Have you ever imagined what would the battle between a giant on one end and the rest of the warriors on the other side look like? Today, the Life Insurance Market of India is just like that, and the other warriors are pushing back the giant and masses are hailing these warriors. Read on to know more about this scenario.
In today's scenario of a well-regulated life insurance market under the hawkish eye and strong governance of Insurance Regulatory and Development Authority of India (IRDAI), there are still doubts and worries in the minds of the customers, especially when it comes to trusting the private players with their lives and investments. Let’s take out some time and bust some myths.
The Birth of LIC
The Life Insurance Corporation Act was passed on 19th June 1956, by the Indian Parliament for nationalizing all the private life insurance companies into a single state-owned entity. And thus, Life Insurance Corporation of India was created on 1st September, 1956. Till the year 1999-2000, Life Insurance Corporation (LIC) had a complete monopoly over the Indian life insurance business until the entry of private players.
The Entry of Private Players
The Indian government in the year 2000-2001 lifted all entry restrictions for private sector investors from the Life Insurance Market. Foreign investment in the life insurance market was also allowed. Now, the Indian life insurance market currently has 23 private players fighting a fierce battle for taking the largest possible slice of the growing life insurance market and at the same time maintaining their current hold.
The Report Card
Before we start busting some popular myths, let's look at the past year's report card of the single public player Life Insurance Corporation against the combined strength of 23 Private Players:
Market Share - Life Insurance Corporation (LIC) currently holds 71.81% of the total Indian Life Insurance market as against 28.19% held by all the 23 private players for the year 2016-2017. LIC’s share has decreased from its previous holding of 72.61 % in 2015-16, the private insurers have made a gain of 0.8%. The premium underwritten in the year 2016-17 stands at Rs. 4,18,476.62 crores, from the previous year’s Rs. 3,66,943.23 crores, a clear growth of 14.04%.
Customer Base - During the year 2016-17, all the life insurers of India issued 264.56 lakh new policies. Out of these, Life Insurance Corporation (LIC) alone has issued 201.32 lakh policies (76.1%) on the other hand, all the private life insurers combined together have issued just 63.24 lakh policies (23.9%). However, private players have registered a growth of 2.13% against the previous year, whereas, LIC has registered a decline of 2.02%.
Claim settlement Ratio - The one thing that every individual looks before buying a life insurance plan is the claim settlement reputation of the insurer. The claim settlement ratio for 2016 -17 stands at 98.31% for LIC and 93.72% for the private players combined.
This report card clearly shows that private players are gaining and slowly people are looking up to them to meet their insurance and investment needs. But there still remains doubt in the general population at large, so let’s bust the biggest myth related to trusting private players.
Myth - Private Players are Not Trust Worthy?
Fact - Life Insurance Industry is a highly regulated industry through the Insurance Act, 1938 with Insurance Regulatory and Development Authority of India (IRDAI) supervising and scrutinizing every minute details related to this industry.
Licensing of New Players - In order to start a life insurance company, the applicant has to have a paid-up equity capital of Rs. 100 crores. This ensures that only financially sound and capable players can enter into the market and do this business.
Solvency Ratio - IRDAI also monitors the financial health of all the players i.e. both LIC and private players. It checks, how good or bad each and every insurance company’s financial situation is on the defined solvency norms. By rule, every insurer has to maintain a solvency ratio of 150%, which means insurers have to maintain funds greater than or equal to 1.5 times their liabilities irrespective of their size and profile. Companies like Bajaj Allianz Life has a solvency ratio of 582%, Canara HSBC OBC Life Insurance Co. Ltd. standing at 401%, IDBI Federal Life Insurance Co. Ltd. at 352%, Tata AIA Life Insurance Co. Ltd. - 315%, ICICI Prudential Life Insurance Co. Ltd. with 281% and so on for the quarter ending March 2017.
Legally Binding Contracts - The products introduced by all the players, be it LIC or Private Players are studied in depth and thoroughly evaluated by IRDAI before providing approval for its launch in the market for the people. These plans introduced by all the players are legally binding contracts on both the parties. The insurer has to provide all the benefits stated in the contract and cannot deny the same to the customer.
Financial Strength - The private players also have a good financial standing in the market and customers have shown their trust in them by investing in these companies. And in order to further boost the inflow of foreign investments, government has raised the FDI limit in India’s Insurance industry. The FDI limit has been increased to 49% from its previous limit of 26% bringing it close to Rs. 10,000 crores. On the other hand, private players have also raised capital through the IPO route. A few noted recent IPOs are:
Credibility - Customers have shown their trust in private players and have entrusted them with the duty of managing their funds worth a total of Rs. 66.33 Lakh Crores under the Life and Unit Linked Fund.
This shows that private players are regulated under the same rules as which governs LIC and are in no way sub-standard. Also, their solvency ratio, credibility and financial strength speaks volumes about the level of trust customers and investors have in them.
Myth - Private Players will Reject my Claim, No Matter What!
Fact - It is not that only private life companies will reject your claims, even LIC will reject your claims if they are filed with an intention of doing a fraud and cheating the insurer. However, in order to prevent the insurer from rejecting genuine and legitimate claims without a valid reason, Section 45 of the Insurance Act, 1938 comes into picture.
It guards policyholders of both private companies and LIC from claim rejection on unfair and undue grounds like sharing wrong information. Hence, the insurer has to give a concrete reason for rejecting your claim and it also cannot call in to question your policy on any ground whatsoever after the expiry of three years from the date of the policy issuance or commencement of risk or revival, whichever is later.
Since life insurance works on the Principle of Utmost Good Faith and if we declare all the facts properly, correctly and truly without hiding any material facts, then the insurance company will have to accept your claim and make payments against the same. One should never give any room for any suspicion due to which your valid claim can be rejected.
How to Choose Between LIC and Private Players?
Compare - In order to choose the best product, customers need to then stack features offered under the same plan by all the insurers, be it LIC or private players, check their credibility through the solvency ratio maintained by them, their past track-record and price of the product. Today we have to look at which product is satisfying my needs and can be customized according to my needs.
Innovation - Life Insurance Corporation though has many advantages, it has been lagging behind in the terms of being the trendsetter for innovative products. Private Players have always been first in introducing innovative products like ULIPs, Cancer and Heart Insurance Plans.
Online Presence - In today’s digital world where online sales are increasing exponentially, private players are taking advantage of this platform by launching more and more products on their online platform. Whereas, although LIC has entered the online market space, its portfolio of products on this platform is limited.
Sales Channels - Private Players have been increasingly experimenting and implementing new sales channels like Bancassurance, Point of Sale Agents, Agency Partner Channel (APC), Web Aggregators and others. LIC still continues relying heavily on its traditional approach of sales through agents than focusing more on other channels.
Also, as per the rules laid down for the entire insurance industry, insurance companies whether it is the Life Insurance Corporation or the Private Insurance Companies, they have to stand true to the policy wordings and give all the features of the policies to the insured person or its nominees. Being a responsible person, one must always go through the terms and conditions of the policies and never ever blindly sign on the dotted line.