Developments in Indian Life Insurance Industry 02nd September 2011, Jaipur

Agenda Key Indicators of Indian Life Insurance Industry Inclusive Growth of Life Insurance Sector Investment by Life Insurance Companies Expenses of Life Insurance Companies Protection of Policyholders Interest Insurance as a Career 2

Key Indicators of Indian Life Insurance Industry Life Insurance Industry completes a decade of opening up. Currently there are 24 players in the Life Insurance Industry. 21 Insurance companies have JV’s with foreign partners. All the major international players are present in the Indian Insurance market. A high capital intensive industry-Rs. 31,557 Cr deployed. (As of 30th June 2011) Foreign partners have brought in capital of Rs.5053 Crs as FDI. (As of 31st March 2010) India has the largest in-force policies in the world. 3

Key Indicators of Indian Life Insurance Industry……….contd Parameters FY 99-00 FY 08-09 FY 09-10 FY 10-11 (provisional) Till 30th June 2011 Number of players 1 22 23 24 Capital Deployed (Rs. Cr) 5 24,988 28,943 31,437 31,557 Branches 2,048 11,815 12,018 11,465 11,446 Employees (in Lacs) 1.23 2.85 2.67 2.42 2.41 Individual Agents (in Lacs) 7.14 29.37 29.78 26.47 24.27 Source: IRDA, Life Insurance Council (FY 10-11 and June 11 data is provisional)

Key Indicators of Indian Life Insurance Industry ……....contd Parameters FY 99-00 FY 08-09 FY 09-10 FY 10-11 (provisional) Till 30th June 2011 New Business Policies (In Cr) 1.69 5.09 5.32 4.81 0.71 In force Policies (In Cr) 10.14 29.60 30.40 32.54 32.55 New Business Premium (Rs.Cr) 8,299 87,331 1,09,894 1,25,800 18,302 Renewal premiums (Rs. Cr) 17,951 1,34,454 1,55,556 1,60,700 37221 Total Premium (Rs. Cr) 26,250 2,21,785 2,65,450 2,86,500 55,523 Source: IRDA, Life Insurance Council (FY 10-11 and June 11 data is provisional)

Key Indicators of Indian Life Insurance Industry ……..contd Benefits Paid Parameter FY 08-09 FY 09-10 FY 10-11 (provisional) Till 30th June 2011 Total Death Benefit paid(Rs.Cr) 6,125 8,385 10,270 2,459 Total Benefits paid (Rs.Cr) 58,527 95,883 1,41,806 36,800 Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

Key Indicators of Indian Life Insurance Industry ……....contd Rajasthan Specific Data Parameter FY 06-07 FY 07-08 FY 08-09 FY 09-10 Individual New Business Premium (In Cr) 3,238 3,397 2,694 3,372 Individual New Business Policies 21,12,791 20,77,792 21,21,980 26,12,195 Branches 256 544 686 709 Number of Agents 90,770 1,16,467 1,34,268 1,40,545 Source: IRDA

Inclusive Growth of Life Insurance Sector Agenda Inclusive Growth of Life Insurance Sector 8

- 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. (1.55 Crore policies in 2007-08 and 1.26 Crore policies in 2008-09) Cover 25,000 lives in social sector every year. (1.43 Crore in 2007-08 and 1.93 Crore in 2008-09) 72% of the total 11,446 branches of insurance companies are in semi-urban or rural areas (33% in rural areas). No such obligations for Mutual Funds. Source: IRDA, Life Insurance Council

Investment by Life Insurance Companies Agenda Investment by Life Insurance Companies 10

Investment by Life Insurance Companies Rs. Crs Parameter FY 00-01 FY 07-08 FY 08-09 FY 09-10 Central Government Securities 47,512 2,96,687 3,16,010 3,61,520 State Government and other approved securities 5012 85,198 1,07,190 1,36,998 Investment in Infrastructure Sector 24,887 91,283 1,15,369 1,39,710 In FY 2009-10 life insurers invested 4,98,518 crores in Central government, state government and other approved securities. Source: IRDA, Life Insurance Council

Investment by Life Insurance Companies……..contd Pattern of investment Rs. Crs Instruments FY 2009-10 FY 2010-11 Till 30th June 2011 (provisional) Equity 4,46,881 5,06,895 4,96,330 Fixed Income (Debt) 8,10,904 9,52,993 9,77,895 Others 32,161 20,425 30,404 Total 12,89,946 14,80,313 15,04,629 Source: IRDA, Life Insurance Council (FY 10-11 and June 11 data is provisional)

Investment by Life Insurance Companies……..contd Nett Investment in equities by Life companies and FII’s Rs. Crs Instruments FY 2008-09 FY 2009-10 FY 2010-11 Investment by Life Insurance Companies in Equity 55,308 61,125 36,684 Investment by FII’s in Equity (46,701) 1,17,648 1,10,521 Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

Expenses of Life Insurance Companies Agenda Expenses of Life Insurance Companies 14

Expenses of Life Insurance Companies 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. In last five years (i.e. from FY 06-07 to FY 10-11) more than Rs.2,18,000 crores of premium was collected at a commission of less than 2.0% Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

Protection of Policyholders Interest Agenda Protection of Policyholders Interest 16

Protection of Policy holders interest Prevention of Mis-selling 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 policy-holders. 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. Disclosure of Commission to the prospect. 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

Protection of Policy holders interest…………..…….Contd Fair return to policy-holders U/s 17d of Insurance Act 1938, there is a overall capping on expenses of management. Post 01st September 2010 the reduction in nett yield for all ULIP policies with term of:- 10 years or more - not more than 300 bps at maturity. More than 15 years - not more than 225 bps at maturity. This will cap the expenses under each products offered by life companies. Lock in period increased to 5 years Even spread of charges during the lock in period Cap on surrender charges / discontinuance . Annual charges are also capped for various maturities. Interest is paid even on discontinuance fund which is on par with saving bank account. Guarantee of return at maturity for ULIP Pension / Annuity Plans (4.5%)

Protection of Policy holders interest…………..…….Contd Grievance Redressal Policy document should clearly mention inter-alia the grievance redressal mechanism, name and address of grievance officer, ombudsman to whom complaint can be registered. IRDA has set up an Integrated Grievances Redressal system where the complaint is escalated to higher authorities. There are 12 ombudsman Centre's in India which provides resolution to policy-holders at nominal cost. The companies cannot challenge the decision of the ombudsman.

Protection of Policy holders interest…………..…….Contd Insurance a “unique product” Offers savings and protection in a tax efficient way. . Minimum life insurance cover should be 110% of Single Premium for age at entry of 45 years and above and 125 % for age at entry below 45 years. Customizable solution, where the customer can choose his - Protection level Investment horizon Additional Benefits (Riders) Option to allocate assets as per need

Protection of Policy holders interest…………….Contd Transparency and Corporate Governance Public Disclosures Companies are required to disclose detailed financial & statistical information on quarterly /half yearly and yearly basis on their website. Companies are required to publish audited half yearly and annual financial statement in newspapers along with critical ratios. Corporate Governance Companies are required to follow Corporate Governance guidelines which are followed by all listed companies in India.

Life Insurance as a Career Agenda Life Insurance as a Career 22

Life insurance – industry with unlimited scope Right country, right industry and right time Right country India poised to continue on high economic growth trajectory Growing insurable / working age(20-60 years) population Increasing middle class with higher disposable income Right industry Low life insurance coverage No government sponsored social security provides huge potential for growth Professional with domain knowledge from international experts Right time Potential to build career with flexibility Consistent performers have potential to grow Growing awareness for financial security

Agent advisors – a viable career option Flexibility, unlimited potential and contribution to society Flexibility Be your own boss Low start up investment Flexible working hours No retirement age Unlimited potential Unlimited earning potential Enjoy renewal income benefits Contribution to society Help secure dignity of the family Help fulfill life stage goals

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