Presentation On Life Insurance in India 16th June 2010, Kolkata

Agenda Snapshot of Indian Life Insurance Industry Global Parameters Inclusive Growth of Life Insurance Sector Expenses of Life Insurance Companies Role of Agents Protection of Policyholders 2

Snapshot of Indian Life Insurance Industry……..contd Life Insurance Industry was liberalized in the year 1999-2000. Currently there are 23 players in the Life Insurance Industry. 20 Insurance companies have JV’s with foreign partners. LIC, Reliance Life Insurance and Sahara Life Insurance company are the three companies who do not have JV’s. All the major international players are present in the Indian Insurance market. A high capital intensive industry-Rs.28,929 Cr deployed Foreign partners have brought in capital of around Rs.4,355 Cr as FDI (as on 31st March 2009) India has the largest in-force policies in the world. 3

Over 70% of the branches are located in Class C cities or lower Snapshot of Indian Life Insurance Industry ……..contd Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 FY 09-10 (provisional) Number of players 1 16 18 22 23 Capital Deployed (Rs. Cr) 5 9,485 16,692 24,988 28,929 Branches 2,048 5,373 8,913 11,815 11,927 Employees (in Lacs) 1.23 1.87 2.54 2.85 2.68 Individual Agents (in Lacs) 7.14 19.93 25.20 29.37 29.15 Over 70% of the branches are located in Class C cities or lower Source: IRDA, Life Insurance Council

Snapshot of Indian Life Insurance Industry ……..contd Parameters FY 99-00 FY 06-07 FY 07-08 FY 08-09 FY 09-10 (provisional) Increase from FY 00 to FY 09 New Business Premium (Rs.Cr) 8,299 75,649 93,713 87,006 1,09,213 +13 times Renewal premiums (Rs. Cr) 17,951 80,427 1,07,639 1,34,785 1,51,812 +8 times Total Premium (Rs. Cr) 26,250 1,56,076 2,01,351 2,21,791 2,61,025 +10 times Expenses of management – Commission (Rs.Cr) 3,171 12,259 14,704 15,533 17,535 +5 times Expenses of Management-operating expenses (Rs.Cr) 3,756 13,585 20,299 25,724 23,815 +6 times Source: IRDA, Life Insurance Council

Snapshot of Indian Life Insurance Industry ……..contd Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 FY 09-10 (provisional) New Business Policies (In Cr) 1.69 4.61 5.08 5.09 5.32 In force Policies (In Cr) 10.14 22.70 25.76 29.6 33.0 The industry services largest number of life insurance policies in the world Source: IRDA, Life Insurance Council

Snapshot of Indian Life Insurance Industry ……..contd Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 FY 09-10 (provisional) India’s share of world premium (Life) 0.50% 1.53% 1.83% 1.93 NA Penetration as % of GDP 1.39% 4.1% 4.0% 4.90* Source: IRDA, Swiss Re,RBI *FY 2009-10 data Life Insurance Council ( before adjusting to inflation)

Global Parameters India has largest number of in-force policies in the world (IRDA Annual report). Source: IRDA report 2008-09

- Inclusive growth of Life Insurance Sector Companies are statutorily required to do rural business and cover lives from social sector -rural, un-organized and socially underprivileged from there first year of operation. Companies have to mandatorily sell 18% of new policies in rural areas. Cover 25,000 lives in social sector every year. 2.8 Crore rural policies were sold by companies in last two years. (1.55 Crore policies in 2007-08 and 1.26 Crore policies in 2008-09) 3.36 Crore life's covered in social sector in last two years. (1.43 Crore in 2007-08 and 1.93 Crore in 2008-09) 70% of the total 11,927 branches of insurance companies are in semi-urban or rural areas (33% in rural areas). No such obligations for Mutual Funds which operate mostly in 16 cities. Source: IRDA, Life Insurance Council

Benefits Paid Parameter FY 06-07 FY 07-08 FY 08-09 FY 09-10 (provisional) Total Death Benefit paid(Rs.Cr) 4,794 5,288 6,125 8,385 Total Maturity claim paid(Rs. Cr) 34,356 34,543 37,806 NA Total Benefits paid (Rs.Cr) 56,887 61,686 58,343 83,327 Source: IRDA, Life Insurance Council

Expenses of Life Insurance Companies…………Contd Insurance is a long term contract with average tenure of 15 years. Comparatively high start-up cost to be related to a long tenure. Under Section 40 B of Insurance Act 1938, there is a capping on expenses of management. - Exemption is granted to companies in first 5 years of operation. - Any non-compliance later is viewed adversely by IRDA. Maximum Commission payable to agents under various product heads is prescribed in the Insurance Act (section 40 A). Longer the term of the policy, lower is the premium and therefore percent commission is higher. For shorter term policies the percent commission is lower as premium is higher. This ensures that the absolute commission is reasonable. Source: IRDA

Expenses of Life Insurance Companies…………Contd In last 2 years 45% of new premium is collected at a commission rate of 1.75-2.0% (with no trail commission) In last four years (i.e. from FY 06-07 to FY 09-10) more than Rs.1,55,600 crores of premium was collected at a commission of 1.75-2.0% which was lower than the prevailing entry load for mutual funds. Commission as percent of premium has been declining. Parameter FY 99-00 FY 06-07 FY 07-08 FY 08-09 FY 09-10 (provisional) Commission as % of total premium 12.08 7.85 7.30 7.00 6.71 Competition will continue to drive down commission expenses in future. Source: IRDA, Life Insurance Council

Wider Role of Life Insurance Agents…………Contd Agents scope of duty is much wider than other intermediaries in financial sector The role of the agent goes beyond introduction of products Agent is the primary underwriter and the risk evaluation process begins with the moral hazard report covering the financial and physical health of the proposer Facilitate medical check-up in case of medical underwriting Agent has the responsibility of collecting renewal premium and helping the insurer at the time of change of address of policy holder, assignment, re-assignment and nomination during the entire term of the policy To provide assistance to the legal heirs / nominees in obtaining settlement of death claim, which is more significant in case of early death claim where insurer has to carry out investigation before settling the claim

Wider Role of Life Insurance Agents Commission will further come down due to following factors:- As new generation companies will complete 10 years of operation ,maximum first year commission payable on long term policy will come down to 35%. Introduction of capping of expenses under new ULIPS effective from 01st October 2009 and for existing products from 1.1.2010. Impact on commissions to be felt from this year. Increasing shift towards alternate cheaper distribution channels like Corporate agents , bancassurance, institutional agencies, direct marketing. Source: IRDA

Protection of Policy holders interest…………….Contd All advertisements are to be filed with the regulator & must satisfy fairness criteria. It is mandatory to explicitly give information on the definitions of all the applicable charges, method of appropriation of these charges and the quantum of all the charges during the entire term of the policy. All ULIP sales illustration should highlight the rate of return calculated at 6% and 10% to enable comparison across various products. The illustration is to be signed by the proposer. It is compulsory to mention on top each ULIP policy document “In this policy, the investment risk in investment portfolio is borne by policy holder. Policy document should clearly mention inter-alia the grievance redressal mechanism, name and address of grievance officer, ombudsman to whom complaint can be registered.

Protection of Policy holders interest…………….Contd Under regulation 6(1)Policy holders are given a 15 day free-look period from the date of receipt of policy document, where in the policy holder can review the terms and condition of the policy and opt to return the policy and claim refund. Section 45 of the Insurance Act 1938 - “Policy not to be called in question on ground of mis-statement after two years”. Recent initiatives - Minimum policy term of 5 years - Capping of Surrender Charges - Insurance cover mandatory even on top ups and pension plans - No partial withdrawal in pension plans to ensure planned retirement corpus - Disclosure of commission - Key feature document to give policy details in simplified language. - Monitoring of Corporate agents and referral arrangements - Improvement in referral arrangements to ensure that only licesenced agents / intermediatary interacts with prospective clients at point of sale. - integrated grievance management system Note- Detailed guidance is available for new and existing customers on the Life Insurance Council website www.lifeinscouncil.org

Protection of Policy holders interest Grievance Redressal Mechanism Note:- There are 12 ombudsman Centre's in India. The companies cannot challenge the decision of the ombudsman Register a Complaint with the Toll free number / helpline of the Company Complaint to the Grievance officer of the company Complaint to Council /IRDA / Ombudsman

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