Life Insurance Marketing in India (B) The Changing Distribution Norms

Background Note Contd...

They felt that the entry of private players would lead to job cuts by the nationalized players to make them more competitive. There were a host of other arguments against these reforms. As a result, the government decided to restrict foreign stake in insurance companies to only 26%, which was well below the 51% required by the Insurance Bill for controlling the management of the company. Though one of LIC's basic objectives was to 'provide insurance cover to all Indians,' insurance penetration in India remained very low. According to reports, only 65 million people were covered by insurance. R N Jha, LIC's former Executive Director, commented in his book, Insurance in India, "Insurance coverage has been extended only to about 25% of the insurable population in 40 years". In other words, the insurance market in India was largely untapped.

In developed countries, per capita insurance premium¹ was much higher than in India. In 1999, per capita insurance premium was only $8 in India while it was $4,800 in Japan, $1000 in Republic of Korea, $887 in Singapore, $823 in Hong Kong and $144 in Malaysia.

In the world market, in terms of gross insurance premium, India's share was only 0.3%, though it had the second highest population in the world. In the same year (1999), Japan's share was 31%, the European Union's 25%, South Africa's 2.3% and Canada's – 1.7%. And in 2001, while the ratio of insurance premium to the Gross Domestic Product (GDP)² was 9% in UK and Japan, and 5% in the US, it was only 1.9% in India.

Attracted by the huge, untapped insurance market in India, many private players entered the market after the Insurance Bill was passed in late 2000. A majority of these were collaborations between an Indian company and a leading MNC insurance/financial services company (Refer Table I). By 2002, with 0.8 million agents all over the country, LIC had an enviable reach.

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1] Total Insurance Premium of a country divided by its total population.

2] GDP is defined as the value, at current market prices, of the total final output produced inside a country during a
given year.

Case Details

Case Code : MKTG027
Themes: Distribution
Case Length : 10 Pages
Period : 2000-2002
Organization : ICICI Prudential, Max New York Life, ETC
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Insurance

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