected for March stood at 29.1% vs. Icici Prudential's 23.8%. Bajaj gained 4.6 percentage point market share among inexpressive sector players for Fy07.
Among other inexpressive players, Sbi Life and confidence Life prolonged to do well, each gaining 4% market share in Fy07. Sbi Life's growth was driven by increasing contribution from Ulip premiums. Other preeminent amelioration of the 2006-07 carrying out has been the expansion of sell markets by the life assurance companies. Bajaj Alliannz Life assurance has added 20 lakh policies while Icici Prudential has vast over 19 lakh policies while the year.
Opportunites
- A state monopoly has limited incentive to innovative or offers a wide range of products. It can be seen by a lack of inescapable products from Lic's briefcase and lack of allembracing risk categorization in some Gic products such as health insurance. More competition in this business will spur firms to offer some new products and more complex and allembracing risk categorization.
- It would also consequent in better customer services and help enhance the collection and price of assurance products.
- The entry of new players would speed up the spread of both life and normal insurance. Spread of assurance will be measured in terms of assurance penetration and part of density.
- With the entry of inexpressive players, it is startling that assurance business almost 400 billion rupees per year now, more than 20 per cent per year even leaving aside the relatively under advanced sectors of health insurance, pen More importantly, it will also ensure a great mobalisation of funds that can be utilized for purpose of infrastructure amelioration that was a factor determined for globalisation of insurance.
- More importantly, it will also ensure a great moblisation of funds that can be utilized for purpose of infrastructure amelioration that was a factor determined for globalisation of insurance.
- With allowing of holding of equity shares by foreign business either itself or straight through its subsidiary business or nominee not exceeding 26% of paid up capital of Indian partners will be operated resulting into supplementing domestic savings and increasing economic develop of nation. Agreements of various ventures have already been made to be discussed later on in this paper.
- It has been estimated that assurance sector growth more than 3 times the growth of economy in India. So business or domestic firms will exertion to invest in assurance sector. Moreover, growth of assurance business in India is 13 times the growth assurance in advanced countries. So it is natural, that foreign companies would be fostering a very strong desire to invest something in Indian assurance business.
- Most leading not the least stupendous employment opportunities will be created in the field of assurance which is burning question of the gift day today issues.
Challenges Before The Industry
New age companies have started their business as discussed earlier. Some of these companies have been able to float 3 or 4 products only and some have targeted to perform the level of 8 or 10 products. At present, these companies are not in a position to pose any challenge to Lic and all other four companies operating in normal assurance sector, but if we see the quality and standards of the products which they issued, they can indeed be a challenge in future. Because the challenge in the whole environment caused by globalisation and liberalization the manufactures is facing the following challenges.
- The existing insurer, Lic and Gic, have created a large group of dissatisfied customers due to the poor quality of service. Hence there will be shift of large whole of customers from Lic and Gic to the inexpressive insurers.
- Lic may face question of surrender of a large whole of policies, as new insurers will woo them by offer of innovative products at lower prices.
- The corporate clients under group schemes and wages savings schemes may shift their loyalty from Lic to the inexpressive insurers.
- There is a likelihood of exit of young dynamic managers from Lic to the inexpressive insurer, as they will get higher box of remuneration.
- Lic has overstaffing and with the introduction of full computerization, a large whole of the employees will be surplus. Any way they cannot be retrenched. Hence the operating costs of Lic will not be reduced. This will be a disadvantage in the competitive market, as the new insurers will control with lean office and high technology to sacrifice the operating costs.
- Gic and its four subsidiary companies are going to face more challenges, because their management expenses are very high due to surplus staff. They can't sacrifice their whole due to aid rules.
- Management of claims will put strain on the financial resources, Gic and its subsidiaries since it is not up the mark.
- Lic has more than to 60 products and Glc has more than 180 products in their kitty, which are outdated in the gift context as they are not suitable to the changing needs of the customers. Not only that they are not competent adequate to unblemished with the new products offered by foreign companies in the market.
- Reaching the consumer expectations on par with foreign companies such as better yield and much improved quality of aid particularly in the area of community of claims, issue of new policies, transfer of the policies and revival of policies in the liberalized market is very difficult to Lic and Gic.
- Intense competition from new insurers in winning the consumers by multi-distribution channels, which will consist of agents, brokers, corporate intermediaries, bank branches, affinity groups and direct marketing straight through telesales and interest.
- The market very soon will be flooded by a large whole of products by fairly large whole of insurers operating in the Indian market. Even with limited range of products offered by Lic and Gic, the consumers are confused in the market. Their obscuring will supplementary growth in the face for large whole of products in the market. The existing level of awareness of the consumers for assurance products is very low. It is so because only 62% of the Indian population is literate and less than 10% educated. Even the educated consumers are ignorant about the various products of the insurance.
- The insurers will have to face an acute question of the redressal of the consumers, grievances for deficiency in products and services.
- Increasing awareness will bring whole of legal cases filled by the consumers against insurers is likely to growth substantially in future.
- Major challenges in canalizing the growth of assurance sector are goods innovation, distribution network, venture management, customer aid and education.
Essentials To Meet The Challenges
- Indian assurance manufactures needs the following to meet the global challenges
- Understanding the customer better will enable assurance companies to institute proper products, decide price correctly and growth profitability.
- Selection of right type of distribution channel mix along with frugal and productive Fos [Fleet On Street] management.
- An productive Crm system, which would at last create sustainable competitive advantages and build a long-lasting relationship
- Insurers must consequent best venture practices and must have a strong asset management business to maximize returns.
- Insurers should growth the customer base in semi urban and rural areas, which offer a huge potential.
- Promoting health assurance and using e-broking to growth the business.
Conclusion
Thus, in the last on basis of above the argument we can close that need for inexpressive sector entry is justifiable on the basis of improving the efficiency of operation, achieving greater density and assurance coverage in the country and for greater mobilization of long-term savings for long gestation infrastructure projects. In the wake of such competition it is valuable for the government monopolies (Lic and Gic) that they quickly up grade their technology, restructure themselves on more productive lines and control as broad run enterprise. New players should not be treated as rivalries to government companies, but they can supplement in achieving the objective of growth of assurance business in India.
* Lecturer, branch of Commerce, Bharathiar University, Coimbatore-46
Email - buarticlecommerce@yahoo.com
** Ph.D Scholar, branch of Commerce, Bharathiar University, Coimbatore. Email - parentbala@sify.com
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